exv10w2





Exhibit
10.2



ONTARIO COURT OF JUSTICE



B E T W E E N:




HER MAJESTY THE QUEEN



- and -



NORTHERN BRANDS INTERNATIONAL, INC.



 





AGREED STATEMENT OF FACTS

Containing admissions made pursuant to

s.655 of the Criminal Code



 





	A.	 	The Accused
	 
	 	 	Northern Brands International, Inc.
	 
	1.	 	Northern Brands International, Inc. (“NB1”) was incorporated in the State of Delaware on
December 10, 1992, with its head office located in Winston-Salem, North Carolina. NBI was a
direct subsidiary of another Delaware corporation, RJR Nabisco Inc. (“RJR Nabisco”), now known
as RJ Reynolds Tobacco Holdings, Inc., and an affiliate of RJ Reynolds Tobacco Company
(“RJRT”). Prior to 1999 and throughout the material time, defined for the purposes of this
Agreement as from February 18, 1993 to December 31, 1996, inclusive, NBI was a U.S. recipient
of tobacco products of a federally-incorporated Canadian corporation, RJR Macdonald Inc.
(RJR-Ml”), now continued under the name of JTI-Macdonald Corp (“JTI-MC”). For the purposes of
these admissions, JTI-MC will be referred to by the corporate name employed during the
material time, RJR-MI.
	 
	B.	 	General Background










 



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	1.	 	During the relevant period RJR-Ml was one of three major Canadian tobacco manufacturers. The
other manufacturers were Imperial Tobacco Limited and Rothmans, Benson & Hedges. Of these,
RJR-Ml had the smallest overall total production and market share.
	 
	2.	 	Canadian and American tobacco products do not taste alike. Canadian cigarettes and fine cut
tobacco are produced from “Virginia” tobacco leaves, whereas U.S. cigarettes and fine cut
tobacco are made from a blend of burley and air cured tobacco. Generally, Canadian smokers
prefer the Virginia blend of tobacco used in Canadian cigarettes and U.S. smokers prefer the
American tobacco blend. Historically, most Canadian cigarettes exported from Canada to the
United States were purchased and consumed by Canadians travelling or residing in the United
States.
	 
	3.	 	Federal excise taxes and duties are payable on tobacco products manufactured, sold and
consumed in Canada. The provinces of Ontario and Quebec impose taxes payable by the purchaser
of tobacco products within each province. In the late 1980s and into the early 1990s, the
Canadian federal and provincial governments raised tobacco taxes and duties significantly in a
declared effort to curtail the consumption of tobacco products in Canada. As a result, the
price of tobacco products sold in Canada increased substantially.
	 
	4.	 	The price of tobacco products manufactured in Canada, but exported for sale outside of
Canada, was not affected by these increases in taxes and duties. The taxes and duties did not
apply to these products and they could be exported on a “tax exempt” basis. Consequently, a
significant price differential developed between the price of Canadian tobacco products sold
domestically and those exported to and sold in the United States.










 



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	5.	 	As the price of cigarettes in Canada continued to increase during this period, increasing
numbers of Canadians taking advantage of the escalating price differential were regularly
crossing the border into the United States to purchase Canadian tobacco products. Canadians
who purchased exported tobacco products did not always declare their purchases at the border
upon their return to Canada, or returned with quantities in excess of their personal duty-free
allowances.
	 
	6.	 	In addition, there had always been those who purchased Canadian tobacco products in the
United States and smuggled them across the Canada-U.S. border to sell in Canada without
payment of applicable Canadian duties and taxes. The increasing difference in price between
these two markets stimulated a growth in the contraband market of tobacco. Almost the entire
contraband market for tobacco products involved areas straddling the Canadian-American border
in the provinces of Ontario and Quebec.
	 
	7.	 	It was common knowledge to RJR-Ml and many others that the majority of the Canadian tobacco
products exported to and sold in the United States were smuggled back into the provinces of
Ontario and Quebec without the payment of applicable duties and taxes to be sold and consumed
by persons in those provinces.
	 
	C.	 	Facts Relating to the Offence Committed by NBI
	 
	1.	 	Between the 18th day of February, 1993, and the 31st day of December, 1996, NBI conspired to
aid persons to sell and to be in possession of tobacco products manufactured in Canada and
elsewhere that were not packaged and were not stamped in conformity with the Excise Act and
its amendments and the ministerial regulations, contrary to s. 465(1)(c) of the Criminal Code.










 



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	2.	 	NBI was incorporated on December 10, 1992, with the knowledge and approval of Mr. Lang, the
President and Chief Executive Officer of RJR-Ml. At that time, NBI was created at the instance
of RJR-MI for the purpose of transacting all future U.S. sales of Canadian products
manufactured by RJR-MI.. NBI’s executives were managed by senior RJR-MI executives. Mr. Lang
was also a directing mind of NBI. Shortly after NBI’s incorporation, beginning in February,
1993, with the knowledge and approval of Mr. Lang, NBI agreed with others that employees of
RJR-MI and NBI should coordinate the transfer of RJR-Ml tobacco products manufactured in
Montreal and elsewhere into distribution channels so that they could be transported by
smugglers into Canada for sale in the underground market. These RJR-Ml products were not
packaged and not stamped in conformity with the Excise Act. Once operational, NBI became
responsible for the management of all of RJR-MI’s accounts connected to product which was
smuggled into Canada.
	 
	3.	 	NBI accepts responsibility for its actions in the above described events and further admits
that NBI breached section 465(l)(c) of the Criminal Code by entering into a criminal
conspiracy, the object of which was to aid others to sell or be in possession of RJR-MI
tobacco products manufactured in Canada and elsewhere that were not packaged and were not
stamped in conformity with the Excise Act and its amendments and the ministerial regulations.
	 
	D.	 	Proposed Payments
	 
	1.	 	In order to settle and to finally resolve all civil claims being asserted by the federal,
provincial and territorial governments (the “Governments”) relating to the above-described
conduct, JTI-MC and RJRT have each agreed to separate civil settlements (“the Comprehensive
Agreements”) requiring, among other measures, payment as civil restitution










 



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	 	 	in the amount of $325,000,000 by RJRT to the Governments, and the implementation and
performance by JTI-MC of a stringent Tobacco Compliance Measures Protocol designed to assist
the Governments in their efforts to combat the smuggling of tobacco products.
	 
	2.	 	For the purpose of sentence, the Crown and NBI agree that its commission of the offence of
conspiracy contrary to s. 465(1)(c) of the Criminal Code warrants the imposition of a fine in
the amount of $75,000,000.
	 
	3.	 	In light of the foregoing, the Crown and NBI agree that the proposed fine of $75,000,000 is
appropriate in view of the facts before the Court as set out in Sections A, B and C and the
agreement of NBI to plead guilty to the charge under s.465.(l)(c) of the Criminal Code.






	 	 	 

	 	 	 
	W. Niels Ortved 

Barrister and Solicitor 


Counsel for Northern Brands International, Inc.

	 	 






April 13, 2010











 








ONTARIO COURT OF JUSTICE



B E T W E E N:




HER MAJESTY THE QUEEN



- and -



NORTHERN BRANDS INTERNATIONAL, INC.



 





AGREED STATEMENT OF FACTS

Containing admissions made pursuant to

s.655 of the Criminal Code



 




MINISTRY OF THE ATTORNEY GENERAL

Crown Law Office – Criminal

10th Floor

720 Bay Street

Toronto, Ontario

M5G 2K1




W. Graeme Cameron

(416) 326-4401

Graeme.Cameron@Ontario.ca