Vet's Choice Partnership
Veterinary Centers of America, Inc.
Restructuring Agreement
1. MANAGEMENT AGREEMENT. Vet's Choice Partnership ("Vet's Choice")
hereby agrees with Veterinary Centers of America, Inc. ("VCA") as follows:
- For the three-year period commencing January 1, 1997 (the "Term"), VCA
will use Select Care and Select Balance products as its principal pet food
products in its hospitals (now owned or acquired during the Term) as long
as such products meet minimum quality standards (consistent with industry
norms) and serve the reasonable clinical needs of the veterinarians. In
addition, during the Term, VCA will continue its efforts to grow the use
of such products at its hospitals in the same manner as it has prior to
this time and Vet's Choice will support such efforts with competitive
pricing and reasonable promotion and product support. VCA will provide
Vet's Choice with an initial report on the distribution of Select Care and
Select Balance products at VCA's hospitals and will provide quarterly
updates throughout the Term. In addition to the foregoing, Vet's Choice
shall continue to provide during the Term Select Care and Select Balance
products on the preferred pricing plan currently in place between the
companies.
- During the Term, VCA will provide Vet's Choice the option to participate
in VCA's Vnet Internet project on terms to be agreed to between VCA and
Vet's Choice. In addition, Vet's Choice will have a right of first
refusal to meet any offer by another pet food manufacturer to participate
on VCA's Vnet Internet project as a "preferred vendor" or any other
special class of vendor. The foregoing will not limit the right of VCA to
offer participation on Vnet to any other pet food manufacturer or other
vendor. VCA shall have no obligation hereunder to actually implement its
Vnet Internet project or, once implemented, continue the service for any
period of time.
- During the Term, VCA will continue to allow Vet's Choice hospital
customers to participate in the Partners-in-Management Program maintained
by VCA. Notwithstanding the foregoing, VCA shall have the option of
terminating such participation upon at least 90 days' advance written
notice if VCA determines in its sole discretion such participation in the
Partners-in-Management Program does or will interfere with VCA's other
businesses or strategies or create strategic conflicts. VCA shall be able
to furnish the Partners-in-Management program to customers of any of its
other operating divisions.
Further, nothing contained herein shall restrict VCA from modifying or
terminating its Partners-in-Management Program at any time.
- If requested by Vet's Choice, VCA will provide additional consulting
services to Vet's Choice during the Term.
PAGE 1
- Vet's Choice will reimburse VCA for its out-of-pocket expenses incurred in
connection with providing the consulting services provided for herein to
the extent such costs are pre-approved by Vet's Choice.
- During the Term, VCA will continue to publicly support Vet's Choice within
the pet food and veterinary industries.
2. PARTNERSHIP AGREEMENT. The Partnership Agreement (the "Partnership
Agreement") existing between HPP Specialty Pet Products, Inc. ("HPP Specialty")
and VCA Specialty Products, Inc. ("VCA Specialty") with respect to the
ownership and operation of Vet's Choice is hereby amended as follows:
- Effective February 1, 1997, all profits and losses of Vet's Choice shall
be allocated 99.9% to HPP Specialty 0.1% to VCA Specialty.
- Effective February 1, 1997, HPP Specialty shall replace VCA Specialty as
Managing Partner and will assume the day-to-day control of Vet's Choice.
All other provisions in the Partnership Agreement relating to the Managing
Partner, including, but not limited to provisions regarding reporting
obligations and restrictions on its authority, shall remain in full force
and effect.
- On February 1, 1997 (and prior to the replacement of VCA Specialty as
Managing Partner on such date by HPP Specialty), VCA Specialty shall cause
Vet's Choice to distribute to VCA Specialty and HPP Specialty all cash
held by Vet's Choice on the close of business on January 31, 1997 in
accordance with the equity interests of VCA Specialty and HPP.
- Effective February 1, 1997, the restrictions set forth in Section 6.10 of
the Partnership Agreement applicable to VCA Specialty and its affiliates
and HPP Specialty and its affiliates (as modified by prior agreements of
the parties) shall terminate provided that the restrictions of Section
6.10 shall continue in force with respect to Medi-Cal sales in the United
States by HPP Specialty and its affiliates unless agreed to otherwise by
VCA. X. X. Xxxxx Company shall pay when due all payments to VCA under the
letter agreement dated September 9, 1996 relating to the acquisition of
Xxxxxx Pet Foods by Heinz, Canada.
- In recognition of the benefits afforded to Vet's Choice by use of the
Heinz distribution system, the parties have agreed to modify the Purchase
Price payable in the event either party exercises the purchase options
provided for in Section 9 of the Partnership Agreement and certain other
provisions of the Partnership Agreement. If HPP Specialty, exercises its
right to acquire VCA Specialty's 51% partnership interest in Vet's Choice
pursuant to Section 9.2.1 of the Partnership Agreement, the Purchase Price
provided for in such Section 9.2.1 will not apply. Instead, the Purchase
Price shall be equal to 51% of 1.3 multiplied by the Net Sales of all
PAGE 2
Vet's Choice products sold during the twelve-month period
described below, less $4.5 million. Net sales are equal to gross sales minus
deals and allowances, cash discounts and returns. The purchase price
shall be determined by reference to the twelve months ending one month
prior to the closing date of the purchase but in no case earlier than the
period November 1, 1998 to October 31, 1999. Vet's Choice products
will be limited to all products bearing the Select Balance or Select
Care brands; provided, that Vet's Choice will not, without the prior
written consent of VCA Specialty, discontinue the sale of any of the products
(as
determined by UPC) set forth on Schedule B hereto; provided such
restriction shall not limit the right of Vet's Choice to change at its option
the formulation, branding (provided any re-branded products will
maintain the current UPC symbols in order to facilitate tracking),
marketing, packaging or other characteristics of such products. HPP Specialty
will
continue to use its reasonable best efforts to expand the sales and
profitability of the Select Balance and Select Care product lines in both the
hospital and retail markets.
- The provisions of Section 9.2.2 of the Partnership Agreement
are eliminated and the following agreement is substituted
therefor: In the event HPP Specialty shall not have exercised its right to
acquire the interest of VCA Specialty in Vet's Choice by June 30, 2000,
VCA Specialty shall have the right to acquire HPP Specialty's interest in
Vet's Choice for an amount determined in the same manner as provided in the
immediately preceding paragraph except 49% shall be substituted for 51%
and the purchase price shall be increased following such calculation
by $4.5 million. In other words, the sale price shall be equal to Net
Sales multiplied by 1.3 multiplied by 49% plus $4.5 million.
- If neither HPP Specialty nor VCA Specialty exercises the
option to buy out the other party by January 31, 2001, the partners will make
best efforts to sell the Partnership business to a third party and the
Partnership shall be dissolved as promptly as practicable thereafter
unless otherwise agreed by the parties. Upon dissolution, following a sale of
the business or otherwise, the first $4.5 million shall be distributed to
HPP Specialty and the remaining net assets of Vet's Choice shall be
distributed 51% to VCA Specialty and 49% to HPP Specialty.
- HPP Specialty shall provide VCA with periodic sales and other
reports in the same format and with the same frequency as VCA Specialty
has provided to HPP Specialty in the past.
3. CONSIDERATION. In consideration of the management and
consulting services to be performed during the Term as described in Paragraph
1 above and the other agreements of VCA and VCA Specialty contained herein,
HPP (or X. X. Xxxxx) shall pay to VCA on February 10, 1997, 1998 and 1999 a
consulting fee of $2.5 million and on February 10, 2000 and 2001, a consulting
fee of $1.0 million (for a total of $9.5 million). Further, commencing June 1,
1997, Vet's Choice shall reimburse VCA monthly for the use of office space and
reasonable overhead costs related to employees of Vet's Choice who are located
at VCA's
PAGE #3
headquarters in an amount acceptable to Vet's Choice (or failing
agreement Vet's Choice shall have the option to discontinue use of the VCA
office space).
If HPP fails to pay any amount due hereunder or due under the September 9, 1996
letter referred to above within 30 days of written notice from VCA of such
failure, then VCA's obligations under Paragraph 1 shall terminate. Such
termination, however, shall not alter or modify HPP's obligations to make the
payments referred to herein or in the September 9, 1996 letter or otherwise
limit VCA's remedies for any breach. The obligations set forth in this
Paragraph 3 shall be obligations of HPP and not Vet's Choice.
By executing this Agreement in the Space provided for below, each of the
parties agrees to be bound by the foregoing.
HPP SPECIALTY PRODUCTS. INC.
By: ________________________________
Title: _________________________________
Name:_________________________________
HEINZ PET PRODUCTS,
a division of Star-Xxxx Tuna, Inc.
By: __________________________________
Title: _______________________________
Name:_________________________________
VCA SPECIALTY PRODUCTS, INC.
By: __________________________________
Title: _______________________________
Name:_________________________________
VETERINARY CENTERS OF AMERICA, INC.
By: __________________________________
Title: _______________________________
Name:_________________________________
