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October 1, 1998
From: Massimo's Management
This letter is written as a follow up to current conversations regarding the status of certain agreements Massimo's has with American National Investments, Inc., (Kroger and Armed Forces)
Let me begin by saying that Massimo's is continually pursuing business opportunities and exploring joint venture relationship, which could lead to the expansion of our business base. Generally, our strategy is to find products and services that compliment our core bakery business. Then, to take these products and market them through our wholesale customer base or eventually through the Java Centrale franchise base. In addition, we are continuing to explore joint venture Internet "E-Commerce" opportunities.
One of the many opportunities that we have explored during the past few months has been the "ANI" opportunity. In this particular situation the products represented by ANI appeared to be a perfect match with our business strategy. Not only did the ANI products compliment our core product strategy but in addition the products also fit our distribution strategy. Consequently, we were eager to invest our time, efforts and money in pursuing the contracts that ANI presented to us.
Initially, we had our production staff prepare a budget for the ANI project based on the ingredients as presented to us by ANI. However, as we began to move into production, it became apparent that we were not going to be able to meet the economies of scale we originally projected because the ingredients and production process required by ANI were beyond the original scope as presented to us by ANI. Subsequently, we suggested to the management of ANI that we very much wanted their business however, we needed to have the flexibility to control the production process and to consider some flexibility in ordering ingredients in order to maintain the pricing structure ANI indicated they were looking for.
At this point, we have indicated to ANI that we would like for them to present us with a final ingredient list, at which point we would take that list and prepare "final" samples and pricing for their consideration. That is where we have left it with them.
Massimo's would obviously be interested in producing these products for ANI, however we must be able to product these products at a profit. It was our experience during the initial ANI production runs that there were still some issues that were being worked out within the ANI organization and more importantly some outstanding issues regarding the production process.
We hope that this is helpful in clarifying your understanding of the current relationship between Massimo's and ANI. Massimo's is currently waiting for the opportunity to present ANI a "final" bid.
Crawford Shaw, Jr.
Bakery Operations President
Massimo's Management Team
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