STATEMENT OF UNDERSTANDING
REGARDING PET FOOD JOINT VENTURE
1. Parties. The parties to this Agreement are The Andersons, 0000
Xxxxxx Xxxxx, Xxxxxx, Xxxx 00000, a limited partnership organized under the laws
of the State of Ohio, and Xxxxxxx Milling Company, P.O. Box 8500, 000 X. Xxxxx
Xxxxxx, Xxxxxxx, Xxxxxxxxx 00000, x Xxxxxxxxx corporation. The Andersons will be
referred to as "Andersons" when individual reference is made. Xxxxxxx Milling
Company will be referred to as "Xxxxxxx" when individual reference is made.
2. Supplements. This document summarizes the result of months of
discussions between the parties. The parties anticipate that this Agreement may
be modified and supplemented in the future. Such changes and additions will be
in writing and will be prepared and executed as supplements to this Statement of
Understanding.
3. Representations. Each party to this Agreement represents and
warrants to the other that it is completely authorized to enter into this
Agreement. Xxxxxxxxx and Xxxxxxx will at all times provide the other with all
information relevant to the venture contemplated hereby. Each party to this
Agreement also represents and warrants to the other that there are no suits or
proceedings pending or threatened against it, other than litigation that is
immaterial to the respective parties and the Venture.
4. Businesses of Andersons and Xxxxxxx. Andersons is an agribusiness
with, among other things, terminal and country grain elevators, agricultural and
lawn fertilizer plants, retail stores, cob plants and a feed mill. Its main
facility is located along Illinois Avenue in Maumee, Ohio. Xxxxxxx is an
agribusiness with, among other things, flour xxxxx, food production and
marketing concerns, and feed and pet food plants at various locations in the
midwest.
5. Formation of Joint Venture; Purpose; Other Activities. Xxxxxxx
and Xxxxxxxxx hereby agree to form a joint venture (the "Venture") for the
purpose of engaging in the manufacturing, marketing and production of pet foods
at a feed mill (the "Feed Mill") owned by Andersons and located along Illinois
Avenue, Maumee, Ohio. Additional products and activities may be added as may be
agreed from time to time between Andersons and Xxxxxxx. It is recognized that
both Xxxxxxxxx and Xxxxxxx have separate businesses which are intended to
co-exist with the Venture. Some of these separate businesses have and will
compete with the activity of the Venture. Said competitive activities are hereby
approved so long as there is no deliberate intent to diminish the profitability
of the Venture.
6. Xxxxxxxxx' Purchase of Additional Equipment. The Feed Mill is
owned by Xxxxxxxxx and needs certain improvements. Andersons will, at its sole
expense, make the repairs and install the additional equipment and improvements
specifically listed in Schedule A attached hereto and made a part hereof, even
if the cost thereof exceeds the estimates contained in Schedule A. Such repairs
and additions will be the property of Xxxxxxxxx. Other acquisitions of equipment
by or for the use of the Venture shall be made in accordance with paragraph 14.
7. Purchase of Feed Mill Warehouse. A new warehouse is needed by the
Venture. The parties agree to share equally in the cost of constructing,
equipping and maintaining a warehouse of approximately 20,000 square feet to be
located on Xxxxxxxxx' property in close proximity to the Feed Mill. Said
warehouse building shall be owned by Xxxxxxxxx and Xxxxxxx as tenants in common
and shall be available to the Venture for its operations.
8. Production of Certain Products for Xxxxxxx and Xxxxxxxxx. Xxxxxxx
agrees that, while this Agreement remains in effect, it will use its best
efforts to produce orders from customers for at least 8,350 tons of pet food for
production at the Feed Mill, so long as such pet food can be produced most
economically at the Feed Mill. Similarly, Xxxxxxxxx agrees that, while this
Agreement remains in effect, it will use its best efforts to have all of its
production requirements for pet food produced by the Venture and to purchase
such pet food from the Venture; provided, however, that nothing in this
Agreement shall prohibit Andersons from selling competing pet food products in
its retail stores. When the additional equipment purchases contemplated by
paragraph 6 hereof have been made, the Feed Mill will have a total operating
capacity for pet food of approximately 30,000 tons per year. Xxxxxxx agrees to
use its best efforts to cause to be produced and sold total pet food tonnage in
quantities sufficient to utilize the Feed Mill's stated capacity and to make the
Venture mutually profitable.
9. Trademarks, Etc. The Venture will operate under the name(s),
trademark(s), patent(s), copyright(s), license(s) and other registrations
presently being used by the parties, or such names, trademarks, patents,
copyrights, licenses and other registrations as may be agreed and acquired from
time to time. Each party agrees to comply with all applicable laws, rules and
regulations and to indemnify and hold the other harmless from its breach hereof.
Each party further agrees to protect the other's trademarks, patents,
copyrights, licenses and other registrations from the misuse thereof. Neither
party shall have the right to use any trademark, patent, copyright, license or
other registration
-2-
the Venture acquires or uses or any name the Venture chooses to operate under in
connection with any other business or other enterprise without the express
written consent of the other party, however, regardless of whether the Venture
is or is not in business.
10. Mailing Address. The mailing address for the Venture will be:
The Andersons, P.O. Box 119, Maumee, Ohio 43537, Attention: Xxx Xxxxxxxx.
11. Services; Employees.
(a) Subject to the authority of the Management Committee, and
subject to the provisions of this Agreement regarding reimbursement of
expenses, Xxxxxxx agrees to provide the following services to the Venture,
with the nature and extent of such services to be determined in Xxxxxxx'x
discretion (in light of, among other things, the scope and activities of
the Venture): research and product development; customer account
development; advertising, promotional literature and general
merchandising; receiving orders and billing customers; routine accounting
services (not including preparation of annual financial statements);
collection of accounts receivable; consulting services regarding
technical, marketing, quality control and production aspects of the
Venture's business, including a full-time, on-site Quality Assurance
Manager (the "Quality Assurance Manager"). Subject to the provisions of
this Agreement regarding reimbursement of expenses, Xxxxxxxxx agrees to
provide the following services to the Venture: the use of the Feed Mill;
the use of all equipment owned by Xxxxxxxxx necessary for the production
of pet food; the use of Xxxxxxxxx' employees engaged in the production of
pet food and of other employees engaged in support and management services
relating to Xxxxxxxxx' pet food operation. All quality assurance work,
including but not limited to, all laboratory work, sampling, systems,
inventory control, and records maintenance shall be the responsibility of
Xxxxxxx and shall be in conformity with standards established or approved
by the Management Committee.
(b) The parties acknowledge and agree that any Andersons' employees
who perform services for the Venture shall remain employees of Xxxxxxxxx,
and Xxxxxxxxx shall remain solely responsible for establishing the terms
and conditions of their employment, including hiring, discipline and
discharge. Xxxxxxx Xxxxxxx nor any of its employees (including, without
limitation, the Quality Assurance Manager), shall have any responsibility
for the development or approval of personnel policies with respect to
Xxxxxxxxx' employees performing services for the Venture. Xxxxxxxxx and
Xxxxxxx remain
-3-
solely liable for the payment of compensation or any employment benefits
to their respective employees and for the payment of any taxes, charges or
assessments payable with respect to their respective employees, including
without limitation any such payments made to governmental agencies or
bodies. Neither the Venture nor Xxxxxxx shall be considered a successor
employer of Xxxxxxxxx' employees, and neither the Venture nor Xxxxxxxxx
shall be considered a successor employer of Xxxxxxx'x employees.
12. Quality Assurance Manager. The Quality Assurance Manager shall,
in general, be available to Xxxxxxxxx at the Feed Mill for consultation in
connection with Xxxxxxxxx' production of pet food for the Venture. In
particular, the Quality Assurance Manager will be responsible for approving
utilization of the time of Xxxxxxxxx' employees in the Venture and for
consulting with Xxxxxxxxx regarding the technical aspects of the production of
pet food by the Venture, especially with respect to the operation and
utilization of equipment and to the quality of and ingredients for such pet
food. The Quality Assurance Manager shall be an employee of Xxxxxxx and a
consultant to Xxxxxxxxx.
13. Profits and Losses; Distributions. Each of Xxxxxxx and Andersons
shall, as a member of the Venture, have a fifty percent (50%) interest in and to
the Venture. The net profits or net losses of the Venture shall be credited or
charged, as the case may be, equally to each of them. If Xxxxxxxxx or Xxxxxxx
shall pay any expense properly allocable or chargeable to the Venture and shall
not be reimbursed by the Venture, said unreimbursed expense shall be shared by
the other party in the same proportion as profits and losses are shared. The
earnings and profits of the Venture for the purpose of determining the share
therein of each of Xxxxxxx and Xxxxxxxxx shall be determined in accordance with
generally accepted accounting principles. A separate income account shall be
maintained for each of Xxxxxxx and Andersons to which shall be credited or
debited, as the case may be, their respective shares of the net profits or net
losses of the Venture. Net profits and net losses shall be credited or debited,
as the case may be, to the separate income accounts of Xxxxxxx and Xxxxxxxxx as
soon as practicable after the end of each month during the term of the Venture.
Cash distributions to Xxxxxxx and Xxxxxxxxx will be made in the discretion of
the Management Committee referred to in paragraph 15.
14. Additional Capital Expenditures; Working Capital.
(a) Except as otherwise provided in this Agreement for equipment
described in Schedules A and B hereto, the cost of all capital
expenditures for equipment used in the business of the Venture shall be
shared equally by Xxxxxxx and Xxxxxxxxx. All capital expenditures for such
equipment
-4-
shall be approved by the Management Committee, except that the Quality
Assurance Manager and Xxxxxxxxx' Feed Mill Production Manager may jointly
authorize capital expenditures for equipment used by the Venture costing
not more than $1,000 (or $10,000 with the prior joint approval of
Xxxxxxx'x Pet Food General Manager and Xxxxxxxxx' Management Committee
Representative with respect to each purchase. The Management Committee
shall, for the purposes of this Agreement, determine which expenditures
are "capital" expenditures. All equipment so acquired shall be owned by
Xxxxxxxxx and Xxxxxxx as tenants in common and shall be available to the
Venture for its operations.
(b) The cost of all capital expenditures for repairs or improvements
to the Feed Mill and the Feed Mill warehouse shall be shared by Xxxxxxx
and Xxxxxxxxx in such manner as the Management Committee shall determine.
All such expenditures shall be approved by the Management Committee.
(c) Any advances to the Venture for working capital approved by the
Management Committee shall be shared equally by Xxxxxxx and Xxxxxxxxx.
15. Management Committee. Policy and management decisions shall be
made by a committee (the "Management Committee") consisting of one
representative of each of Xxxxxxx and Xxxxxxxxx. Each party will designate a
representative who will serve on the Management Committee and one alternate who
shall act in the absence of such representative. Until further notice, these
representatives will be Xxx Xxxxx with Xxx Xxxxxxxx as alternate, for Xxxxxxxxx,
and Xxxxxxx X. Xxxxxx with Xxxx X. Xxxxxxxxxx as alternate, for Xxxxxxx. Each
party may, by written notice to the other, designate a substitute representative
or alternate.
16. Allocations of Expenses.
(a) Except as otherwise specifically provided in this Agreement,
Xxxxxxx and Xxxxxxxxx shall be reimbursed by the Venture for expenses
incurred only as approved by the Management Committee.
(b) As to the specific items set forth in Schedules B and C attached
hereto and incorporated herein, allocations will be made to the Venture
consistent with the terms in said Schedules.
(c) The Quality Assurance Manager and Xxxxxxxxx' Feed Mill
Production Manager shall have joint authority to approve all routine,
recurring expenses charged to the Venture.
-5-
(d) Notwithstanding any other provision of this Agreement, Xxxxxxx
and Xxxxxxxxx agree that if Xxxxxxxxx discontinues or curtails its
livestock feed operation in the Feed Mill, the allocation of expenses
provided for herein shall not be affected, which shall mean, without
limiting the generality of the foregoing, that any inefficiencies in
operation of the Feed Mill resulting from such action shall not increase
the expenses allocated to the Venture; provided, however, that after any
such discontinuation or curtailment, allocations of expenses to the
Venture otherwise based upon the relative tonnage produced by said
livestock feed operation and the Venture shall be made in such manner as
the Management Committee shall determine, but in no event shall more than
50% of the total of such expenses be allocated to the Venture.
17. Purchase of Inventories, Etc. The parties contemplate that from
time to time the Venture will acquire from Xxxxxxx or Xxxxxxxxx inventories and
supplies. These acquisitions may be at original cost, market, or some other
valuation, whichever is deemed appropriate in the particular circumstances. The
goal will be to follow consistent practices without giving any special advantage
to the Venture, to Xxxxxxxxx, or to Xxxxxxx. Affiliates of Xxxxxxxxx and Xxxxxxx
will be dealt with as if they were the equivalent of Xxxxxxxxx and Xxxxxxx.
Recognizing that the definition of cost is frequently complex, the general goal
will be to achieve total actual cost without the inclusion of arbitrary markup.
Until further agreement of the parties, the charge to the Venture for ingredient
costs during any calendar month shall be the market price of such ingredient,
F.O.B. Maumee, on the Wednesday of the previous month that falls between the
18th and 24th of that month. Such ingredient costs shall be adjusted for a 5%
shrinkage factor. Bags shall be actual cost, F.0.X. Xxxxxx, adjusted for a 1%
shrinkage factor. Andersons shall be reimbursed weekly for ingredient costs
based upon the amount shipped. Any raw materials and inventory will be the
property of Xxxxxxxxx until shipped by the Venture.
18. Reputations of Parties. Xxxxxxxxx and Xxxxxxx both cherish their
reputations in the world at large and internally. The Venture will use every
reasonable means to respect and enhance those reputations.
19. Tax Status; Accounting; Bank Account. The Venture will function
as a partnership for tax purposes. Its fiscal and tax year will be the calendar
year or such other year as shall be approved by the Management Committee. Such
certified public accountant as is selected by the Management Committee will be
asked to prepare an annual certified audit and do such other work for the
Venture as may be agreed upon from time to time. Xxxxxxx shall be responsible
for maintaining books of account of the
-6-
Venture and shall prepare and distribute monthly unaudited operating
statements. Xxxxxxx shall maintain a separate bank account into which all
funds of the Venture shall be deposited and Xxxxxxx shall be responsible for
making disbursements of such funds for expenses of the Venture.
20. Indemnification. Neither Xxxxxxx nor Xxxxxxxxx shall, by virtue
of this Agreement, be deemed to have assumed any personal liability of any kind
or nature whatsoever arising with respect to activities or products of the other
not undertaken as part of the Venture; provided, however, that neither the other
party to this Agreement nor the Venture shall be liable for workers'
compensation or employment-related damages or action relating to the employees
of either party to this Agreement. The Venture, or one or both of the parties to
this Agreement, will obtain and maintain such insurance coverage as the
Management Committee shall determine is adequate in connection with the
activities of the Venture.
21. Composition of Xxxxxxxxx. Xxxxxxx understands that from time to
time the composition of Andersons changes. For purposes of this Agreement, such
succeeding partnerships operating as The Andersons shall be deemed to be the
same entity as the one executing this Agreement, provided that the net worth of
such succeeding partnerships is not materially less than the net worth of the
entity executing this Agreement.
22. Trade Secrets, Etc. Trade secrets, customer lists, and other
similar knowledge coming into the hands of Xxxxxxxxx and Xxxxxxx as a result of
the Venture may be used by the Venture. However, both Xxxxxxxxx and Xxxxxxx
agree that no other advantage will be taken from said knowledge, nor will the
same be used by either Xxxxxxxxx or Xxxxxxx in their separate business
activities at any time except by specific written agreement of the parties.
23. Governing Law. This Agreement shall be interpreted in accordance
with the laws of the State of Ohio and, to the extent applicable, by the Uniform
Partnership Act as adopted from time to time by the State of Ohio.
24. Xxxxxxxxx' Livestock Feed Operation. The parties recognize that
Xxxxxxxxx has been producing and selling certain livestock feed from the Feed
Mill. Andersons may continue to manufacture and sell livestock feed from the
Feed Mill (now anticipated to be approximately 36,000 tons per year) and the
parties agree to cooperate in the scheduling so that the production of pet foods
and livestock feed is beneficial to the Venture and to Xxxxxxxxx, respectively.
-7-
25. Purchase Option for Xxxxxxx. Xxxxxxxxx hereby grants to Xxxxxxx
the exclusive right and option to purchase the property described in Exhibit 1
attached hereto and made a part hereof on the terms and conditions set forth in
said Exhibit 1. Andersons covenants and warrants to Xxxxxxx that it is, or at
the time of closing will be, the fee owner of and have good and marketable title
to all real property described in Exhibit 1, and have good title to all personal
property described in Exhibit 1. Xxxxxxxxx will, at the request of Xxxxxxx,
execute a memorandum of the terms of this option, excluding the price, if
possible, which memorandum shall be in recordable form and shall, at Xxxxxxx'x
option, be placed of record; provided, however, that if Xxxxxxx requests that
the memorandum be recorded, Xxxxxxx shall bear the expense of any property
survey required for obtaining a legal description of the property covered by
Xxxxxxx'x option. Xxxxxxx agrees to release said memorandum of record upon the
termination of the Venture.
26. Assignment; Successors and Assigns. Andersons is given the
specific right to transfer or assign its interest in the realty and equipment in
the Feed Mill to another entity provided that: Xxxxxxxxx does not assign its
responsibilities under this Agreement without the express written consent of
Xxxxxxx; Xxxxxxx is reasonably satisfied with the financial stability of the
transferee; and such transferee specifically agrees to be bound by the terms of
this Agreement. Each and every provision in this Agreement shall survive such
transfer or assignment and remain in full force and effect. This Agreement shall
inure to the benefit of the parties hereto, their successors and assigns. Except
as otherwise provided in this paragraph 26, neither party may make any
assignment of its rights or obligations hereunder without the written consent of
the other party.
27. Other Instruments, Etc. The parties agree that they will perform
all other acts and execute and deliver all of the documents as may be necessary
or appropriate to carry out the intent and purposes of this Agreement. The
parties recognize that many issues will have to be resolved after the date of
this Agreement. The parties will use maximum diligence to voluntarily and
appropriately resolve all future concerns of this kind.
28. Arbitration. It is agreed nevertheless that all unresolved
disputes or controversies arising out of or in relation to this Agreement shall
be determined and settled by arbitration at a mutually convenient location in
accordance with the Commercial Rules of the American Arbitration Association in
effect at the time of said controversy, and judgment upon any award rendered by
the arbitrator(s) may be entered in any court of competent jurisdiction. The
arbitrator(s) may decide all collateral issues such as whether this paragraph 28
is applicable. The expenses of the arbitration shall be borne by the Venture,
provided that each
-8-
of Xxxxxxxxx and Xxxxxxx shall pay for and bear the costs of its own experts,
evidence, and legal counsel. Whenever any action is required to be taken under
this Agreement within a specified period of time and the taking of such action
is materially affected by a matter submitted to arbitration, such period shall
automatically be extended for the number of days plus ten that are taken for the
determination of that matter by the arbitrator(s).
29. Termination. This Agreement and the Venture shall terminate as
follows:
(a) by the mutual written consent of Xxxxxxx and Xxxxxxxxx;
(b) at the option of Xxxxxxx or Xxxxxxxxx as of the end of any
calendar year commencing after December 31, 1985, by such party giving
written notice of such termination to the other no later than July 1 of
such year; and
(c) as of the date, if any, on which there occurs a closing of a
purchase of assets by Xxxxxxx pursuant to the exercise of the option
granted under paragraph 25 of this Agreement.
Unless this Agreement and the Venture are terminated as indicated above or
otherwise by operation of law, this Agreement and the Venture shall continue
indefinitely through succeeding calendar years. Nothing contained in this
paragraph shall affect or impair any rights or obligations arising prior to or
at the time of the termination of this Agreement, or which may arise by an event
causing the termination of this Agreement and the Venture.
30. Liquidation and Dissolution. Upon termination of the Venture,
Xxxxxxx and Xxxxxxxxx shall proceed to wind up and liquidate the affairs and
assets of the Venture. The proceeds of such liquidation shall be applied and
distributed in the following order of priority:
(i) to the payment of debts and liabilities of the Venture and
expenses of liquidation;
(ii) to the setting up of any reserves which the Management
Committee shall deem reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Venture arising out of or in connection
with the Venture; said reserves shall be paid over by Xxxxxxx and
Xxxxxxxxx to a mutually designated party, as escrow agent, to be held for
the purpose of disbursing such reserves in payment of any of the
aforementioned contingencies; at the expiration of such period of time as
Xxxxxxx and Xxxxxxxxx shall xxxx mutually
-9-
advisable, said escrow agent shall distribute the balance thereof
remaining in the manner set forth in subparagraph (iii) hereof; and
(iii) any balance remaining after the application of subparagraphs
(i) and (ii), equally to Xxxxxxx and Xxxxxxxxx.
31. Purchase of Xxxxxxx'x Assets by Xxxxxxxxx. If termination and
dissolution of the Venture occurs other than as a result of Xxxxxxx'x exercise
of its purchase option, Andersons shall, within 90 days of such termination,
purchase from Xxxxxxx:
(a) Xxxxxxx'x interest in the feed mill warehouse built pursuant to
paragraph 7 hereof, at a purchase price equal to the book value (original
cost less depreciation) of Xxxxxxx'x interest in such warehouse; and
(b) Xxxxxxx'x interest in any equipment purchased by Xxxxxxx and
Xxxxxxxxx pursuant to paragraph 14 hereof, at a purchase price equal to
the book value (original cost less depreciation) of Xxxxxxx'x interest in
such equipment.
The purchase price calculated as set forth above shall be paid to Xxxxxxx in the
form of a bank cashier's check. Upon payment of such amount, Xxxxxxx shall
deliver to Xxxxxxxxx such instruments of transfer as shall be reasonably
requested by Xxxxxxxxx.
32. Notices. Any notice given pursuant to this Agreement shall be in
writing and shall be deemed to have been duly given if personally served or if
by mail by depositing a copy thereof in a registered or certified envelope,
postage prepaid, addressed to the other party at its address hereinabove set
forth or at such other address as the other party shall have theretofore
designated. The date of giving such notice shall be the date received, if served
personally, or the date on which the envelope is delivered to the other party as
indicated by the return receipt.
33. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be an original, but all of which taken
together shall be one document.
-10-
IN WITNESS WHEREOF, the parties have executed this Agreement in
duplicate copy as of the 1st day of June, 1984. The effective date of the
Venture shall be June 1, 1984.
THE ANDERSONS
By /s/ Xxxxxxx X. Xxxxxxxx
--------------------------------------
General Partner
XXXXXXX MILLING COMPANY
By /s/ [ILLEGIBLE]
--------------------------------------
Its President Acting in Behalf
of Its Board of Directors and
Within the Authority of Its
Articles of Incorporation
-11-
SCHEDULE A
Improvements to be provided by The Andersons:
1. Install a flavor system to allow for additional liquid and dry
coatings on dog food and cat food.
- Estimate of Maximum Requirement: $120,000
2. Modify and/or install additional screening and grinding equipment
just prior to pet food extrusion.
- Estimate of Maximum Requirement: $40,000
3. Install additional conveyance equipment in the pet food packaging
area to allow for simultaneous production of two different products.
- Estimate of Maximum Requirement: $36,000
4. Modification and renovation of existing pet food warehouse to reduce
risk of product contamination.
- Estimate of Maximum Requirement: $30,000
5. Purchase Technicon Product Analyzer.
- Estimate of Maximum Requirement: $36,000
6. Install additional stretch wrap equipment for small size packing
line.
- Estimate of Maximum Requirement: $7,000
7. Modify liquid storage tanks to allow for use of poultry fat in
addition to animal fat presently being used.
- Estimate of Maximum Requirement: $1,000
SCHEDULE B
XXXXXXXXX - XXXXXXX VENTURE
ALLOCATIONS TO PRODUCTION
1. Gas
A. 100% of the 2" gas line feeding the pet food drier will be charged
to the joint venture.
B. 73% of the 3" gas line that feeds both pet food and feed will be
charged to the joint venture.
C. On the 3" line there will be a maximum charge per ton of $3.40 plus
any percent increase in fuel cost with the base cost of $5.54/MCF,
which is the current cost of gas to the Andersons. This was based on
usage over the calendar year 1983 and the tons for the same time
period. We used standard cost at other feed xxxxx to cross check the
Feed and Pet Food allocations.
2. Electric
A. 50% of the electric cost will be charged to the venture for the pet
food production: 50% to The Andersons for its livestock production.
B. B. A maximum charge per ton to the venture of $2.88 plus any percent
increase in electric cost with a base cost of $.0643 per KWH. Again,
this was based on standard cost at other feed xxxxx to cross check
the Feed and Pet Food allocations.
3. Water and Sewer
A. 85% of the water and sewer cost will be charged to the joint venture. Pet
Food is by far the major user of the water and sewer.
4. Management
A. 30% of Xxxxxxxxx' Feed Division Production Manager wages will be
charged to the joint venture.
B. 100% of Xxxxxxx'x on site Q.A. Manager will be charged to the joint
venture.
- 1 -
5. Equipment Repair Costs
A. All repair expenses related to materials for pet food equipment
solely, will be charged 100% to the venture. Examples would be
extruder repairs and pet food packaging equipment repairs.
B. All repair materials for equipment common to both operations
(Livestock Feed and Pet Food) will be charged on an allocated
percentage basis determined from tonnage produced in each of the two
areas. Examples would be receiving repairs and repairs to boilers
and air compressors. (*)
6. Building and Grounds Maintenance and Repair
A. Repair and maintenance service to the building and to the related
property will be charged directly to the area of operation, if
possible. For example, repairs to the overhead door in the livestock
warehouse will be charged 100% to The Andersons. A door repair in
the pet food warehouse would be charged 100% to the venture.
B. Building maintenance and services that are not specifically related
to either department will be charged to the venture on an allocated
percentage basis determined from the tonnage produced in each area.
Snow removal expenses for plowing the parking lot, trash removal
charges and plant rodent control services would fall into this
category. (*)
7. Real and Personal Property Tax - Personal Property Taxes charged to the
venture will be calculated as follows:
A. Tax on finished pet food only: viz. at an average inventory tons of
700 ton and an average cost per ton of $225.
B. Average Cost x Average Ton x 34% x Tax Rate =Annual Tax
viz., $225 x 700 x 34% x .05885 = $3,151
This calculation was arrived at through telecon with Xxxx Xxxx.
C. Real Estate Taxes for 1983 were $11,380 per Xxxxxxxx computer
report #402 dated January 19, 1984.
8. Labor Cost/Ton - Labor costs for mixing, receiving and maintenance.
A. Mixing and receiving - Costs/ton was calculated as follows:
* In no event shall the Venture be charged with more than 50% of such costs.
Average Ton/Day = 24,000 Annual Tonnage / 252 Days = 95 Tons
Average Ton/Hour = 15 Ton
Wage Rate $11.00
95 Ton / 15 Ton = $6.35 Hour/Day x $11 = $69.85
$69.85 x 252 Days = $17,602/Year
$17,602 / 2,400 Ton = $0.73
B. Maintenance - Costs to the venture will be charged by actual hours
spent on maintenance determined from the work order at an hourly
labor rate.
9. Toledo Scale Computer
A. All maintenance contract agreements for servicing and maintaining
the Toledo Scale Computer and related hardware will be excluded from
venture expenses.
B. All equipment in the batching room of the feed mill would normally
be covered by maintenance contract not charged to the venture.
C. Substitution of computerized batching equipment at some point in the
future will be at the expense of The Andersons. (*)
10. The parties agree to prepare a budget for the venture each year and to
prepare an annual management letter which will define general and
administrative charges to be made to the venture.
* Replacement equipment shall have equal or greater capacity than present
equipment.
SCHEDULE C
April 24, 1984 COST PROJECTIONS FOR XXXXXXX - XXXXXXXX PET FOOD JOINT VENTURE
for first 12 months of operations
---------------------------------
GENERAL AND ADMINISTRATIVE
--------------------------
X. XXXXXXXX G & A COSTS - NON-PLANT
3000 DATA PROCESSING CHARGE FOR COMPUTER TO KEEP TRACK OF MANUFACTURING EXPENSES.
1000 TELEPHONE MAIN OFFICE LONG DISTANCE CALLS.
4000 SAFETY & SECURITY FIRE ALARMS & SPRINKLER SYSTEM CHECKS AT THE PLANT, ETC.
1000 MAIL SERVICE TO HANDLE INCOMING, OUTGOING, AND INTER-OFFICE MAIL.
3000 PAYROLL COSTS BIWEEKLY CHECK PREPARATION AND WITHHOLDING FILINGS FOR PLANT EMPLOYEES.
4000 GENERAL ACCOUNTING COST ACCOUNTING BY DEPARTMENT AT PLANT. FEED CHARGED $27,000 IN TOTAL.
6000 ACCOUNTS PAYABLE PROCESSING PURCHASE ORDERS AND CHECKS. FEED CHARGED $15,00 IN TOTAL.
3000 TRAFFIC GET RATE QUOTES AND SET UP HAULERS.
6000 XXXXXX CARS $3000 LEASE FEE ON 1 CAR FOR A YEAR; $3000 LABOR TO SWITCH CARS.
15000 INGREDIENT PURCHASING 1/2 SALARY & BENEFIT COST OF XXXXXX XXXX.
8000 DIVISION ACCOUNTING 1/3 SALARY & BENEFIT COST OF XXXXX XXXXXX.
8000 MISCELLANEOUS TRAVEL COSTS, ETC.
3000 MISCELLANEOUS
65000 TOTAL XXXXXXXX G & A
SELLING EXPENSES
43000 SALESMAN COST WAGES AND BENEFITS.
18960 SALESMAN TRAVEL FIXED AUTO - $3432; AUTO OPERATING - $3180; EXTRA AUTO
DEPRECIATION- $960; TRAVEL EXP. - $7200; ENTERTAINMENT -
$1200; TELEPHONE - $2220; MISCELLANEOUS - $768
6720 SALES MGR. TRAVEL 8 TRIPS @ $840 PER TRIP.
6800 COMMISSIONS FOR XXXXXXX FEED OPERATIONS SALESMEN. 1700 TONS AT AN
AVERAGE COST OF $4.00 PER TON.
10000 COMMISSIONS FOR ANDERSONS FEED OPERATIONS SALESMEN ON PARTNERS PLUS. 2500
TONS AT AN AVERAGE COST OF $4.00 PER TON.
4800 CUSTOMER TRAVEL TO ATTEND PLANT TOURS AND MEETINGS.
90280 TOTAL SELLING EXPENSE
X. XXXXXXXX G & A COSTS - MAUMEE PLANT
26995 WAGES & BENEFITS 1/5 XXX XXXXXX AND 1/2 OF DEE. XXX TO HANDLE COMPUTER ENTRIES AND SECRETARIAL.
4200 TELEPHONE BILLS FOR PLANT EXTENSIONS.
1500 COMPUTER $125 MONTHLY CHARGE FOR TERMINAL CONNECTED TO MANKATO FOR PROCESSING
1200 AUTO OPERATING EXP. CHARGE FOR MILEAGE ON PLANT ERRANDS.
1200 GENERAL TRAVEL TRAVEL EXPENSE FOR PLANT PERSONNEL.
1200 POSTAGE COSTS FOR MAILING LAB SAMPLES TO MANKATO.
720 SUPPLIES OPERATING SUPPLIES FOR PLANT OFFICE.
720 UPS UPS CHARGES FOR SENDING CUSTOMER SAMPLES, ETC.
600 SUPPLIES OFFICE SUPPLIES FOR PLANT OFFICE.
600 REPAIRS REPAIRS OF TYPEWRITERS, COPY MACHINES, ETC. IN PLANT OFFICE
600 MISCELLANEOUS MISC. ITEMS FOR PLANT EMPLOYEES SUCH AS FLOWERS, CHRISTMAS PARTY, ETC.
480 MEETINGS & CONVENTION MEETINGS & SEMINARS FOR PLANT SUPERVISORS.
240 DUES & SUBSCRIPTIONS FOR ITEMS SENT TO THE PLANT.
40255 TOTAL MAUMEE PLANT G & A
page 1
X. XXXXXXX OFFICE G & A - OPERATING
6900 WAGES & BENEFITS 1/4 COST OF XXXX XXXXXXXXXX, XXXX XXXXXXXX, XXX XXXXXXXX, XXXX XXXXXXX, AND
XXXXX XXXXXX; PLUS 1 CUSTOMER SERVICE REP. TO PROCESS ORDERS.
16800 TRAVEL EXPENSES ON INDIVIDUALS ABOVE EXCEPT FOR XXXX XXXXXXXX, WHOSE TRAVEL IS BUDGETED AS A
SELLING EXPENSE. 24 TOTAL TRIPS AT AN AVERAGE COST OF $700 PER TRIP.
12000 LAB FEES FOR TESTS ON FINISHED PET FOOD PRODUCTS AT MANKATO LAB.
3000 RESEARCH EXPENSE RESEARCH CONDUCTED AT OUTSIDE TESTING FACILITIES. 1/4 TOTAL ANNUAL COST.
4800 TELEPHONE INCOMING AND OUTGOING WATS LINES AT MANKATO FOR COMMUNICATION WITH CUSTOMERS,
THE PLANT, BAG SUPPLIERS, ETC. 1/4 TOTAL ANNUAL COST OF PET FOOD.
104600 TOTAL XXXXXXX OFFICE
OPERATING G & A
X. XXXXXXX OFFICE G & A - ADMINISTRAT.
12000 COMPUTER COSTS FOR ORDER TRANSMISSIONS, PRICING CALCULATIONS, PRICING LETTERS, INVOICING,
SALES REPORTS, AGED TRIALS, ETC.
6000 PRINT SHOP OFFICE SUPPLIES, PAPER, ADVERTISING PRODUCTION, MAIL SERVICE, MISC. PRINTING.
12000 ACCOUNTING ALL OFFICIAL ACCOUNTING FOR THE JOINT VENTURE; PREPARE MONTHLY STATEMENTS.
3000 COMPANY AIRPLANE ESTIMATE OF USEAGE FEE; WILL BE BASED ON ACTUAL USE.
12000 ENGINEERING COST OF SALARIES, BENEFITS, AND TRAVEL COSTS. BASED ON ACTUAL TIME WORKED.
400 PERSONNEL DEPARTMENT TIME SPENT ON JOINT VENTURE ITEMS. BASED ON ACTUAL TIME WORKED.
45400 TOTAL XXXXXXX OFFICE
ADMINISTRATIVE G & A.
E. TOTAL JOINT VENTURE G & A
65000 X. XXXXXXXXX G & A - NON-PLANT
40255 B. ANDERSONS G & A - MAUMEE PLANT
104600 X. XXXXXXX OFFICE G & A - OPERATING
45400 X. XXXXXXX OFFICE G & A - ADMINISTRATIVE
255255 TOTAL JOINT VENTURE G & A
page 2
EXHIBIT 1
TERMS OF PURCHASE OPTION
1. Property Covered. The following real and personal property is
subject to the purchase option (the "Option") granted to Xxxxxxx under the
foregoing Statement of Understanding between Xxxxxxx and Xxxxxxxxx (the
"Statement of Understanding") relating to the joint venture described therein
(the "Venture"):
(a) All of the real estate and all improvements now or hereafter
located thereon (including without limitation Andersons' interest in the
feed mill warehouse purchased pursuant to paragraph 7 of the Statement of
Understanding), situated in the City of Maumee, County of Xxxxx and State
of Ohio, the location of which is marked by the shaded outline on Annex I
attached hereto and made a part hereof, together with all existing
railroad leases, rail sidings, easements and other rights over the
property of others owned by Xxxxxxxxx and together with perpetual
easements over property of Xxxxxxxxx needed to operate and maintain
present rail, highway and utility services reasonably needed for the use
and operation of the plants and facilities that are part of said property
(the "Real Property");
(b) All fixtures, machinery and equipment owned by Xxxxxxxxx used in
Andersons' and the Venture's feed business (including Xxxxxxxxx' livestock
feed business) except for any typewriters, adding machines, calculators
and any mainline computer terminals not directly used in mixing and
producing pet food, including, but without limiting the generality of the
foregoing, all loading and unloading equipment, scales, dumps, bins,
machinery, equipment, feed plant office furniture, materials handling
equipment, spare parts, tools, motors and supplies; and
(c) All plant books and records relating to production and shipment
of Xxxxxxxxx' and the Venture's feeds and related items after January 1,
1984, feed formulas in current use, and the like, and Xxxxxxxxx' records
and reports regarding DOL, FDA, OSHA, EPA and other governmental
examinations and clearances in respect of Xxxxxxxxx' and the Venture's
feed business.
Notwithstanding anything in the foregoing paragraphs, the accounts receivable,
inventory and open purchase contracts of Andersons' and the Venture's feed
business shall be excluded from the property sold to Xxxxxxx pursuant to this
Purchase Option. The Real Property and all personal property described in this
paragraph 1 are sometimes hereinafter referred to collectively as the "Purchased
Property".
2. Exercise. The Option shall be exercisable from and after the date
on which the Statement of Understanding is executed through and including the
fifth anniversary date thereof, unless prior thereto the Venture has been
terminated and dissolved, in which case the Option shall be exercisable through
and including the date on which the business of the Venture has been dissolved
and wound up. The Option shall be deemed fully exercised if written notice of
election to purchase is delivered to Xxxxxxxxx in the manner specified for
notices in the Statement of Understanding.
3. Purchase Price. The purchase price of the Purchased Property
shall be equal to the sum of (a) $1,000,000, plus (b) the original cost
(including installation) of the equipment purchased by Xxxxxxxxx pursuant to
paragraph 6 of the Statement of Understanding, plus (c) the book value (original
cost less depreciation) of Xxxxxxxxx' interest in the feed mill warehouse built
pursuant to paragraph 7 of the Statement of Understanding, plus (d) the book
value (original cost less depreciation) of Xxxxxxxxx' interest in any Purchased
Property that consists of equipment purchased jointly by Xxxxxxx and Xxxxxxxxx
pursuant to paragraph 14 of the Statement of Understanding. Xxxxxxx shall
receive a credit against the purchase price payable hereunder for the amount, if
any, paid by Xxxxxxx for a survey of the Purchased Property pursuant to
paragraph 25 of the Statement of Understanding.
4. Title Insurance, Survey, Lien Searches. Xxxxxxxx shall, at its
expense and as soon as practicable after Xxxxxxx'x exercise of the Option,
furnish to Xxxxxxx:
(i) An unconditional commitment to insure title to the Real Property
on ALTA Form B-1970 issued by a title insurance company acceptable to
Xxxxxxx in an amount equal to $1,000,000 plus the amount determined under
subparagraph (c) in paragraph 3 above, containing such affirmative
insurance as Xxxxxxx may reasonably request relating to rights or
interests connected with the operation of the business conducted on the
Purchased Property (including, but hot limited to, easements), and
deleting or limiting on a basis approved by Xxxxxxx'x legal counsel all
exceptions to coverage relating to mechanics' liens, facts disclosed by
survey and parties in possession, provided, however, (a) unless written
objections are made to title within fifteen (15) days after Xxxxxxx'x
receipt of such title commitment and the survey to be provided by
Xxxxxxxxx pursuant to paragraph 4(ii) hereof, they shall be deemed waived,
but if any objections are so made to the marketability of title, Xxxxxxx
shall be allowed such period as Xxxxxxx by notice grants to Andersons,
which shall not be less than sixty (60) nor more than one hundred twenty
(120) days thereafter to make such title marketable and Xxxxxxxxx shall
use best efforts to do so; (b) pending
-2-
correction of title, the Closing Date shall be postponed if the same would
occur prior to expiration of the time period allowed Xxxxxxxxx to correct
title objections, and (c) Xxxxxxx may waive in writing, either
conditionally or absolutely, any or all title objections at any time and
from time to time on or prior to the Closing Date. Xxxxxxx shall also have
the right to object to title from time to time after said fifteen (15) day
period, if by subsequent endorsement said commitment is amended, subject
to the provisions of clause (b) above. If the title objections are cured
on or prior to the Closing (including as postponed pursuant to clause (b)
above), the Closing shall occur as otherwise provided in this Agreement.
In addition, Xxxxxxx'x obligations shall be contingent upon receipt of an
endorsement to the title commitment at the Closing changing the effective
date thereof to the date of the Closing, affirmatively insuring against
changes in the status of title from the effective date to the date of
recording the deed, and reflecting Xxxxxxx as the fee owner of the Real
Property and without any other change, except that the commitment may show
any mortgage and collateral security documents that Xxxxxxx may place
against the Real Property as of the Closing. Xxxxxxxxx and Xxxxxxx shall
each be responsible for payment of one-half (1/2) of the premium for the
policy issued pursuant to such commitment;
(ii) A survey of the Real Property certified to Xxxxxxx and its
Lender, if any, and its assigns as of a current date covering such matters
as Xxxxxxx may reasonably require; and
(iii) UCC and tax lien searches from the appropriate Secretaries of
State that reflect that all Purchased Property that is personal property
is free from all liens, claims and encumbrances, which searches shall be
paid for by Xxxxxxx.
5. Closing. If the Option is exercised, the parties shall close the
sale of the Purchased Property at a mutually agreed upon place (in Xxxxx County,
Ohio) and time on such date as Xxxxxxx shall specify upon not less than ten (10)
days prior written notice to Xxxxxxxxx. At Closing, Xxxxxxxxx shall deliver to
Xxxxxxx, at Xxxxxxxxx' expense:
(i) a warranty deed, subject only to such exceptions as are set
forth in the commitment for title insurance provided pursuant to paragraph
4(i) hereof;
(ii) a general conveyance or bill of sale or bills of sale and other
good and sufficient instruments of transfer, assignment and conveyance
transferring, assigning and conveying to Xxxxxxx all of the assets
included in the Purchased Property other than the Real Property, including
-3-
such warranties of title as Xxxxxxx may reasonably require; and
(iii) full possession and right to possession to all of the
Purchased Property and all of the books, records and other documents
included in the Purchased Property.
The foregoing shall be delivered to Xxxxxxx by Xxxxxxxxx in return for the
purchase price payable by Xxxxxxx, all of which shall be payable on the date of
Closing in the form of a bank cashier's check.
6. Proration. Taxes, assessments, utilities, city water and
insurance shall be prorated as of the Closing.
7. Noncompetition. Andersons covenants and agrees that as an entity
it shall not, after the Closing Date, engage in or have any interest in
(directly or indirectly, whether as principal, employee, agent, partner,
stockholder of a corporation [except to the extent that Xxxxxxxxx beneficially
owns in the aggregate not more than one percent (1%) of the value of the
outstanding stock of the corporation] or otherwise), any person, firm,
corporation, association, trust or other entity, directly or indirectly engaged
in any aspect of the production of pet food.
8. Miscellaneous. Xxxxxxx shall be entitled to such representations
and warranties from Andersons as are customary in connection with a purchase and
sale of assets; provided, however, that all Purchased Property will be sold to
Xxxxxxx on an "as is" basis. Xxxxxxx shall not, in connection with the purchase
of the Purchased Property, assume any liability or obligation of Xxxxxxxxx
except as expressly otherwise mutually agreed by the parties. Xxxxxxx may, in
its sole discretion, offer employment to employees of Xxxxxxxxx, but such
employment shall be on terms and conditions established by Xxxxxxx, and
Xxxxxxxxx shall be solely responsible for any termination obligations of any
kind whatsoever with respect to the personnel in Xxxxxxxxx' feed business
whether or not any of such personnel are employed by Xxxxxxx following
termination of their employment by Xxxxxxxxx.
So long as Andersons or its assigns continue to operate the grain
operation adjoining the Real Property, Xxxxxxxxx will move cars to and from the
Real Property over its tracks substantially as at present. The use by Xxxxxxx of
Xxxxxxxxx' tracks shall be non-exclusive and subject to all applicable rules of
the railroad and no reasonable requirements set by Xxxxxxxxx or its assigns for
contribution by Xxxxxxx to the maintenance of tracks used by Xxxxxxx. Further,
if Xxxxxxx exercises its option to purchase, Xxxxxxx agrees to indemnify and
hold harmless Xxxxxxxxx
-4-
for any damages arising out of Xxxxxxx'x use of Xxxxxxxxx' tracks from and after
the date of the closing of such purchase.
-5-
NEW
ANNEX I
[DIAGRAM OF UNDERGROUND WATER AND SPRINKLER MAIN]
Note: This property line along the tracks outlined in red will be
drawn from the centerline of the track toward the feed mill for a distance that
equals required railroad minimum clearances and does not extend beyond any
property not presently owned by Xxxxxxxxx.
