CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF THIS
DOCUMENT. THE REDACTED MATERIAL HAS BEEN INDICATED WITH A DOUBLE
ASTERISK (e.g. **) AND FILED SEPARATELY WITH THE COMMISSION
PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT.
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A&M PRODUCTS MANUFACTURING COMPANY
AND
OIL-DRI CORPORATION OF AMERICA
MEMORANDUM OF AGREEMENT
#1465
"JONNY CAT"
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2
TABLE OF CONTENTS
1. BUYER..........................................................1
2. SELLER.........................................................1
3. PRODUCT........................................................1
4. QUANTITY.......................................................1
5. QUALITY........................................................2
6. TERM...........................................................3
7. PRICE..........................................................3
8. PAYMENT AND FREIGHT............................................3
9. SHIPMENTS......................................................3
10. SPECIAL CONDITIONS.............................................3
11. MANUFACTURING, INVENTORY AND WAREHOUSE REQUIREMENTS............4
12. PRODUCTION GUARANTEES..........................................6
13. TITLE AND RISK OF LOSS.........................................6
14. DISCOUNTS......................................................6
15. REPRESENTATIONS, WARRANTIES AND INDEMNITIES....................7
16. TRADEMARKS, CONFIDENTIALITY AND INTELLECTUAL PROPERTY..........8
17. INSURANCE.....................................................10
18. ASSIGNMENT....................................................10
19. FORCE MAJEURE.................................................11
20. TERMINATION...................................................12
21. AUDIT RIGHT...................................................14
22. PLANT INSPECTION RIGHTS.......................................15
23. DISPUTE RESOLUTION............................................15
24. NOTICE........................................................15
25. MISCELLANEOUS.................................................16
26. BUYER'S AFFILIATES............................................17
27. SCHEDULE LIST.................................................17
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MEMORANDUM OF AGREEMENT # 1465
("AGREEMENT")
As of April 18, 2001
1 BUYER. A & M Products Manufacturing Company, 1221 Broadway, Oakland,
California 94612, hereinafter "BUYER".
2 SELLER. Oil-Dri Corporation of America, 410 N. Michigan Avenue, Chicago,
Illinois, 60611 hereinafter "SELLER".
3 PRODUCT. Jonny Cat(R) Traditional Coarse Clay Cat Litter, or any variant
thereof that contains more than twenty-five percent (25%) coarse clay, bearing
the Jonny Cat trademark or any finished traditional coarse clay cat litter that
BUYER or BUYER's Affiliates (as defined herein) may substitute for Jonny Cat(R)
Traditional Coarse Clay Cat Litter that meets the Product Specifications (as
defined herein), from time to time, in the Eastern United States Region
(hereinafter collectively, "FINISHED PRODUCT"), which Finished Product is
described in more detail in SCHEDULE I.
a. "EASTERN UNITED STATES REGION" **
b. **
c. To the extent BUYER markets any Jonny Cat (R) Traditional Coarse
Cat Litter that contains a substrate in addition to coarse clay and the total
amount of coarse clay is over twenty-five percent (25%)("COMBINATION PRODUCT"),
BUYER shall (i) either purchase such finished Combination Product from SELLER
and the parties shall follow the procedures for Specification Changes set forth
in SECTION 10(c), or (ii) purchase BUYER's coarse clay (i.e., Seller's Clay)
needs for such Combination Product from SELLER. If BUYER elects option (ii)
above, BUYER shall not be required to purchase finished Combination Product from
SELLER. Should BUYER choose to purchase its coarse clay needs from SELLER, the
price of such coarse clay delivered to BUYER shall be the Base Price, as defined
herein, less SELLER's actual costs for packaging and manufacturing the
non-combination Finished Product. Notwithstanding the foregoing, if the coarse
clay used in the Combination Product is not of the same type and quality used in
the non-combination Finished Product, the parties shall negotiate in good faith
for thirty (30) days to determine the price of the coarse clay, and if, at the
conclusion of such thirty (30) days the parties cannot agree on such a price,
such dispute shall be resolved according to the provisions of SECTION 23. The
terms and conditions of this Agreement shall apply to purchases made by BUYER
under this paragraph.
4 QUANTITY. SELLER shall produce and deliver Finished
Product as ordered by BUYER as set forth in SCHEDULE I.
4
5. QUALITY.
a. Finished Product shall be made and packaged in accordance with BUYER's
applicable specifications as more fully described on SCHEDULE II (collectively,
"PRODUCT SPECIFICATIONS"). Subject to the provisions of SECTION 10(c), BUYER may
subsequently add or alter the Product Specifications.
b. Unless otherwise specifically stated herein, the standards and
requirements in the Contract Manufacturing Manual ("MANUAL") dated September
1999 attached hereto and incorporated herein as SCHEDULE III, including without
limitation any subsequent restatements, replacements, additions or alterations
thereto, **.
c. BUYER may inspect the Finished Product at its destination. ** BUYER
provides SELLER with written notice that the Finished Product does not meet the
Product Specifications. In such event, SELLER shall be responsible for the
reasonable and actual costs of rework or replacement for Finished Product that
does not meet the Product Specifications. SELLER also shall reimburse BUYER for
BUYER's actual costs of segregating the non-conforming Finished Product and
other reasonable costs and charges, including without limitation, costs in
inspection, receipt, transportation and care and custody of non-conforming
Finished Product, incurred by BUYER as the result of SELLER supplying
non-conforming Finished Product. If BUYER, in its sole discretion, deems it
necessary to use Finished Product that does not conform to the Product
Specifications in order to meet BUYER's customer's demand for the Finished
Product or to prevent a shortage of Finished Product available in the
marketplace, BUYER and SELLER shall meet and mutually agree on the terms and
conditions of such usage of Finished Product that does not conform to the
Product Specifications and such failure to perform shall not be deemed a breach
of this Agreement to the extent such failure to meet Product Specifications is
discovered by BUYER.
d. Any Finished Product supplied by SELLER that does not comply with the
Product Specifications and that BUYER rejects, shall be held for SELLER's
account for thirty (30) days after BUYER's notification to SELLER of such
defects. If written instructions for disposition are not furnished by SELLER to
BUYER within that thirty (30) day period, BUYER may dispose of the rejected
Finished Product and may deduct from any amount owed to SELLER's account the
delivered cost of such Finished Product and any handling and/or disposal costs
incurred by BUYER. Any such deduction may be applied to current or future
invoices submitted by SELLER.
e. SELLER warrants that industry standard Statistical Quality Control
("SQC") methods and procedures will be employed throughout the SELLER's
facility(ies) for the Finished Product and that all data sent to BUYER will be
in SQC format. BUYER hereby acknowledges that SELLER currently employs industry
standard SQC methods throughout its facility(ies) for the Finished
5
Product as of April 18, 2001. SELLER hereby acknowledges that SQC methods and
procedures change from time to time and that SELLER will change its application
of such SQC methods and procedures as is reasonably required to conform to
industry standard SQC.
6. TERM. See SCHEDULE I.
7. PRICE. See SCHEDULE I.
8. PAYMENT AND FREIGHT. See SCHEDULE I.
9. SHIPMENTS.
SELLER shall ship Finished Product to BUYER'S designated warehouses as required
by BUYER.
10. SPECIAL CONDITIONS.
a. DISCONTINUANCE. BUYER shall have the right to discontinue purchase of
Finished Product made hereunder upon one hundred and twenty (120) days written
notice to SELLER, in the event BUYER or any BUYER Affiliate ceases marketing or
selling either the Finished Product or any other traditional coarse clay cat
litter product containing more than twenty-five percent (25%) coarse CLAY that
meets the Product Specifications for any reason ("DISCONTINUANCE"), provided,
however, BUYER and any BUYER Affiliate shall not re-enter the traditional coarse
clay cat litter market with either the Finished Product or any other traditional
coarse clay litter product containing more than twenty-five percent (25%) that
meets the Product Specifications during the Term without first giving SELLER the
opportunity to supply Finished Product and/or Seller's Clay (either "RENO CLAY"
or "GEORGIA CLAY", collectively "SELLERS CLAY") in accordance with all of the
terms of this Agreement including, but not limited to, price.
b. **
c. SPECIFICATION CHANGES. The Product Specifications are subject to change
from time to time during the Term by written agreement signed by both SELLER and
BUYER and any such changes to the Product Specifications shall be noted on a
revised SCHEDULE II, signed and dated by BUYER and SELLER. If, at any time
during the Term, BUYER and SELLER are unable to agree upon a change or an
addition to the Product Specifications or any pricing thereof, BUYER shall
notify SELLER in writing ("BUYER NOTIFICATION DATE") and SELLER shall have sixty
(60) days from the Buyer Notification Date ("SELLER NOTIFICATION DATE") to
notify BUYER in writing (i) that SELLER can and will meet the revised Product
Specifications immediately, or (ii) providing BUYER with a plan detailing how
and when SELLER will be able to meet the revised Product Specifications
("SELLER'S PLAN") within thirty (30) days of the Seller Notification Date or
(iii)
6
offering to meet with the BUYER for thirty (30) days to develop a mutually
agreeable plan detailing how and when SELLER will meet the revised Product
Specifications ("MUTUALLY AGREEABLE PLAN").
(1) FAILURE TO MEET REVISED SPECIFICATIONS. If the SELLER fails to respond
with a plan to meet the new Product Specifications on the Seller's Notification
Date or SELLER responds on the Seller's Notification Date but states SELLER will
not meet the revised Product Specifications, then BUYER shall have the right to
purchase the Finished Product as revised by the new Product Specifications from
third parties who can meet such revised Product Specifications and the
obligations of BUYER and SELLER for the purchase of the Finished Product without
the revised Product Specifications shall be reduced accordingly and BUYER shall
have the right to terminate this Agreement, either in whole or in part. If BUYER
terminates this Agreement in its entirety pursuant to this Section, BUYER must
comply with the Premature Termination section detailed below in SECTION 10(f)
(2) DISAGREEMENTS ABOUT SELLER'S PLAN, THE MUTUALLY AGREEABLE PLAN AND/OR
CHANGES IN PRICE DUE TO REVISED PRODUCT SPECIFICATION. In the event (i) BUYER
disagrees with Seller's Plan, or (ii) the parties cannot reach a Mutually
Agreeable Plan, or (iiii) the SELLER and/or BUYER disagrees to any proposed
change to the price to the Finished Product as a result of the revised Product
Specifications, such disputes shall be resolved according to the provisions of
SECTION 23.
d. INTENTIONALLY DELETED.
e. **
f. PREMATURE TERMINATION ACTIONS. BUYER may terminate this Agreement in its
entirety pursuant to SECTIONS 10(b) and 10(c)(1) above only after BUYER (i)
purchases SELLER's existing inventory of Finished Product (not SELLER's stores
or inventory of Seller's Clay) conforming to the Product Specifications as of
the date BUYER notifies SELLER of its intention to terminate, (ii) makes full
payment of all invoices owed by BUYER to SELLER, unless the amounts of such
invoices are in dispute, (iii) purchases and takes delivery of SELLER's existing
inventory of chemical additives and packaging materials unique to the Finished
Product, at cost, and **.
11. MANUFACTURING, INVENTORY AND WAREHOUSE REQUIREMENTS.
a. FORECASTS, ORDERS AND RELEASES: BUYER will provide a three (3) month
rolling forecast. Only the first month will be firm. BUYER's complete forecast
will be available to SELLER by using the inventory tracking system chosen by
BUYER ("MRP SYSTEM"). BUYER will submit firm orders (the forecast for the
7
first month of each rolling forecast, the "FIRM ORDERS") for each calendar month
to SELLER at least ten (10) days prior to the first day of such calendar month.
BUYER and SELLER may mutually agree in writing on other levels of Finished
Product as well as chemical additives and packaging materials. BUYER hereby
agrees to use commercially reasonable efforts to place orders in quantities that
are consistent with the quantities provided for in its forecasts. Subject to the
terms of this Agreement, BUYER agrees to purchase from SELLER all Finished
Product that meets the Product Specifications manufactured by SELLER to fill
Firm Orders. Notwithstanding the quantity of Finished Product forecasted or
ordered by BUYER and subject to BUYER's rights under SECTION 12, SELLER will
guarantee the availability of up to ** of Finished Product per ** period **
during the Term of this Agreement.
b. DAILY TRANSACTIONS: SELLER agrees to enter all daily transactions into
BUYER's MRP System and make commercially reasonable efforts to use the most
recent standards listed in the Manual, including product structures
and reconciliation activities for maintaining data.
c. MANUFACTURING AUTHORITY: Subject to the provisions set forth in SECTION
5(b) hereof, manufacturing authority will be issued in accordance with the
established order procedures in the Manual. **
d. PALLETS: **
e. WAREHOUSE REQUIREMENTS: **
f. BUYER SUPPLIED MATERIALS. Unless otherwise mutually agreed upon in
writing by the SELLER and BUYER, SELLER shall use and BUYER shall furnish all
chemical additives and packaging components specified by BUYER for use in and to
package the Finished Product. SELLER will release such chemical additives and
packaging components from suppliers designated by BUYER in accordance with
procedures mutually agreed upon by BUYER and SELLER. SELLER will report monthly
the receipt, usage, loss, and inventory information required by BUYER. A maximum
shrinkage or loss factor as reflected in SCHEDULE I will be allowed on materials
furnished to SELLER by BUYER. In the event the shrinkage or loss factor exceeds
the allowance per the procedure outlined in SCHEDULE I, SELLER will reimburse
BUYER for losses in excess of the allowance, provided BUYER and SELLER agree
that such losses are properly for SELLER's account. Reimbursement is due within
thirty (30) days of the end of each Contract Year (as defined in SCHEDULE I
hereto).
g. COST REDUCTION: SELLER and BUYER shall work together in all areas of the
operation to achieve and maintain a consistent, high quality Finished Product,
and to strive to continuously improve the operation. Both SELLER and BUYER
commit to using commercially reasonable efforts to take costs out of the supply
chain to ensure that BUYER remains competitive in the marketplace. Cost
8
reduction projects will be assessed for business benefits as well as the
cost/efforts to implement the project. Any cost savings derived from such mutual
efforts shall **, unless mutually agreed otherwise. **
12. PRODUCTION GUARANTEES.
a. Subject to the provisions of this Agreement, SELLER guarantees timely
production of BUYER's requirements of the Finished Product. SELLER's timely
production hereunder may be tolled for any delay proximately caused by the
negligence or willful misconduct of BUYER's designated supplier.
b. Notwithstanding SECTION 12(a), if BUYER's requirements for Finished
Product significantly ** beyond BUYER's forecasted amount set forth in SECTION
11(a), and such increased requirements will cause SELLER to incur overtime,
BUYER will **.
c. In addition to any other remedies provided by law or equity, if, in
BUYER's reasonable estimation, SELLER's future capacity to manufacture Finished
Product appears insufficient to meet BUYER's forecasted production requirements,
BUYER may, **. Prior to ** BUYER shall notify SELLER in writing of such
intention, and SELLER shall have an opportunity to provide reasonable assurances
to BUYER, within five (5) days of receipt of such notice, that **. BUYER shall
have **. If BUYER chooses to purchase Finished Product ** BUYER will only **.
Unless extenuating mechanical or quality circumstances are the cause of BUYER's
concern, BUYER will use SELLER's average run rates for calculating SELLER's
capability to meet BUYER's forecasted needs. Notwithstanding the foregoing, if
BUYER has made a determination of SELLER's potential shortfall for any given
month under this SECTION 12(c), **. If at any time during such month SELLER
produces enough Finished Product to eliminate the potential shortfall, BUYER
shall **.
d. Except as the result of BUYER's negligence or willful misconduct and for
Force Majeure Events (as defined below), if for any reason SELLER is unable to
provide ** of Finished Product per ** as set forth in SECTIONS 11(a) and 12(a),
and BUYER must, therefore, purchase Finished Product or substantially similar
product from third parties and/or ship Finished Product to its plant(s) from
other locations, SELLER shall reimburse BUYER for the reasonable difference, if
any, in costs of the product purchased plus any differential freight costs for
the transportation of such product.
13. TITLE AND RISK OF LOSS.
Title to the Finished Product and risk of loss of the Finished Product shall
pass from SELLER to BUYER when the Finished Product leaves SELLER's designated
production facilities or point of storage.
14. DISCOUNTS.
9
On all invoices subject to discount, the discount period shall be calculated
from the date of shipment.
15. REPRESENTATIONS, WARRANTIES AND INDEMNITIES.
a. SELLER'S REPRESENTATION AND WARRANTIES. SELLER represents and warrants to
BUYER that (i) the Finished Product will conform to the Product Specifications
and shall be free from defects in materials and workmanship, (ii) SELLER
provided materials used in the Finished Product will be of good and merchantable
quality, (iii) SELLER provided materials used in the Finished Product will be
free and clear of all liens and encumbrances, (iv) SELLER has not placed any
liens and/or encumbrances on the Finished Product (v) SELLER will have good and
merchantable title to SELLER provided materials used in the Finished Product,
(vi) no materials manufactured by SELLER in the Finished Product, and the use
thereof (to the extent known to SELLER), shall infringe upon any United States
patent rights; provided, however, this clause shall not apply to the extent the
Finished Product or ingredients thereof cover basic raw materials or basic
structural material that are unpatented and unpatentable, (vii) SELLER has
complied in all material respects, and will during the Term comply in all
material respects with, all applicable federal, state and local laws, codes,
regulations, rules and orders, including without limitation, the Robinson-Patman
Act, federal and state environmental and health safety laws, laws restricting
heavy metal content, and employment and labor laws (and all reporting
requirements of those laws, which reports SELLER shall make available to BUYER
on request), the Fair Labor Standards Act, and Executive Orders 11246 ( Sections
202 and 203) and 11701 and (vii) any person or entity purporting to have the
authority to enter into this Agreement on behalf of or for the benefit of SELLER
has such authority.
**
**
b. SELLER'S INDEMNITY. SELLER shall indemnify, defend, and hold harmless
BUYER and BUYER's Affiliates, of, from and against any loss, damages, claims,
liabilities, costs and expenses, including without limitation reasonable
attorneys' fees (collectively, "CLAIMS"), which BUYER or any of BUYER's
Affiliates (as defined herein) shall incur, suffer or be required to pay
resulting from the breach of SELLER's representations and warranties in this
Section; provided, however, such indemnity obligation will be subject to the
limitations on warranties set forth above in SECTION 15(a) above and to the
extent BUYER has agreed to accept in writing non-conforming Finished Product
pursuant to SECTION 5(c) above. Notwithstanding the foregoing, SELLER shall not
be responsible to indemnify, defend or hold harmless BUYER or any of BUYER's
Affiliates if the Finished Product at issue in such Claims does not conform with
the Product Specifications as a result of being altered or tainted after the
Finished Product has left the possession or control of SELLER. BUYER shall
promptly notify SELLER of any
10
such Claims, shall cooperate with SELLER in the defense of such Claims and shall
permit SELLER to control the defense and settlement of such Claims with counsel
of SELLER's choice, provided, however, that SELLER shall not resolve any such
Claim without notice to BUYER, and shall not enter into any claim resolution or
settlement that would have a material adverse effect on the name or reputation
of BUYER or its products, or would require an admission of liability or
wrongdoing by BUYER. This Section shall survive the termination of this
Agreement for five (5) years.
c. BUYER'S INDEMNITY: BUYER will indemnify and hold harmless SELLER and any
corporation controlling, controlled by or under common control with SELLER (a
"SELLER AFFILIATE"), of, from, and against any and all Claims which SELLER or
any SELLER Affiliate, shall incur, suffer or be required to pay resulting from
(A) injuries or deaths caused by any Finished Product manufactured by SELLER
once such Finished Product has left the possession or control of SELLER, except
to the extent such injuries or deaths are caused by the failure of such Finished
Product to conform to the applicable Product Specifications and such Finished
Product has not been altered or tainted after such Finished Product has left
possession or control of SELLER; (B) United States patent and/or trademark
infringement claims related to the chemical additives and/or packaging provided
to SELLER by BUYER, or (C) any tort, personal injury, or substantially similar
claims by any employee, agent or representative of BUYER for occurrences at any
plant or facility of SELLER. SELLER shall promptly notify BUYER of any such
Claims, shall cooperate with BUYER in the defense of such Claims and shall
permit BUYER to control the defense and settlement of such Claims with counsel
of BUYER's choice, provided, however, that BUYER shall not resolve any such
Claim without notice to SELLER, and shall not enter into any claim resolution or
settlement that would have a material adverse effect on the name or reputation
of SELLER or its products, or would require an admission of liability or
wrongdoing by SELLER. This Section shall survive the termination of this
Agreement for five (5) years.
d. Notwithstanding the foregoing, in no event shall SELLER or BUYER be
required hereunder to indemnify or hold harmless the other party to the extent
any involved injuries or deaths are caused by the negligence or willful
misconduct of such other party. This section shall survive the termination of
this Agreement for five (5) years.
16. TRADEMARKS, CONFIDENTIALITY AND INTELLECTUAL PROPERTY.
a. SELLER will not in any way whatsoever make use of or reference BUYER's name
or any trademark or trade dress of BUYER, except (i) when use of or reference to
BUYER's name is legally required, or (ii) with the prior written permission of
BUYER. Notwithstanding the foregoing, in its communications to the investor
community, its corporate annual report and any filings with the Securities and
Exchange Commission, SELLER may use BUYER's name and the
11
trademarked name "Jonny Cat" to identify, respectively, that SELLER makes
Finished Product for BUYER or to identify the brand name of the Finished Product
that SELLER makes for BUYER. In such instances, SELLER shall refer to BUYER as
either "A&M Products Manufacturing Company" or "A&M Products Manufacturing
Company, a subsidiary of The Clorox Company" and shall properly identify "Jonny
Cat" as the registered trademark of The Clorox Pet Products Company.
b. Neither party shall issue any news or informational releases, including
public announcements or confirmation of same, regarding the existence of this
Agreement or any part of the subject matter of this Agreement without the prior
written consent of the other party. Notwithstanding the preceding, either party
may include the name of the other and a factual description of the work
performed under this Agreement whenever necessary to meet legal requirements, if
the disclosing party, at least five (5) business days (or less if required by
law) before making such disclosure, informs the other party of the nature and
content of the intended disclosure.
c. **
d. Each party hereto acknowledges that it will disclose to one another
valuable information of a technical and/or non-technical nature that is not
generally known to the trade or public, including without limitation, the
pricing, the contents of this Agreement, Product Specifications, product
formula, packaging specifications, production process and process
specifications, production volumes both current and forecasted, business and
financial information, marketing and promotion plans ("CONFIDENTIAL
INFORMATION"). Such Confidential Information is the confidential and proprietary
information of the disclosing party. SELLER acknowledges that it provides goods
and/or services and conducts business with one or more of BUYER's competitors,
including Branded Products and retailers and their private label/store brands
("BUYER'S COMPETITORS"). Each party hereto agrees that neither it nor its
respective affiliates will, and shall cause its officers, employees and agents
not to, disclose the Confidential Information of the other party to any third
party, including to BUYER's Competitors, or use it for its own benefit or the
benefit of a third party, including BUYER's Competitors, the Confidential
Information of the other party, and shall take all reasonable measures to
protect the confidentiality of such Confidential Information and prevent its
disclosure to others, including BUYER's Competitors. Upon any termination of
this Agreement, each party shall return to the disclosing party, and shall
confirm to the disclosing party in writing that all such Confidential
Information has been provided to the disclosing party, and that all copies
thereof have been destroyed. The foregoing shall not apply to any information
(i) that is in the public domain, (ii) that the receiving party can demonstrate
was known to the receiving party prior to receipt from the disclosing party,
(iii) that was subsequently legally received by the receiving party from a third
party not under an obligation to the
12
disclosing party to hold the same in confidence, (iv) that is independently
developed by the personnel of the receiving party who have no access to the
Confidential Information referred to herein at the time of or prior to their
independent development of such information, or (v) that is required to be
disclosed pursuant to a judicial process, court order or administrative request,
or that is otherwise required by law for any regulatory filing, provided the
receiving party provides the disclosing party with five (5) business days (or if
the receiving party receives less than five (5) business days notice of the date
of compliance with any judicial process, court order or administrative request
or other disclosure that is otherwise required by law for any regulatory filing,
as soon as reasonably practicable prior to such disclosure), written notice
prior to such disclosure to object or otherwise seek relief from such disclosure
as may be required. This section shall survive the termination of this
Agreement.
17. INSURANCE.
a. SELLER represents and warrants that it has insurance coverage (which may
be a comprehensive policy covering other insured items) in the aggregate of
$10,000,000 in comprehensive general liability coverage, including, but not
limited to product liability insurance covering BUYER's obligations herein, and
agrees to maintain said comprehensive general liability insurance in full force
and effect at all times during the Term of this Agreement and for five (5) years
after SELLER's last production of Finished Product hereunder.
b. **
18. ASSIGNMENT.
a. Except as stated below in SECTION 18(b), neither party may transfer or
assign any portion of that party's obligations under this Agreement, including
without limitation, a transfer of assets or stock, merger, share exchange, joint
venture, license or any other transaction in which ownership or control of a
party will pass from that party to a third party, without the prior written
approval of the other party, which approval shall not be withheld if the
assignee or transferee has a Dun & Bradstreet credit rating of 5A2 or better.
b. With respect to any proposed transfer or assignment of any portion of
SELLER's obligations under this Agreement, including a sale, as discussed above,
of SELLER's assets in the Ochlocknee Plant and/or Reno Plant, ** (collectively
"TOP CAT LITTER COMPANIES"), SELLER cannot transfer or assign any portion of
SELLER's obligations under this Agreement ** without the prior written approval
of BUYER, which cannot be withheld if SELLER ** provides BUYER with reasonable
assurances that (i) BUYER's Confidential Information will be protected according
to the provisions of SECTION 16 and that Confidential Information will only be
used by the Competing Assignee in accordance with SECTION 16 and not used by **
on any other cat litter product, (ii) BUYER's timely supply of Finished Product
will not be interrupted, (iii) the ** manufacture Finished Product with the same
quality as SELLER, (iv) the ** use commercially
13
reasonable efforts to take costs out of the supply chain to ensure that BUYER
remains competitive in the marketplace as set forth in SECTION 11(h) above, and
(v) the ** other obligations under this Agreement. If during the Term, SELLER
should enter into bona fide negotiations to sell its business as described above
** SELLER shall notify BUYER of such negotiations as soon as reasonably
practicable, but only to the extent permitted by law and as deemed reasonable by
SELLER's Board of Directors.
c. Both parties agree that any breach of this SECTION 18 by any other party
hereto would be likely to result in irreparable harm to the non-breaching party
for which money damages would be inadequate. The parties therefore agree that
any party who is the beneficiary of a right of approval pursuant to this SECTION
18 shall be entitled to injunctive relief to enjoin any attempted transfer in
violation of such right.
d. Subject to the terms of this Section, this Agreement shall be binding on
the parties, successors and assigns and any agreement to sell a party's business
and/or assets shall include an express provision that the sale is subject to
this Agreement and that the purchaser agrees to be bound by the terms and
conditions hereof.
19. FORCE MAJEURE.
a. If either party cannot perform its obligations under this Agreement
because of fire, flood, earthquakes, epidemic, natural disaster or other acts of
God, strikes, lock-out, accident, war, electrical power or gas outages,
governmental treaty (or agreement, law, act, ordinance, order, rule or
regulation) which restricts, prevents or prohibits the manufacture or sale of
the Finished Product or other causes beyond the reasonable control of the
parties (collectively, "FORCE MAJEURE EVENTS"), then such party shall promptly
notify the other party in writing of the occurrence of such event and while the
Force Majeure Event continues, the performance of both parties shall be
suspended, except for BUYER's payment obligations under this Agreement for
Finished Product shipped to BUYER prior to such Force Majeure Event.
Notwithstanding the foregoing, to the extent a Force Majeure Event of BUYER
effects BUYER's ability to make payments from its general offices in Oakland,
California, BUYER shall pay its obligations under this Agreement as soon as
reasonably practicable.
b. To the extent BUYER is required to obtain Finished Product or
substantially similar product from an alternative source, including another
plant of SELLER, during a Force Majeure Event, BUYER shall ** and SELLER shall
reimburse BUYER ** in obtaining the Product from an alternative source ("COVER
COSTS"); provided, however, SELLER shall not be required to **. To the extent a
Force Majeure Event continues ** SELLER shall have the option to **.
c. Notwithstanding the foregoing, it is BUYER's expectation that should SELLER
not be able to produce Finished Product at either the Reno plant or the
Ochlocknee plant because of Force Majeure Event, SELLER shall produce
14
Finished Product at an unaffected plant (either the Reno plant or the Ochlocknee
plant) and provide such Finished Product in a timely fashion in accordance with
this Agreement and at no additional cost to BUYER (including without limitation,
no additional freight and no Reno Surcharge, in the case of Reno Product shipped
to cover for Ochlocknee Product). To the extent a Force Majeure Event continues
in excess of a six (6) month period, SELLER shall have the option to continue to
supply Finished Product from an unaffected plant as stated above until it is
able to perform its obligations hereunder or terminate this Agreement on one
hundred and twenty (120) days written notice to BUYER.
20. TERMINATION.
a. In addition to any other available rights or remedies provided herein,
this Agreement may be terminated at any time prior to the expiration of the Term
as follows:
i. either party may terminate this Agreement if the other party fails
to cure any material breach in any representation or warranty or the performance
of any material covenant or obligation under this Agreement within forty-five
(45) days after written notice from the other party of such breach as provided
in SECTION 24 below (the "CURE PERIOD"), provided, however, that with respect to
any default that cannot be reasonably cured within the Cure Period, the default
shall not be deemed to be uncured if the breaching party promptly commence to
cure within the Cure Period and the breaching party continues to prosecute
diligently the curing thereof to completion within another forty-five (45) days
unless otherwise agreed to in writing by the parties.
ii. by mutual written consent of the BUYER and SELLER;
iii. by SELLER or BUYER on ** written notice. This right to terminate
may not be exercised by either party until thirty-six (36) months after the
Commencement Date;
iv. by a purchaser, transferee or assignee (collectively, "PURCHASER"),
upon the sale of BUYER or BUYER's Johnny cat business (whether structured as a
transfer of assets, merger, share exchange, joint venture, license or any other
transaction in which ownership or control of BUYER will pass from BUYER to a
third party) or assignment or transfer of any portion of BUYER's obligations
under this Agreement subject to the provisions of Paragrah c below. **
vi. by (A) SELLER in the event that BUYER fails to pay the price for
the Product delivered to BUYER hereunder as and when the same becomes due and
payable in accordance with terms hereof; provided, however, SELLER shall first
give BUYER twenty (20) business days' written notice thereof and opportunity to
cure within such time; or (B) by either party in the event the other party or
its parent company applies for or consents to the appointment of a receiver,
trustee or liquidator for all or a substantial part of its assets; admits in
15
writing its inability to pay its debts generally as they mature; makes a general
assignment for the benefit of creditors; is adjudicated a bankrupt, submits a
petition or an answer seeking an arrangement with creditors; takes advantage of
any insolvency law except as a creditor; submits an answer admitting the
material allegations of a petition in a bankruptcy or insolvency proceeding; has
an order, judgment or decrees entered by any court of competent jurisdiction
approving a petition seeking reorganization of such party or appointing a
receiver, trustee or liquidator for such party or its parent company, or for all
or a substantial part of its assets and such order, judgment or decree shall
continue unstayed and in effect for a period of sixty (60) consecutive days; or
files a voluntary petition in bankruptcy or fails to remove an involuntary
petition in bankruptcy filed against it within sixty (60) consecutive days of
the filing thereof.
b. PREMATURE TERMINATION: Except as otherwise provided in this Agreement,
if, for any reason, this Agreement is terminated prior to its expiration, BUYER
shall (i) purchase and take delivery of SELLER's existing inventory of chemical
additives and packaging materials unique to the Finished Product, at cost, (ii)
purchase Finished Product conforming to the forecast referenced in SECTION 11
conforming to the Product Specifications, (iii) purchase any additional existing
inventory of SELLER of Finished Product (not SELLER's stores or inventory of
SELLER's Clay) conforming to the Product Specifications as of the date of such
Termination, and (iv) make full payment of all invoices owed by BUYER to SELLER,
unless the amounts of such invoices are in dispute.
c. EARLY TERMINATION BY A PURCHASER:
i. **: If BUYER ** pursuant to SCHEDULE I(F)(7) in the Memorandum of
Agreement number 1450 between BUYER and SELLER dated as of March 12, 2001 ("MOA
NO. 1450"), then **.
ii. **: If BUYER ** in MOA No. 1450, a Purchaser may terminate this
Agreement as follows:
(1) If a Purchaser desires to terminate this Agreement **, a
Purchaser may do so upon ** notice as follows: A Purchaser shall purchase
Finished Product hereunder ** following the notification date AND, either (x) **
thereafter purchase Finished Product hereunder OR (y) ** ("LUMP SUM PAYMENT").
If a Purchaser chooses to **, a Purchaser may combine ** and purchasing Finished
Product from SELLER, and ** shall ** a Purchaser continues to purchase Finished
Product form SELLER.
EXAMPLE ONE: **
EXAMPLE TWO: **
EXAMPLE THREE: **
16
EXAMPLE FOUR: **
(2) If a Purchaser desires to terminate this Agreement ** of the
Commencement Date, a Purchaser may do so pursuant to Paragraph c(i) above **.
21. AUDIT RIGHT.
a. SELLER shall keep accurate books and records sufficient to enable BUYER,
or a third party as discussed below, to determine SELLER's calculation of any
price adjustments, loss allowances, rebates, and credits, made pursuant to the
terms of the Agreement, including without limitation those included in SCHEDULE
I.
b. Unless otherwise agreed to in writing, in the event of any dispute
between BUYER and SELLER regarding the calculation of any price adjustments,
rebates, loss allowance and/or credits provided herein, BUYER may designate a
nationally recognized, independent certified public accounting firm ("Outside
Auditor"), approved by SELLER, which approval shall not be unreasonably withheld
or delayed, to audit SELLER's books and records. The Outside Auditor must (i)
agree to comply with the terms of this Section, and (ii) conduct the audit at
reasonable times during SELLER's regular business hours and on reasonable prior
notice to SELLER of no less than five (5) business days. The Outside Auditor
shall provide BUYER and SELLER with a report regarding the SELLER's calculation
of the applicable price adjustments, rebates, loss allowance and/or credit as
discussed above (the "Audit Report"), but shall not disclose, and shall maintain
the confidentiality of, any confidential financial information of SELLER,
including SELLER's cost of raw materials. If either party has any questions on,
or disagrees with, the Audit Report, the questioning party shall notify the
other party and the Outside Auditor in writing no later than thirty (30) days
from the questioning party's receipt of the Audit Report. As soon as reasonably
possible after the questioning party's notice (but in no event longer than
fifteen (15) days thereafter), BUYER's and SELLER's finance and accounting
officers or employees shall discuss and review the Audit Report and attempt to
resolve any disagreements. If the parties cannot promptly resolve any
disagreement over the Audit Report, the parties shall promptly contact the
Outside Auditor who shall meet with BUYER and SELLER to review the report and
assist in resolving any disagreements. The parties shall resolve any such
disagreements in good faith and in a prompt and reasonable manner; however, if
they are unable to do so, any such disagreements shall be submitted to
arbitration in accordance with SECTION 23(b). SELLER shall cooperate with the
Outside Auditor in connection with such audit. If the audit shows that SELLER
incorrectly calculated any of the price adjustments, rebates, loss allowances or
credits, SELLER shall make an appropriate adjustment in its books and records.
In the case of a credit due BUYER, BUYER may take such credit against the next
payment or payments due SELLER until the credit is exhausted. In the case of a
17
sum due SELLER, BUYER shall pay such amount to SELLER with BUYER's next regular
payment to SELLER. If the audit reveals that SELLER's books and records are
inaccurate by more than $10,000, the cost of the audit shall be borne by SELLER;
otherwise, BUYER shall incur the audit at its own expense.
22. PLANT INSPECTION RIGHTS.
Upon reasonable notice and during normal business hours, BUYER's authorized
representatives and employees shall be permitted access to SELLER's plants and
facilities during the Term to inspect the manner in which ingredients, chemical
additives, packaging and units of the Finished Product are being produced,
stored, processed, inspected and tested. SELLER's records relating to shipment
and receipt of chemical additives and packaging will be available for BUYER's
inspection upon request.
23. DISPUTE RESOLUTION.
a. In the event that a controversy, difficulty, claim or dispute (each, a
"Dispute") arises out of or in connection with this Agreement, or in relations
between the parties with respect to the subject matter hereof, any party may
notify the other party in writing of the substance of the Dispute and of its
desire to attempt to reach an amicable settlement, in which event the parties
shall endeavor for a period of thirty (30) days after the date of such notice to
reach an amicable settlement of the Dispute.
b. Subject to the aforementioned thirty-day period, all Disputes arising out of
or in connection with this Agreement, or in relations between the parties with
respect to the subject matter hereof, for any reason or under any circumstances,
shall be finally settled by binding arbitration in accordance with the Rules of
Arbitration ("Rules") of the American Arbitration Association ("AAA") in force
at the time of the Dispute. The arbitration shall be conducted by one
arbitrator, if the amount in dispute is two million dollars ($2,000,000) or
less, and by three arbitrators, if the amount in dispute is more than two
million dollars ($2,000,000), selected pursuant to AAA rules. The arbitrator(s)
shall be familiar with Delaware law and the Uniform Commercial Code for sale of
goods. The place of arbitration shall be Oakland, California, or any other place
selected by mutual agreement of the parties. Any award or decision rendered in
such arbitration shall be final and binding on all parties, and judgment may be
entered thereon in any court of competent jurisdiction if necessary.
c. Nothing in this Agreement to arbitrate shall prohibit the right to seek
provisional or equitable relief from any court having jurisdiction over the
parties, including injunctive relief, pending a final award issued by the
arbitrator(s); provided, however, this paragraph is not intended to nor shall it
usurp the obligation of the parties to otherwise resolve the Dispute in
accordance with Paragraph b above.
24. NOTICE.
18
a. All notices between BUYER and SELLER pursuant to this Agreement shall
be deemed to have been delivered on the earlier of the date actually received
or, if delivered by nationally recognized overnight courier, on the day
following the business day the courier confirms to the sending party that
delivery has occurred. Delivery shall not be deemed to have occurred by any of
the above methods unless made to the following street addresses:
If to BUYER: A & M Products Manufacturing Company
1221 Broadway
Oakland, CA 94612-1888
Attention: Procurement Contracts Manufacturing Manager
If to SELLER: Oil Dri Corporation of America
410 N. Michigan Avenue
Chicago, IL 60611
Attention: Vice President and Chief Financial Officer
b. Any party may change its above street address or portion thereof by
delivering written notification of the change to the other party in accordance
with this Section.
c. In the event that relief is entered, whether at the request of SELLER,
or BUYER or at the request of third parties against SELLER or BUYER, as the case
may be, under any federal or state case or proceeding for liquidation,
reorganization, receivership, conservatorship or similar relief, the party
against whom relief is sought agrees to list or schedule BUYER or SELLER, as the
case may be, as a creditor and/or party in interest in any such case or
proceeding, and agrees further to add BUYER or SELLER, as the case may be, to
any special notice list or similar list of creditors or parties in interest who
specifically request notice in such case as if such request for special notice
were made of BUYER or SELLER, as the case may be, following commencement of such
case or proceeding. Each party hereto acknowledges that free and continuing
access to information provided and agreed to be provided to by the other party
during the Term is a material inducement to such party in entering into this
Agreement and that such party would not enter into this Agreement without a
continuing right to such information, whether the other party operates its
business outside of or under the protection of any judicial proceeding referred
to above.
25. MISCELLANEOUS.
This Agreement shall be governed by and construed in accordance with the laws of
the State of Delaware without reference to the principles of conflicts of laws.
In the event of any dispute over the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and expenses. All
of the schedules, referred to in this Agreement are incorporated herein by
reference. This Agreement is the complete and exclusive statement of the mutual
understanding of the parties and supersedes and cancels all previous written and
19
oral agreements and communications relating to the subject matter of this
Agreement. No failure to exercise, and no delay in exercising, on the part of
either party, any privilege, any power or any rights hereunder (including
without limitation the right to terminate this Agreement pursuant to SECTION 20
above), will operate as a waiver thereof, nor will any single or partial
exercise of any right or power hereunder preclude further exercise of any other
right hereunder. The remedies provided herein, including without limitation
those regarding termination, shall be cumulative and in addition to any other
remedies provided by law or equity. If any provision of this Agreement shall be
adjudged by any court of competent jurisdiction to be unenforceable or invalid,
that provision shall be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable. In the event of any conflict between the terms of this Agreement
and any Schedule (except the Manual), the Schedule shall control the
interpretation thereof; however, in the event of any conflict between the terms
of this Agreement (including any Schedule) with the Manual, the Agreement
(including any Schedule) shall control the interpretation of the Manual. This
Agreement may only be modified or amended by a written modification or amendment
signed by both parties. No agency, partnership, joint venture or employment
relationship is created between the parties by this Agreement. To the degree
that either or both of the parties hereto find it convenient to employ their
standard forms of purchase order or acknowledgment of order in administering the
terms of this Agreement, the party may do so but none of the terms and/or
conditions printed or otherwise appearing on the back of such form shall be
applicable to the sale of the Product.
26. BUYER'S AFFILIATES.
The parties acknowledge and agree that this Agreement is intended and shall
apply to BUYER's Affiliates. As used herein, "BUYER'S AFFILIATES" shall mean any
entity in the United States and Canada now existing or hereafter organized,
created or acquired during the Term, controlling, controlled by or under common
control with a BUYER.
27. SCHEDULE LIST.
SCHEDULE I: QUANTITY, TERM, RENEWAL TERM, PRICE, OTHER TERMS
SCHEDULE II: PRODUCT SPECIFICATIONS
SCHEDULE III: CONTRACT MANUFACTURING MANUAL SEPTEMBER 1999
IN WITNESS WHEREOF, BUYER and SELLER have executed this Agreement as of the date
first written above.
BUYER: A & M Products Manufacturing Company,
a Delaware corporation
By: ______________________
20
Its: _______________________
Date: ____________________
SELLER: Oil Dri Corporation of America,
a Delaware corporation
By: ________________________
Its:__________________________
Date: ________________________
21
SCHEDULES TO MEMORANDUM OF AGREEMENT Entered into as of April 18,
2001 by and between BUYER and SELLER.
SCHEDULE I
A. QUANTITY. BUYER shall purchase from SELLER and SELLER shall produce and
deliver as ordered by BUYER, at the prices set forth below, all of BUYER's
requirements of Finished Product ** per Contract Year for the Eastern United
States Region. BUYER does not guaranty to purchase a specific quantity of
Finished Product from SELLER. BUYER's requirements are currently estimated to be
** per Contract Year. Except as permitted by law and as expressly stated in this
Agreement, including without limitation, SECTIONS 10(b), 10(c), 12(c), 12(d) and
19, BUYER covenants and agrees that it will not purchase Finished Product during
the Term from any person or entity other than SELLER until it has purchased at
least ** of Finished Product in any Contract Year hereunder from SELLER. BUYER
reserves the right to purchase any Finished Product volumes in excess of ** in
any Contract Year from other suppliers provided that BUYER shall first allow
SELLER to sell to BUYER such excess to the extent that SELLER matches the lowest
price for which the BUYER may purchase such excess from third parties.
(1) BUYER may purchase **.
(2) BUYER agrees that no more than ** of its annual total requirements of
Finished Product will be**.
(3) BUYER will have the option, but not the obligation, to purchase a
portion of its requirements of Finished Product for BUYER's Western United
States Region volume from SELLER's Reno plant (Reno Product, as defined below)
**. BUYER cannot exercise its option in this paragraph until after SELLER's Reno
plant is operational.
(4) BUYER and SELLER agree that there will be a transition period after
the Commencement Date before BUYER will purchase all of its requirements of
Finished Product from SELLER. During this time, BUYER may manufacture Finished
Product at its Wrens, Georgia facility. Unless mutually agreed otherwise, **.
B. TERM. The term of this Agreement ("TERM") shall be for a period of **
commencing as of a Commencement Date of April 18, 2001 and expiring on ** unless
sooner terminated pursuant to this Agreement.
C. EXTENSION OF TERM. BUYER may extend this Agreement on all of the same
terms and conditions herein for any period between six (6) months to twenty four
(24) months from the date of expiration of the Term, provided BUYER notifies
SELLER in writing thereof not less than one hundred eighty (180) days
22
prior to the expiration of the initial Term specified in SECTION B above. Should
BUYER extend the Term, the meaning of "Term" in this Agreement shall apply to
such extension as well.
D. DEFINITIONS. Capitalized terms used in this Agreement and the Schedules
attached hereto shall have the following respective meanings (defined in this
Agreement or such Schedules):
(a) "Adjusted ** Index" is the percentage determined by the
following formula:
(( ** Index / Previous **Index)- 1) X **
(b) "Base Price" means ** as of April 18, 2001, and shall adjust at the
beginning of each Contract Year on the Price Adjustment Date based on
the Price Adjustment Mechanism.
(c) "Commencement Date" means April 18, 2001.
(d) "Contract Year" means each twelve-month period beginning on the
Commencement Date and ending on the day prior to each anniversary
thereof.
(e) "Ochlocknee Product" means Finished Product manufactured at
SELLER's Ochlocknee, Georgia Plant.
(f) "Reno Product" means Finished Product manufactured at SELLER's Reno,
Nevada Plant for Finished Product in the Western Region pursuant to
BUYER's option under Section A(2) above.
(g) "** Index" means the estimated index number ** prior to the Price
Adjustment Date. The parties agree that for purposes of determining the
Adjusted ** Index, the ** Index shall have a floor of **.
(h) "Previous **Index" means the ** Index for the immediately preceding
Contract Year to be used in determining the Adjusted ** Index. The
parties agree that the ** Index for the first Contract Year shall be
138. This number shall be used as the Previous ** Index on the first
Price Adjustment Date of April 1, 2002.
(i) "Price Adjustment Date" means April 1.
(j) "ton" means a short ton of two thousand (2000) pounds.
23
E. PRICE
(1) Price for Finished Product will be **. The price also does not include
charges for outbound freight, transit insurance, sales taxes or any duties
payable, all of which shall be borne solely by BUYER. Pursuant to SECTION 11(f),
BUYER shall supply SELLER with bags and chemical additives unique to BUYER's
formulation.
(2) OCHLOCKNEE PRODUCT: The price for Ochlocknee Product shall be the Base
Price.
(3) RENO PRODUCT: The price for Reno Product shall be determined pursuant to
Section A(2) above.
(4) PRICE ADJUSTMENT MECHANISM: The following Price Adjustment Mechanism shall
be used to adjust the Base Price and shall be made on a per ton basis only and
will not be inflation adjusted.
(a) The Base Price for Product shall be adjusted each Contract Year,
as either an increase or a decrease, pursuant to the Price Adjustment Mechanism
on the Price Adjustment Date.
(b) The Price Adjustment Mechanism is as follows:
**
(c) SELLER must provide BUYER with the Adjusted Base Price at least
** prior to the Adjusted Base Price taking effect. Once the Adjusted Base Price
takes effect, it shall become the Base Price for the new Contract Year.
(d) The parties reserve the right to change the Base Price in
accordance with the Price Adjustment Mechanism above at any time other than as
described paragraph (a) above in the event that the ** Index increases or
decreases during any Contract Year by ** or more, or in aggregate of an **
thereafter in such Contract Year.
F. OTHER TERMS.
-----------
(1) PAYMENT TERMS. **
(2) FREIGHT TERMS. F.O.B. SELLER's Dock in Ochlocknee or Reno.
(3) BILLING AND INVOICING REQUIREMENTS.
24
(a) Invoices must meet BUYER's invoicing requirements, including
without limitation accurately reflecting all required data free of accounting
errors; and clear and accurate invoice numbers reflected on statements.
(b) SELLER shall not invoice BUYER for any costs, either for goods
or services, not agreed to herein without prior written approval. Any such
written approval must contain BUYER's Account Code. Without such written
approval containing the Account Code, BUYER will not be responsible for any
costs incurred by SELLER.
(4) LOSS ALLOWANCES. Inventory and usage control of BUYER supplied
materials is SELLER's responsibility and will be managed and reconciled as
outlined in the Loss Allowance Agreement. The Loss Allowance Agreement is
attached hereto as ATTACHMENT A and incorporated herein by reference.
(5) **: In partial consideration for this Agreement and to ensure
continuity of BUYER's Wrens plant during a transition period, SELLER agrees that
**
25
ATTACHMENT A
LOSS ALLOWANCE AGREEMENT
~ Loss Allowance Level ~
Chemicals **
Ancillary **
Bags **
Targets are for guidance until loss allowances are established pursuant to the
procedure below.
Procedure To Establish Loss Allowances
ON-GOING
Physical inventories will be conducted on a quarterly basis. Other mutually
agreeable alternatives, e.g. cycle counting, are acceptable. However, at a
minimum, a year ending physical inventory will be required. Financial liability
for losses (or gains) within a category will occur within thirty (30) days after
the end of each year's business. This allows losses (or gains) within a
category. BUYER will invoice SELLER for any losses within a category (chemicals
vs. packaging) at years end which exceed agreed to acceptable loss allowance
levels. The loss allowance agreement will pertain to all existing Uniform
Product Codes (UPC's). Category losses for any special projects, new project
efforts, etc., will need to be tracked and kept independent of normal activity
by mutual consent as agreed to prior to project initiation at SELLER's plant.