Exhibit 10.1

SUPPLY AGREEMENT

This Supply Agreement (Agreement) is between Nutri System, Inc. (NS), a
corporation with offices at 200 Welsh Road, Horsham, PA 10944, and Oregon Freeze
Dry, Inc. (Supplier), a corporation with offices at 525 25th Avenue SW, Albany,
OR 97321.

OFD will sell, and NS will buy packaged products that meet NS's specifications,
subject to the terms and conditions of this Agreement.

 

DEFINITIONS

"Authorized Purchases" shall mean ingredients and packaging material purchased
by Supplier to meet NS orders, QVC forecasts and maintain Buffer/Replenishment
requirements. "Laws" means all applicable statutes, ordinances, judicial and
administrative decisions, and the rules and regulations of governmental
agencies, of the United States or any state, territory, county, city,
municipality or other political subdivision in which the Product(s) are
manufactured, marketed, distributed, sold or used including, without limitation,
those relating to environmental and transportation matters and those requiring a
notice or warning. "Product(s)" meaning product line that has been approved by
NS and are being produced by Supplier. "Specifications" means finished product
description provides product description, ingredients, nutrition information,
microbiological requirements, as well as other product parameters.

 

TERM

The term of this Agreement shall commence on August 15, 2005 (Effective Date)
and shall expire on December 31, 2010 unless terminated earlier according to its
terms. This agreement may be renewed as is, or as modified, based on agreement
of both parties. Agreement may be terminated by either party, upon written
notice within 90 days after date of notice. If NS terminates agreement, NS shall
be liable to Supplier for the actual costs for all Authorized Purchases, minus
any value Supplier or NS can obtain, using commercially reasonable efforts, for
the unused portion of the Authorized Purchase. If Supplier discontinues
agreement, Supplier will make reasonable efforts to assist NS locate a
replacement supplier and assist with formula development and production
assistance.

PURCHASE OF RAW MATERIAL & PACKAGING MATERIAL NS authorizes Supplier to purchase
raw material and packaging material as required to meet NS consumption level
estimates and forecasts, and maintain Replenishment/Buffer System. Supplier will
use NS's Consumption level and QVC forecast to determine purchase quantities of
raw and packaging materials. Supplier has authorization to purchase a maximum of
three months of raw and packaging materials. If NS decides to discontinue a
Product, they will provide Supplier with as much notice as possible. NS will be
responsible for all ingredients and packaging materials specific to the
discontinued product, and Supplier will bill NS for these remaining materials.
If NS decides to reformulate a product, NS will be responsible for all
ingredients and packaging materials that are no longer usable due to
reformulation, and Supplier will bill NS for these materials. Upon termination
or expiration of this Agreement for any reason other than Supplier's material
breach of a material term, NS shall be liable to Supplier for the actual costs
to Supplier for all Authorized Purchases, minus any value Supplier or NS can
obtain, using commercially reasonable efforts, for the unused portion of the
Authorized Purchase.

 

4.

PRICE: PAYMENT

 A. Freight Terms are F.O.B. Albany, OR.
 B. OFD will invoice NS on the date of shipment. NS shall pay invoices within
    thirty (30) days of invoice date.
 C. Pricing is based on costs of raw material, packaging materials and
    Supplier's processing costs. Pricing will be reviewed bi-annually, and if
    pricing adjustments are necessary, these adjustments will be made July 1 and
    January 1 of each year.
 D. NS may require product reformulations which may cause pricing to change. In
    this case, Supplier will inform NS of new pricing, and Supplier and NS will
    agree on transition timing for the new product formulation.

     
    
    5. REBATE

    OFD has agreed to a Rebate Program for 2005 based on the following sales
    levels:

     i.   1% rebate for sales between $6,200,000-$7,749,000
     ii.  2% rebate for sales between $7,750,000-$9,299,000
     iii. 3% rebate for sales above $9,300,000
     iv.  The rebate amount will be based on the total dollar value of OFD
          products shipped to NS from January 1-December 31, 2005.
     v.   The 2005 Rebate will be paid to NS by January 31, 2006.
     vi.  Supplier will offer rebate program to NS on future year's sales.
          Future programs will use the previous year's total sales +25% as the
          starting level for the next year's rebate. For example, if 2005 sales
          are $9,000,000, the 2006 rebate will begin at $11,250,000.

 

6. FORECASTING/REPLENISHMENT SYSTEM

 A. NS will provide Supplier with estimated Weekly Consumption Levels and this
    information will determine buffer levels held at Supplier. NS will update
    Weekly Consumption Levels as necessary based on their sales levels changes
    and trends.
 B. NS will provide Supplier with NS inventory report from each warehouse at
    least once per week. NS is making efforts to increase frequency of inventory
    data and will ideally be able to provide it daily in the near future. If
    data is provided to Supplier more frequently, Supplier will have better
    information to make decisions on production quantities and priorities, and
    this will decrease our response time. If possible, NS will provide Supplier
    with direct access to NS inventory of Supplier's items.
 C. When NS expects significant increases, they will provide Supplier with a
    forecast three months in advance of increased shipments.

 

7. WARRANTY; REMEDY LIMITS

Supplier warrants that the Products, at the time of Delivery, shall conform to
the Specifications. Supplier disclaims all other warranties, express or implied,
including warranties of merchantability and fitness for a particular purpose. In
the event that Products do not conform to the Limited Warranty, NS's exclusive
remedy shall either be replacement or a refund of the purchase price, whichever
Supplier elects in its sole discretion. In no event will Supplier be liable for
special, consequential, and incidental damages, even if forewarned of their
likelihood. Supplier's maximum liability arising under and relating to this
Agreement shall not exceed the total amount paid Supplier by NS, irrespective of
the facts and legal theories (including torts) underlying the claims.

 

8. TITLE/RISK OF LOSS

Title to and risk of loss or damage to the Product(s) shall pass from Supplier
to NS when the Product leaves Supplier's Dock.

 

9. CONFIDENTIALITY

All processes, documents, data, plans, material, policies or information,
including, without limitation, the Specifications, pertaining to either party's
business which is obtained by the other party ("receiving party") or furnished
to the receiving party in connection with the receiving party's services or
Product(s) hereunder ("Information") shall be maintained by the receiving party
in strict confidence and shall not be disclosed to any person or entity for any
reason or used by the receiving party except as necessary for it to perform its
obligations hereunder. The terms of this confidentiality provision shall survive
the expiration, termination or cancellation of this Agreement, for a period of
five (5) years. The limitations contained in this provision shall not apply to:

 A. Information which is in the public domain at the time of disclosure; or
 B. Information which becomes part of the public domain after disclosure through
    no fault of the receiving party; or
 C. Information which the receiving party can prove was known by the receiving
    party at the time of disclosure;
 D. Information which the receiving party can prove was supplied to the
    receiving party by a third (3rd) party or was independently developed by the
    receiving party.

At the conclusion of this Agreement, the receiving party shall destroy or return
the Information to the disclosing party, whichever the disclosing party directs.

 

10. ASSIGNMENT AND CHANGE OF CONTROL

Neither party shall assign nor otherwise transfer, in any manner, either by
contract, operation of law or change in control, this Agreement or any of the
rights and obligations hereunder without the other party's prior written
consent.

 

11. ENTIRE AGREEMENT

This Agreement, including its attached exhibits and schedules specified herein,
supersedes all prior or contemporaneous written or oral agreements and
understandings relating to the subject matter thereof. Neither party is entitled
to rely on any representation of any officer, employee or agent of the other
party which is not expressly set forth in this Agreement. Notwithstanding the
foregoing, any confidentiality or non-disclosure agreements executed by the
parties prior to the date of this Agreement shall survive the execution of this
Agreement. In the event of conflict between the terms of any such
confidentiality or non-disclosure agreement and the terms of this Agreement, the
terms of this Agreement shall prevail. This Agreement shall not be amended,
altered, or changed unless in writing signed by the parties hereto.

 

12. FORCE MAJEURE

In the event that either party hereto shall be delayed, hindered in or prevented
from the performance of any act required hereunder by reason of failure of
power, riots, insurrection, war or other reasons of a like nature not the fault
of, or under the reasonable control of, the party delayed in performing work or
doing acts required hereunder, then performance of such acts shall be excused
for the period of the delay and the period for the performance of any such acts
shall be extended for a period equal to the period of such delay, provided such
delayed party gives prompt written notice to the other party of the occurrence
giving rise to the delay; and, provided further, Supplier shall commence
performance promptly upon the cessation of the Force Majeure event.

 

 

 

13. GOVERNING LAW; JURISDICTION

Governing Law. This Agreement shall be governed and construed in accordance with
the laws of the State of Oregon, including all matters of construction,
validity, enforcement and performance, without regard to its conflict of law
provisions. Jurisdiction. The parties hereby consent to the jurisdiction of the
Oregon State and Federal courts for all purposes.

 

14. MEDIATION

The parties will attempt in good faith to promptly resolve any dispute arising
out of this Agreement by negotiations between representatives who have authority
to settle the controversy. If unsuccessful, the parties shall engage in
non-binding third-party mediation, with fees and expenses of such mediation
apportioned equally to each side. Any dispute not resolved by negotiation or
mediation may then be submitted to a court of competent jurisdiction in
accordance with the terms of this Agreement.

 

15. NOTICE

All notices, requests and other communications to any party hereunder shall be
in writing and shall be given:

If to Supplier - Oregon Freeze Dry, Inc.

Attn: Pam Bentley, Market Manager, Retail & Private Label

PO Box 1048

Albany, OR 97321

If to NS - Nutri System

Attn: David Vone,

Senior Director of Procurement, Supply Chain

200 Welsh Road

Horsham, PA 19044

 

16. SUCCESSORS AND ASSIGNS

Except as limited by the Assignment provisions hereof, this Agreement, including
its terms and provisions shall be binding upon and inure to the benefit of the
parties hereto and their respective partners, legal representatives, successors
and assigns.

 

17. SEVERABILITY

Each provision of this Agreement is severable and if any provision shall be
finally determined to be invalid, illegal or unenforceable ("invalid") in any
jurisdiction, the remaining provisions shall not be affected thereby, nor shall
said provision be invalid in any other jurisdiction.

 

18. AUTHORIZATION; VALIDITY

In witness whereof, the parties hereto have duly executed this Agreement as of
the day and year first above written:

Oregon Freeze Dry, Inc.

Nutri System, Inc.

By: _/s/ James Merryman___________ By: _/s/ Bruce Blair________________

Print Name: James Merryman Print Name: Bruce Blair

Title: Senior Vice President, Food Division Title: CIO/Senior Vice President,

Operations

Date: ________9/16/05_____________ Date:__________9/16/05___________