12-00871-015

Exhibit 10.1

CERTAIN CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT, MARKED BY

*****, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 PROMULGATED

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

AMENDMENT AND EXTENSION AGREEMENT

AMERICAN-BLEND CIGARETTE MANUFACTURING AGREEMENT

EXECUTION COPY

Dated December 17, 2012

This Amendment and Extension Agreement (the “Amendment and Extension Agreement”)
is made and entered into on December 17, 2012 (the “Execution Date”) by and
between R. J. REYNOLDS TOBACCO COMPANY, a North Carolina corporation
(hereinafter, “RJRTC”), and BATUS JAPAN, INC., a Delaware corporation
(hereinafter, “BATUS Japan”). RJRTC and BATUS Japan shall be referred to herein
individually as a “Party” and collectively as the “Parties.”

RECITALS

WHEREAS, RJRTC and BATUS Japan entered into the American-blend Cigarette
Manufacturing Agreement (the “ACMA”) on May 26, 2010, with effect from
January 1, 2010, immediately following termination, with effect from midnight on
December 31, 2009, of the original Contract Manufacturing Agreement, dated
July 30, 2004 (defined in the ACMA as the Original Agreement);

WHEREAS, the ACMA is due to expire with effect from December 31, 2014;

WHEREAS, pursuant to the ACMA, RJRTC has a one-time exercisable right to extend
the Existing ACMA, subject to the terms of Sub-Section 4.4 thereof; and

WHEREAS, the Parties have determined that it is in their current respective and
collective best interests to amend certain terms of the ACMA, as set forth
herein, with effect from January 1, 2013, for the remainder of the Term of the
ACMA and, thereafter, to extend the ACMA, beyond December 31, 2014, again
subject to the amended and additional terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, and for other good and valuable consideration, the mutuality,
receipt and sufficiency of which are hereby acknowledged, RJRTC and BATUS Japan
agree as follows:

SECTION 1

DEFINITIONS

Save as specifically provided in this Amendment and Extension Agreement, all
defined terms used herein shall have the same meaning as set out in the ACMA.

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For the purposes of this Amendment and Extension Agreement, the following terms
shall mean:

 

1.1 “2012 Three Year Rolling Forecast” means the initial Three Year Rolling
Forecast for the Contract Years 2013, 2014 and 2015 provided by BATUS Japan to
RJRTC as at December 12, 2012, set out at Schedule “G” of the ACMA (and attached
as Schedule 1 hereto).

 

1.2 “ACMA” has the meaning set forth in the first Recital.

 

1.3 “Amendment and Extension Agreement” shall have the meaning set forth in the
Preamble.

 

1.4 “Base Volume Forecast” means the latest of (i) the first forecast provided
by BATUS Japan to RJRTC for Contract Year 2015 in the 2012 Three Year Rolling
Forecast, or (ii) the forecast provided by BATUS Japan to RJRTC for the first
Contract Year included in the most recent adjusted Three Year Rolling Forecast
provided under new Sub-Section 2.22(f) of the ACMA set forth at Sub-Section 7.1
hereof or under either new Sub-Section 2.23(c) or new Sub-Section 2.23(d) of the
ACMA set forth at Sub-Section 7.2 hereof.

 

1.5 “Cannibalization Protection Event” means any one of the events contemplated
by new Sub-Section 2.23(b) of the ACMA set forth at Sub-Section 7.2 hereof.

 

1.6 “Cannibalization Protection Mechanism” shall have the meaning set forth in
new Sub-Section 2.23 of the ACMA set forth at Sub-Section 7.2 hereof.

 

1.7 “Conventional Format” means Cigarette and Packaging formats where neither
the Cigarette nor the Packaging format is a New-to-World Innovative Format.

 

1.8 “Combined Index” means a composite price index calculated by reference to
the PPI, the CPI and the ECI as at the end of the second quarter of the Contract
Year in which it is calculated, with each component being given equal weighting.

 

1.9 “CPI” means the Utilities Consumer Price Index – All Urban Consumers
Filtered on Electricity, South Region as compiled by the United States Bureau of
Labor Statistics (1982-1984 = 100). If the Bureau of Labor Statistics
substantially revises the manner in which the CPI is determined, an adjustment
shall be made in the revised index that will produce results equivalent, as
nearly as possible, to those that would be obtained if the CPI had not been so
revised. If the 1982-1984 average is no longer used as an index of one hundred
(100), or if the CPI is no longer available, then the Parties shall substitute a
mutually acceptable comparable index, based on changes in the cost of production
measured at the finished goods level published by an agency of the federal
government of the U.S.A.

 

1.10 “Execution Date” has, for the purpose of this Amendment and Extension
Agreement, the meaning set forth in the Preamble. For the avoidance of doubt,
for the purpose of the ACMA, “Execution Date” shall retain the meaning set forth
in the Preamble to that Agreement.

 

1.11

“ECI” means the Employment Cost Index – South as compiled by the United States
Bureau of Labor Statistics (2005 = 100). If the Bureau of Labor Statistics
substantially revises the manner

 

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  in which the ECI is determined, an adjustment shall be made in the revised
index that will produce results equivalent, as nearly as possible, to those that
would be obtained if the ECI had not been so revised. If the 2005 average is no
longer used as an index of one hundred (100), or if the ECI is no longer
available, then the Parties shall substitute a mutually acceptable comparable
index, based on changes in the cost of production measured at the finished goods
level published by an agency of the federal government of the U.S.A.

 

1.12 “Gain Share Principle” means the principle applicable to the implementation
of a cost savings initiative, whereby any savings attributed to the initiative
will be shared on a 50:50 basis between the Parties for the twelve (12) months
following implementation of the initiative, with BATUS Japan benefitting from
the full savings attributed to the initiative thereafter.

 

1.13 “Joint Incentive Program” shall have the meaning set forth in new
Sub-Section 2.10A of the ACMA set forth at Sub-Section 6.1 hereof.

 

1.14 “*****” means the *****, as further described in new Sub-Section 3.1 of the
ACMA set forth at Sub-Section 5.1 hereof.

 

1.15 “*****” means *****, as further described in new Sub-Section 3.1 of the
ACMA set forth at Sub-Section 5.1 hereof.

 

1.16 “New-to-World Innovative Format” means a Cigarette or Packaging format
utilising proprietary technology controlled by one Party (or any of its
Affiliates) and not yet otherwise licensed to the other Party (or its
Affiliates).

 

1.17 “*****” has the meaning set forth in new Sub-Section 3.1 of the ACMA set
forth at Sub-Section 5.1 hereof.

 

1.18 “*****” means the table at Schedule “I” of the ACMA (and attached as
Schedule 3 hereto) setting out the ***** of *****, as further described in new
Sub-Section 3.1(a) of the ACMA set forth at Sub-Section 5.1 hereof.

 

1.19 “Three Year Rolling Forecast” has the meaning set forth in new
Sub-Section 2.9 of the ACMA set forth at Sub-Section 2.5(b) hereof.

 

1.20 “*****” has the meaning set forth in new Sub-Section 3.1 of the ACMA set
forth at Sub-Section 5.1 herein.

SECTION 2

AMENDMENT OF ACMA DURING REMAINING TERM

 

2.1 Save as provided in this Section 2 and subject to the amendments set out
herein, the Parties agree that the ACMA is to remain in force and effect until
the end of the Term, on December 31, 2014.

 

2.2

To the extent applicable to the amendments set forth in this Section 2, the
definitions set forth in Section 1 herein shall be incorporated mutatis mutandis
in the ACMA in appropriate sequence,

 

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  with the Section and Sub-Section references amended as appropriate to identify
the corresponding Sections and Sub-Sections in the ACMA (as amended).

 

2.3 The following shall be inserted as a new Sub-Section 3.1(c) of the ACMA:

“***** for *****. With effect ***** and for ***** the ACMA, RJRTC shall *****
from ***** in accordance with ***** set forth in ***** of the ACMA on all *****
BATUS Japan ***** (and for the avoidance of doubt, the Parties acknowledge that
the ***** may ***** on ***** RJRTC to BATUS Japan *****). For the avoidance of
doubt, in the event that this Amendment and Extension Agreement is not executed
until after December 31, 2012, ***** this Sub-Section shall ***** from
January 1, 2013.”

 

2.4 Gain Share Principle.

 

  (a) Sub-Section 2.10(a) of the ACMA shall remain in effect, save that the
reference therein to Sub-Section 4.4(e) of the ACMA shall be deleted.

 

  (b) Sub-Section 2.10(b) of the ACMA is deleted and replaced as follows:

“Either Party may from time to time propose that RJRTC shall purchase particular
raw materials (including but not limited to, Tobacco Materials, Non-Tobacco
Components, and Packaging materials) from specific sources and/or suppliers,
including BATUS Japan or any of its Affiliates (in which case, for the avoidance
of doubt, RJRTC shall remain solely responsible for ordering, receiving,
storing, maintaining, using, paying for (including the payment of all import
duties, fees and internal revenue taxes, if applicable) and disposing of any
such raw materials). Save where RJRTC can demonstrate that purchasing the
relevant raw materials from the specified source and/or supplier (i) would be
contrary to any relevant law or regulation, or (ii) would place RJRTC in breach
of any contractual arrangement with other suppliers and/or would be unavoidably
and materially prejudicial to RJRTC’s interests as a result of any contractual
arrangement RJRTC may already have in place with other suppliers, RJRTC shall
purchase the relevant raw materials from the source and/or supplier specified by
BATUS Japan. A change of source or supplier in accordance with the above shall
be treated as a Specification change proposed by RJRTC or BATUS Japan (as the
case may be) and the provisions of Sub-Sections 2.3(b), (c) and (d) shall apply
(including in relation to resultant pricing changes to reflect any lower raw
material costs and/or any change in labor costs due to machinability of the raw
materials). To assist BATUS Japan source raw materials on more advantageous
trade terms, on request by BATUS Japan, RJRTC shall promptly provide BATUS Japan
a then current priced Bill of Materials for the particular Product(s) in
question.

 

  (c) A new Sub-Section 2.10(c) is added as follows:

“The Gain Share Principle shall apply with respect to any cost savings
initiatives undertaken in relation to the purchase and supply of Tobacco
Materials, Non-Tobacco Components, and Packaging materials in accordance with
Sub-Section 2.10(b), save with respect to any cost savings initiatives already
in progress as at December 31, 2012. Allocation of savings realised though cost
savings initiatives subject to the Gain Share

 

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Principle will be accomplished through an adjustment to the Product price for
affected SKUs for the first twelve (12) months following implementation of the
initiative. Such adjustments shall be applied, for those twelve (12) months
only, after (and in addition to) application of the provisions of
Sub-Section 2.3(d).”

 

2.5 Forecasting.

 

  (a) Sub-Sections 2.7 and 2.8 of the ACMA are deleted.

 

  (b) Sub-Section 2.9 is deleted and replaced as follows:

“Periodic Forecasts.

 

  (a) BATUS Japan shall continue to provide RJRTC on a monthly basis with
rolling eighteen (18) month forecasts (by SKU) that provide projections for
volumes of the various Products for which BATUS Japan expects to place Purchase
Orders during the period covered by such forecasts.

 

  (b) BATUS Japan shall in December of Contract Year 2012 and November of each
subsequent Contract Year, provide RJRTC with a three (3) year rolling forecast
providing projections, in each case for the subsequent three Contract Years, for
(i) its anticipated volume requirements (assuming foreseeable industry decline
in the Territory), (ii) assumed industry decline in the Territory, and
(iii) Kent and KOOL brand family volumes not sourced from RJRTC, to assist RJRTC
with its resource planning (the “Three Year Rolling Forecast”). For the
avoidance of doubt, the Parties acknowledge that BATUS Japan has, as at
December 12, 2012, provided RJRTC with an initial Three Year Rolling Forecast
for the Contract Years 2013, 2014 and 2015 (the “2012 Three Year Rolling
Forecast”); and that, in November 2013, BATUS Japan shall provide RJRTC with a
Three Year Rolling Forecast for the Contract Years 2014, 2015 and 2016. The 2012
Three Year Rolling Forecast is attached as Schedule “G” hereto.

 

  (c) If any projection for any one (1) Contract Year set forth in the most
recent Three Year Rolling Forecast varies by plus or minus five (5) per cent or
more from the corresponding projection for that Contract Year in any previous
Three Year Rolling Forecast, the Parties shall work together in good faith to
understand the changes and minimise the resource rationalization impact to RJRTC
and the cost impact to BATUS Japan. For the avoidance of doubt and by way of
example, the 2014 Three Year Rolling Forecast will be compared to (i) the 2012
Three Year Rolling Forecast for Contract Year 2015, (ii) the 2013 Three Year
Rolling Forecast for Contract Year 2015, and (iii) the 2013 Three Year Rolling
Forecast for Contract Year 2016.

 

  (d) BATUS Japan shall in April of each Contract Year, provide RJRTC with a
five (5) year rolling forecast to assist RJRTC with leaf purchase planning.

 

  (e) Any and all forecasts supplied are non-binding and shall be supplied for
purposes including general planning of capacities and inventories.

 

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2.6 Schedule 1 hereto shall be added as Schedule “G” to the ACMA.

 

2.7 Sub-Section 2.17(a) of the ACMA shall be amended to replace all references
to “INCOTERMS 2000” with “INCOTERMS”.

 

2.8 Deletion of Existing Extension Option. Sub-Section 4.4 of the ACMA is
deleted in its entirety and all references in the ACMA thereto are deleted
mutatis mutandis.

SECTION 3

EXTENSION OF ACMA

 

3.1 Sub-Section 4.1 of the ACMA is deleted and replaced as follows:

“Term of the Agreement. This Agreement shall be effective upon the Effective
Date and shall remain in effect as amended by Section 2 of the Amendment and
Extension Agreement until December 31, 2014 unless terminated earlier by either
Party pursuant to its terms and conditions. Effective January 1, 2015, this
Agreement shall be extended as amended in accordance with Sections 4 through 8
of the Amendment and Extension Agreement.”

 

3.2 Effective January 1, 2015, and to the extent applicable to the amendments
set forth in Sections 4 through 8 of this Amendment and Extension Agreement, the
definitions set forth in Section 1 herein shall be incorporated mutatis mutandis
in the ACMA in appropriate sequence, with the Section and Sub-Section references
amended as appropriate to identify the corresponding Sections and Sub-Sections
in the ACMA (as amended).

SECTION 4

TERM AND TERMINATION

 

4.1 Effective January 1, 2015, a new Sub-Section 4.2(e) shall be inserted in the
ACMA as follows:

“By Either Party on Three Years Notice. Either Party may terminate this
Agreement by giving three (3) years’ notice to the other Party, such notice to
be given no earlier than January 1, 2016.”

 

4.2 Effective January 1, 2015, a new Sub-Section 4.2A(e) shall be inserted in
the ACMA as follows:

“Equipment and Volume Moves. In the event that either Party gives notice to
terminate this Agreement pursuant to Sub-Section 4.2(e) and subject to any
migration plan agreed between the Parties, no equipment or shipment volume moves
will commence prior to two (2) years nine (9) months from date of service of the
termination notice with a view to completing the migration within the nine
(9) months thereafter.”

 

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SECTION 5

PRICING

 

5.1 Effective *****, Sub-Section 3.1 of the ACMA shall be deleted in its
entirety and replaced as follows:

“Pricing. The Product price for each SKU shall comprise the *****, the ***** and
the *****, each of which shall be calculated in accordance with the provisions
set out herein. For ***** and for each *****, once Product pricing has been
established and agreed between the Parties for the *****, RJRTC shall prepare
and the Parties shall mutually execute a revised Schedule “F” governing the
Product pricing for ***** which shall automatically be incorporated into this
Agreement without further action by the Parties.

 

  (a) *****. The ***** included in the Product price shall be the ***** subject
to the ***** specified in *****.

The ***** assumption for a ***** shall be based on the ***** for *****
calculated by reference to the *****, and shall be an aggregate of ***** set out
in Schedule “H” ***** RJRTC across ***** its ***** business (excluding *****
dedicated to RJRTC’s *****, as set out in Schedule “H”) divided by *****. The
***** is applied across all SKUs regardless of ***** and ***** (for example,
*****). The ***** assumption shall be reviewed following the end of *****, and
will be subject to ***** an ***** of the ***** the ***** and the ***** for that
*****, leading to a ***** following such *****.

The ***** shall be determined by reference to the ***** at Schedule “I”. In each
***** subsequent *****, promptly after the availability of the *****, the *****
will be adjusted in line with the *****, subject to ***** the figure ***** and
***** the figure *****. In ***** (for *****) and every ***** (or as otherwise
agreed in writing between the Parties), or to meet the requirements of
Sub-Section *****, the Parties will negotiate in good faith with the intention
of ***** the ***** to reflect changes in ***** resulting from circumstances
beyond the control of either Party. The Parties acknowledge that the purpose of
the ***** is to ensure that the ***** a given ***** remains *****, but that it
is not ***** the application of a ***** or ***** due to any matter within either
Party’s control. Once the ***** is established and agreed between the Parties
for a *****, RJRTC shall prepare and the Parties shall mutually execute a
revised Schedule “I” for *****, which shall automatically be incorporated into
this Agreement without further action by the Parties.

New SKUs introduced and changes to Specifications for existing SKUs implemented
during ***** will be priced based on ***** in connection with that SKU ***** of
*****, if materially different from *****, and will be subject ***** set forth
***** in *****.

 

  (b)

*****. ***** are to be included in the Product price ***** a *****. The *****
shall be reviewed following the end of *****, and will be subject to ***** an
***** of ***** between the ***** and the ***** for that *****, leading to a
***** following such *****. ***** received by RJRTC from ***** and ***** on
***** (net *****) shall be included

 

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  in *****. For the avoidance of doubt, ***** between ***** will be *****
attributable to *****.

 

  (c) *****. ***** (for example, *****.) are to be included in the Product price
to BATUS Japan at *****. Such ***** are to be agreed by both Parties in advance.
The ***** shall be reviewed following the end of each *****, and will be subject
to ***** an ***** of ***** between the ***** and ***** and the ***** and *****
for that *****, leading to a ***** following such *****.

 

  (d) For the avoidance of doubt, and save to the extent included within the
*****, ***** shall not be included in the Product price, but shall be charged in
accordance with the *****, subject to such ***** as the Parties may agree upon
in good faith.”

 

5.2 Effective January 1, 2015, Sub-Section 2.2(b) shall be amended to delete the
final sentence.

 

5.3 Effective January 1, 2015, Sub-Section 2.3(d)(ii) shall be amended to
replace all references to “Sub-Sections 3.1(a) and 3.1(b)” with references to
“Sub-Section 3.1”.

 

5.4 Effective January 1, 2015, Schedule 2 hereto shall be added as Schedule “H”
to the ACMA and Schedule 3 hereto shall be added as Schedule “I” to the ACMA.

SECTION 6

JOINT INCENTIVE PROGRAM

 

6.1 Effective January 1, 2015, a new Sub-Section 2.10A shall be inserted in the
ACMA as follows:

“Joint Incentive Program. In addition to the principles set out in
Sub-Section 2.10 with respect to the purchase and supply of materials, either
Party may propose any cost savings initiative designed to lead to an on-going
reduction in *****. Any such proposal shall be governed by a joint incentive
program designed to allow the Parties to share in its benefits and incentivise
both BATUS Japan and RJRTC to optimise costs (the “Joint Incentive Program”).
The Joint Incentive Program will be based on the Gain Share Principle and shall
apply to any area of the business, subject to compliance with all applicable
laws and regulations. It shall be governed by a joint steering team of
individuals nominated by the Parties, and all initiatives shall be subject to
approval by both Parties. Any development costs associated with the proposed
initiative shall be borne equally by both Parties (save as otherwise agreed in
writing between the Parties). For the avoidance of doubt, any cost saving
initiatives already in progress as of December 31, 2012 shall be excluded from
the Joint Incentive Program. Allocation of savings realised though cost savings
initiatives subject to the Gain Share Principle shall be accomplished through an
adjustment to the Product price for affected SKUs for the first twelve
(12) months following implementation of the initiative. Such adjustments shall
be applied, for those twelve (12) months only, after (and in addition to)
application of the provisions of Sub-Section 2.3(d).”

 

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SECTION 7

NEW PRODUCT LAUNCHES

 

7.1 Effective January 1, 2015, and notwithstanding any provision to the contrary
in the ACMA, a new Sub-Section 2.22 shall be inserted in the ACMA to govern the
sourcing of new Products, as follows:

“New Product Launches

 

  (a) New-to-World Innovative Formats originating within the B.A.T. Group. In
the case of Cigarette product launches involving New-to-World Innovative Formats
originating within the B.A.T. Group, BATUS Japan will have the right to source
the manufacture and supply of such Cigarette products in the Kent or KOOL brand
families for sale within the Territory from within the B.A.T. Group network,
subject to the Cannibalization Protection Mechanism set forth at
Sub-Section 2.23 hereof.

 

  (b) New-to-World Innovative Formats originating from RJRTC. In the case of
Cigarette product launches involving New-to-World Innovative Formats originating
from RJRTC or its Affiliates, such Cigarette products in the Kent or KOOL brand
families will be sourced from RJRTC in accordance with this Agreement and will
be the subject of separate agreements with respect to the use of the relevant
proprietary technology.

 

  (c) Conventional Formats where there is existing manufacturing capacity within
RJRTC only. In the case of Cigarette product launches involving Conventional
Formats where there is existing manufacturing capacity within RJRTC but not
within the B.A.T. Group (for example, as of the Effective Date, *****), such
Cigarette products in the Kent or KOOL brand families will be sourced from RJRTC
in accordance with this Agreement. In the event that RJRTC requires additional
manufacturing capacity to manufacture such Cigarette products due to increased
demand, the associated capital expenditure will be funded by BATUS Japan.

 

  (d) Conventional Formats where there is existing manufacturing capacity within
both RJRTC and the B.A.T. Group. In the case of Cigarette product launches
involving Conventional Formats where there is existing manufacturing capacity
within both RJRTC and the B.A.T. Group (for example, as of the Effective Date,
*****), such Cigarette products in the Kent or KOOL brand families will be
initially sourced from RJRTC in accordance with this Agreement. In the event
that RJRTC’s manufacturing capacity is insufficient to meet evolving demand,
then BATUS Japan will have the opportunity to source the incremental requirement
for such Cigarette products from within the B.A.T. Group in order to avoid
additional capital expenditure.

 

  (e) Conventional Formats where there is no existing manufacturing capacity
within RJRTC. In the case of Cigarette product launches involving Conventional
Formats where there is no existing manufacturing capacity within RJRTC (for
example, as of the Effective Date, *****), such Cigarette products in the Kent
or KOOL brand families will be sourced from within the B.A.T. Group, subject to
the Cannibalization Protection Mechanism set forth at Sub-Section 2.23 hereof.

 

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  (f) If RJRTC declines the opportunity to source Cigarette products in
accordance with its rights set forth in Sub-Sections 2.22(c) or (d) above, then
BATUS Japan may provide RJRTC with an adjusted Three Year Rolling Forecast to
exclude the SKU concerned.”

 

7.2 Effective January 1, 2015, and notwithstanding any provision to the contrary
in the ACMA, a new Sub-Section 2.23 shall be inserted in the ACMA to establish
the Cannibalization Protection Mechanism, as follows:

“Cannibalization Protection Mechanism

 

  (a) In the event of the occurrence of Cigarette product launches as described
in Sub-Sections 2.22(a) and (e) hereof, the Cannibalization Protection Mechanism
will apply in the following circumstances:

 

  (i) If RJRTC’s total annual sales to BATUS Japan in a Contract Year are less
than ninety-five (95) per cent of the projected volume requirements set out in
the Base Volume Forecast (adjusted to reflect actual versus assumed industry
decline in the Territory); and

 

  (ii) RJRTC’s total annual sales to BATUS Japan in that Contract Year are less
than ninety-five (95) per cent of RJRTC’s projected share of BATUS Japan’s total
sales within the Kent and KOOL brand families set out in the Base Volume
Forecast.

For the purpose of assessing whether the Cannibalization Protection Mechanism
applies in accordance with this Section 2.23(a), and for the avoidance of doubt,
any SKUs which are the subject of waivers granted by RJRTC to BATUS Japan which
are either in effect as of November 1, 2012 or were granted between November 1,
2012 and December 31, 2014 shall be excluded from the Base Volume Forecast.

 

  (b) When the Cannibalization Protection Mechanism applies, one of the
following will occur:

 

  (i) If new investment is required within a two (2) year planning horizon to
meet BATUS Japan’s additional demand projections, RJRTC shall have a first
option to acquire the capacity to meet the additional demand, with the
associated capital expenditure to be shared between the Parties. In such
circumstances, RJRTC will fund all capital expenditure requirements and recharge
***** of the depreciation cost to BATUS Japan as part of the overall
manufacturing cost. In the event that this Agreement is terminated, BATUS Japan
will reimburse RJRTC for BATUS Japan’s share of the un-depreciated asset value
or have the option to acquire the assets at BATUS Japan’s share of the then
current net book value.

 

  (ii) If no new investment is required to meet BATUS Japan’s demand
projections, then, at BATUS Japan’s discretion, either:

 

  (1)

the ***** shall be reset in accordance with the provisions of Sub-Section 3.1(a)
and BATUS Japan will compensate RJRTC for its lost margin on *****

 

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  (based on an average weighted margin by SKU) for the twelve (12) months
following the relevant Cigarette product launch; or

 

  (2) RJRTC will have the opportunity to acquire the capacity to meet the
additional demand, with the associated capital expenditure to be shared between
the Parties. In such circumstances, RJRTC will fund all capital expenditure
requirements and recharge ***** of the depreciation cost to BATUS Japan as part
of the associated *****. In the event that this Agreement is terminated, BATUS
Japan will reimburse RJRTC for BATUS Japan’s share of the un-depreciated asset
value or have the option to acquire the assets at BATUS Japan’s share of the
then current net book value.

 

  (c) Following a Cannibalization Protection Event, BATUS Japan may provide
RJRTC with an adjusted Three Year Rolling Forecast.

 

  (d) If RJRTC declines the opportunity to co-invest arising in either of the
circumstances set forth in Sub-Section 2.23(b), then BATUS Japan may provide
RJRTC with an adjusted Three Year Rolling Forecast to exclude the SKU concerned
and no cannibalization compensation shall be payable by BATUS Japan to RJRTC.

 

  (e) The Parties each acknowledge that it is not their intention for the
Cannibalization Protection Mechanism to come into effect, but recognize that it
is included herein in order to mitigate the impact on RJRTC, where product
launches sourced internally within the B.A.T. Group have the effect of reducing,
through cannibalization, the volumes manufactured by RJRTC under this Agreement.
BATUS Japan further acknowledges that it is not its intention to artificially
avoid the Cannibalization Protection Mechanism coming into effect, whether
through its preparation of the Base Volume Forecast or otherwise.”

SECTION 8

FURTHER AMENDMENTS

 

8.1 Effective January 1, 2015, the following amendments shall be made to the
ACMA:

 

  (a) Sub-Section 2.21 of the ACMA shall be amended as follows:

“Incorporation of Existing Guidelines and Collateral Agreements. Certain
existing guidelines pertaining to matters including capital expenditures, the
pricing of new products, specification changes and the sourcing of novelty
items, the maintenance of materials inventories and the disclosure of
information concerning ingredients, as more specifically identified in Schedule
“E” of this Agreement and set forth in the Appendices attached thereto, are
expressly incorporated into and made a part of this Agreement. All references
therein to the Original Agreement shall hereafter be regarded as references,
mutatis mutandis, to this Agreement. In the event of any inconsistency between
any provisions of this Agreement and any provisions in any of the guidelines
incorporated by reference pursuant to the above and Schedule “E”, this Agreement
shall prevail.”

 

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  (b) With reference to Schedule “E” of the ACMA and its Appendices,
incorporated by reference in Sub-Section 2.21 of the ACMA:

 

  (i) It is the intention of the Parties that Appendices 1, 2 and 9 to Schedule
“E” of the ACMA shall be reviewed and revised or replaced as necessary, subject
to good faith negotiations between the Parties.

 

  (ii) Appendices 6, 7 and 8 to Schedule “E” of the ACMA shall be deleted.

 

  (c) The first paragraph of Sub-Section 3.5 of the ACMA shall be amended as
follows:

“RJRTC shall maintain accurate and complete records including, but not limited
to, all cost elements included within the *****, correspondence, instructions,
receipts, quality assurances records, Specifications, Purchase Orders,
Non-Tobacco Component and Tobacco Material procurement records, warehousing
records and cost data, export records, transportation records and cost data,
other manufacturing cost records and data, and similar documents and data
relating to BATUS Japan’s order and receipt of Products from RJRTC and RJRTC’s
production and delivery of Products for BATUS Japan. RJRTC shall keep such
records in sufficient detail to enable BATUS Japan to determine or verify *****
included in the Product price, raw materials inventories, process conditions and
quality controls for Products supplied pursuant to each Purchase Order. BATUS
Japan shall likewise have the right to review and audit RJRTC’s records
(a) relating to all of the above, and (b) projected and actual Product costing
increases or decreases derived from changes in Specifications made pursuant to
the procedures set forth above in Sub-Section 2.3.”

SECTION 9

MISCELLANEOUS PROVISONS

 

9.1 Sections 5 (Confidentiality) and 7 (Miscellaneous) of the ACMA are
incorporated mutatis mutandis into this Amendment and Extension Agreement

 

9.2 The Parties acknowledge that the ACMA shall be read and interpreted in view
of this Amendment and Extension Agreement, and reasonable attempts shall be made
to read and interpret the ACMA in a manner consistent with the meaning, terms
and conditions that the Parties intend to be provided by this Amendment and
Extension Agreement.

 

9.3 In the event of any conflict between this Amendment and Extension Agreement
and the ACMA, the terms of this Amendment and Extension Agreement shall take
precedence.

 

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IN WITNESS WHEREOF, the Parties have caused this Amendment and Extension
Agreement to be executed by their duly authorized representatives effective as
of the Execution Date as defined above.

 

BATUS JAPAN, INC. By:  

/s/ Teresa M. Riggs

Print Name:  

Teresa M. Riggs

Title:  

President

Date:  

12/17/12

 

(“BATUS Japan”)

R. J. REYNOLDS TOBACCO COMPANY By:  

/s/ Andrew D. Gilchrist

Print Name:  

Andrew D. Gilchrist

Title:  

President

Date:  

12/14/12

 

(“RJRTC”)

 

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Schedules to this Amendment and Extension Agreement:

1 – Schedule “G” to the ACMA – 2012 Three Year Rolling Forecast

2 – Schedule “H” to the ACMA – *****

3 – Schedule “I” to the ACMA – *****

 

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SCHEDULE 1

SCHEDULE “G” to the ACMA

2012 Three Year Rolling Forecast

Summary

 

LOGO [g483570g01p36.jpg]

 

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Volume – Detail

*****

 

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Share of Market – Detail

*****

 

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SCHEDULE 2

SCHEDULE “H” to the ACMA

*****

 

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SCHEDULE 3

SCHEDULE “I” to the ACMA

*****

 

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