reeds_10qa-ex1001.htm


    
      
        

      

    

    Exhibit
10.1

      


    Note
that a Confidential portion has been omitted from EXHIBIT “B” PACKAGING AND
PRICING and has been filed separately with the Commission pursuant to a request
for confidential treatment.

       

    BREWING
AGREEMENT

    
       

      THIS AGREEMENT, is dated and
effective as of November 1, 2008 (the “Effective Date”), by and between REED’S,
INC.  (hereinafter referred to as “Reed’s”), a Delaware
corporation having offices at 13000 South Spring Street, Los Angeles, California
90061, and THE LION BREWERY,
INC. (hereinafter referred to as “The Lion”), a
Pennsylvania corporation having offices at 700 N.  Pennsylvania
Avenue, Wilkes-Barre, Pennsylvania 18705.  Reed’s and The Lion shall
be hereinafter referred to as the “Parties”.

       

      WITNESSETH:

       

      WHEREAS, The Lion is engaged
in the brewing, production and bottling of alcoholic malt and non-alcoholic
beverages at its production facility located in Wilkes-Barre, Pennsylvania
(hereinafter referred to as “Plant”);
and

       

      WHEREAS, Reed’s as a
manufacturer of a line of sodas has certain rights to the use of trademarks and
tradenames of products (hereinafter referred to as “Products”) as more
fully set forth on Exhibit “A”
hereto; and

       

      WHEREAS, the Parties entered
into a Brewing Agreement dated June 1, 2001 (including any amendments,
extensions or supplements thereof, the “Prior Agreement”)
under which The Lion is brewing or producing, bottling, and packaging the
Products for Reed’s; and

       

      WHEREAS, the Parties have
decided to replace and supersede the Prior Agreement in its entirety with this
Agreement, as of the Effective Date; and

       

      WHEREAS, under this Agreement
The Lion will continue to brew and produce, bottle, and package the Products on
Reed’s behalf (as well as other such products as may be added from time to time,
which, if and when so added, shall be included in the term “Products”), subject
to the terms and conditions of this Agreement, which will entirely supersede the
Prior Agreement.

       

      NOW, THEREFORE, in
consideration of the terms, conditions, agreements and covenants contained
herein, the Parties hereto, intending to be legally bound, agree as
follows:

       

      
        	 
      	
                I.

              	
                PRODUCTION

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Territory
      Requirements.  Subject to the provisions of
      Article II and the other terms and conditions of this Agreement, The Lion
      shall brew, produce, bottle and package and Reed’s shall purchase from The
      Lion, all of the “Territory
      Requirements” (as hereinafter defined) during the Term (as defined
      in Article VII hereof).  The “Territory”
      shall mean all of the United States east of the Mississippi River, and for
      the avoidance of doubt shall include Puerto Rico and all of
      Minnesota.  The “Territory
      Requirements” shall mean all Products that are to be directly sold,
      shipped or delivered to Reed’s direct customers at delivery points located
      in the Territory.  Reed’s obligation to purchase the Territory
      Requirements solely from The Lion during the Term is absolute and
      unconditional, subject only to the provisions of Sections I(d)(3),
      VIII(a), and XIII(c).

              


      

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (b)

              	
                Right of
      Refusal.  Should Reed’s intend to market other
      soda products, or any soda Product in other packaging or configurations
      not covered by this Agreement, in the Territory, Reed’s shall so notify
      The Lion in writing before beginning production itself or entering into
      any discussions with others to produce them. If The Lion at that time
      would be capable of producing or packaging such soda product, at matching
      or better prices and terms (considering prices and terms together as a
      whole) for a period of thirty (30) days from the date of such notice,
      Reed’s and The Lion shall use good faith efforts to reach an agreement
      under which The Lion would have the exclusive right to produce the
      foregoing soda products, either under this Agreement or under a separate
      agreement.  Reed’s shall afford The Lion the same exclusive
      prior right to negotiate for additional services related to beverage
      products not covered by this Agreement before contracting with other
      parties therefor.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (c)

              	
                Trademark
      Use.  Reed’s grants to The Lion the limited right
      to use the trademarks and trade names listed on Exhibit “A”
      (collectively, the “Trademarks”)
      solely for purposes of producing and bottling of the
      Products.  This right is limited in duration to the
      Term.  Reed’s agrees to furnish The Lion in writing with all
      formulations, process descriptions, packaging specifications and related
      technical information necessary for the fulfillment of this
      Agreement.  This information shall be treated in accordance with
      Article IX hereof.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (d)

              	
                Product
      Quality Covenants.  In order to preserve the value
      and reputation of the Trademarks and to assure that the Products will be
      of highest quality and uniformity, The Lion agrees that it
      shall:

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (1)

              	
                Comply
      with all applicable laws, regulations and ordinances pertaining to the
      operation of the Plant.  It shall maintain the Plant in a clean
      and sanitary condition consistent with “good manufacturing
      practices.”

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (2)

              	
                Grant
      an authorized person of Reed’s the right to be present during any
      production run of the Products.  An authorized person of Reed’s
      shall also have the right, during regular business hours and upon
      reasonable notice, to inspect the Plant.  Such access shall be
      subject to Reed’s and its agent’s compliance with all of The Lion’s
      reasonable rules and policies regarding on-site visits, including
      execution of a Plant Visitor Agreement in the form of Annex
      “I” attached hereto.  Reed’s shall be responsible
      for assuring the compliance therewith by any employee or other
      representative of Reed’s and shall be responsible to The Lion for any
      violation thereof by such persons.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (3)

              	
                Discuss
      and review in good faith with Reed’s any quality control standards
      required by Reed’s customers, such as Cracker Barrel, Harry & David,
      Wal-Mart, or Target.  Reed’s shall provide The Lion with all
      such requirements in writing (“Customer QC Standards”) at least three (3)
      months in advance of the date when Reed’s needs them to take
      effect.  If meeting Customer QC Standards would require The Lion
      to acquire or modify equipment, adjust processes, or incur additional
      labor or other costs, The Lion shall so advise Reed’s of any changes in
      the Co-packing Fee (as defined in Exhibit B) or
      capital costs that would be necessary.  If Reed’s and The Lion
      agree on such costs, The Lion shall implement the changes necessary to
      meet the Customer QC Standards as soon as is commercially reasonable, with
      due regard to the customer’s needs.  If Reed’s and The Lion do
      not reach agreement regarding such increased costs, Reed’s may have the
      relevant Products brewed, produced, bottled and packaged at another
      production facility other than The Lion, to the extent necessary to serve
      the particular customer(s) requiring such quality control
      standards.

              


      

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (e)

              	
                Reed’s
      Instructions and Standards.  The Products shall be
      manufactured, brewed and packaged in accordance with the written
      instructions of Reed’s, including the maintenance of standards and quality
      control programs furnished to The Lion in writing by Reed’s and, if
      applicable under the preceding Section I(d)(3), the Customer QC
      Standards.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (f)

              	
                Changes
      in Formula, etc.  Reed’s shall have the right to
      change ingredients and/or brewing formulae and procedures upon reasonable
      prior written notice to The Lion, provided that (1) the cost of any such
      change shall be borne by Reed’s and (2) the specified ingredients are
      readily available in the necessary time frame.  Reed’s shall
      have ultimate responsibility and authority over every detail of the
      production process for the Products, with such responsibility and
      authority as to those parameters affecting taste and quality to be the
      same as if Reed’s were the owner of The Lion's brewing facility at the
      Plant.  To the extent lawful and practicable, The Lion and
      Reed’s will, in any and all public statements or comments, recognize that
      Reed’s controls the ingredients, recipe, brewing processes and procedures
      and quality parameters for all Products produced for Reed’s by The
      Lion.  Neither Party will make any public statements
      inconsistent with the foregoing.  Reed’s agrees and acknowledges
      that The Lion’s historical practices and production quality under the
      Prior Agreement have been proper and sufficient, and absent changes in
      applicable laws or mutually agreeable changes therein (including Customer
      QC Standards accepted by The Lion), shall be deemed to comply with this
      Agreement in all respects.  If a decision made by Reed’s in the
      exercise of its authority under this Section 1(f) results in a change by
      The Lion in any process or quality control, The Lion shall have the right
      to adjust the Copacking Fee accordingly.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (g)

              	
                Identification Codes.  In
      order to assure quality control, The Lion shall apply an identification
      code on each case and bottle indicating whatever data Reed’s reasonably
      requires and an “L” in front of the bottling time on line
    2.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (h)

              	
                The
      Lion’s Insurance.  The Lion shall maintain at all
      times, in full force and effect for the benefit of Reed’s as an additional
      insured and itself, general liability insurance coverage, applicable to
      the Products, including broad form vendor’s coverage and product liability
      insurance in an amount not less than Two Million ($2,000,000.00)
      Dollars.  The Lion shall furnish Reed’s with a certificate of
      insurance evidencing that it has such insurance coverage upon the
      execution of this Agreement and furnish Reed’s with evidence of such
      insurance coverage on an annual basis thereafter.  Such policy
      shall provide that it cannot be changed or cancelled without at least
      thirty (30) days’ prior written notice to Reed’s and The Lion agrees to
      provide such notice to Reed’s before seeking to change or cancel such
      insurance policy.

              


      

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (i)

              	
                Reed’s
      Insurance.  Reed’s shall maintain at all times, in
      full force and effect for the benefit of The Lion as an additional insured
      and itself, general liability insurance coverage, applicable to the
      Products, including broad form vendor’s coverage and product liability
      insurance in an amount not less than Two Million ($2,000,000.00)
      Dollars.  Reed’s shall furnish The Lion with a certificate of
      insurance evidencing that it has such insurance coverage upon the
      execution of this Agreement and furnish The Lion with evidence of such
      insurance coverage on an annual basis thereafter.  Such policy
      shall provide that it cannot be changed or cancelled without at least
      thirty (30) days’ prior written notice to The Lion and Reed’s agrees to
      provide such notice to The Lion before seeking to change or cancel such
      insurance policy.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                II.

              	
                PRODUCTION SCHEDULING

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Lead
      Times.  Reed’s shall submit written orders for
      Products at least four (4) weeks prior to required packaging
      date.  The Lion will package the Products within four (4) weeks
      of the receipt of such order, assuming all materials are on hand to
      produce one (1) week before production, and The Lion shall use reasonable
      and good faith efforts to ensure that all materials necessary to brew,
      produce, bottle and package the Products are on hand.  This
      includes the materials that are the responsibility of Reed’s to have the
      same delivered to The Lion.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (b)

              	
                Delivery
      of Products to Warehouse.  All Products shall be
      loaded and delivered to a public warehouse (in Wilkes-Barre, Pennsylvania
      if available) at the completion of production, with the cost of shipping
      the Products to such warehouse in Wilkes-Barre to be borne exclusively by
      The Lion.  Reed’s shall bear all warehousing and storage costs
      for completed Products, and should appropriate public warehousing in
      Wilkes-Barre be unavailable, Reed’s shall bear the additional cost of
      shipping to such other warehouses as are available.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (c)

              	
                The
      Lion’s Production of Other Products.  Reed’s
      acknowledges that The Lion is currently in the business of producing
      various products that are similar to and may compete with the
      Products.  Nothing in this Agreement shall prevent The Lion from
      continuing or expanding its own business and producing or selling any
      product for or to any person, provided that The Lion shall not copy the
      brewing formula for the Products or use any ingredients supplied to The
      Lion by Reed’s to produce products for itself or third parties without
      Reed’s prior written consent, which consent may be withheld in Reed’s sole
      discretion.  The Lion shall not produce any beverage brewed
      directly from fresh or raw ginger for itself or any other person at any
      time during the Term or for a period of ninety-nine (99) years after its
      expiration or termination without Reed’s prior written consent, which
      consent may be withheld in Reed’s sole discretion, even if such brewing
      would not involve use of Reed’s Confidential Information (as defined in
      Article IX).  All of the Products produced by The Lion,
      including all work in process, shall be produced solely for the benefit of
      Reed’s and used for no other purpose.  In the exercise of its
      authority under Articles I and II, Reed’s shall not interfere with The
      Lion's production process for its own proprietary brands and products or
      the production of products for
others.

              


      

       

      
        
          
          

        

        
          4

          
            

          

        

        
          
          

        

      

       

      
        	 
      	
                III.

              	
                BREWING AND PACKAGING
    MATERIALS

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Reed’s
      Responsibility.  Reed’s shall supply all
      flavorings and other similar ingredients, and shall supply (or reimburse
      The Lion in accordance with Section IV(b) for) all barrels, kegs,
      half-kegs, sixth-kegs, and other similar larger-than-bottle-size
      containers, and all proprietary and other packaging, including crowns,
      basket carriers, labels, corrugated stock, partitions, multipacks and
      other shipping and handling materials.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (b)

              	
                The
      Lion’s Responsibility.  The Lion shall supply and
      maintain on hand a sufficient supply of brewing and packaging materials
      required that are not supplied by Reed’s to manufacture the Products and
      fill orders, including bottles.  The Lion shall use commercially
      reasonable efforts to supply recycled bottles to the extent practicable.
      The Lion will include reasonable data in its monthly invoices so that
      Reed’s may see what volume of recycled and new bottles was
      used.  The Lion will give Reed’s priority with regard to
      recycled amber flint and recycled green bottles in the following
      manner:  if The Lion has recycled amber flint and green bottles
      on hand when Reed’s places orders, The Lion will use such recycled bottles
      first to process Reed’s order before using them to process other orders
      for other customers.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (c)

              	
                Shortage
      of Recycled Bottles.  Should The Lion at any time
      become unable to supply at least 70% of Reed’s requirements of amber glass
      using recycled bottles (calculated each month by reference to the past 12
      months rolling monthly average), and such shortage in and of itself has a
      material adverse effect on Reed’s, The Lion shall notify Reed’s and Reed’s
      shall have the right by written notice to require The Lion to renegotiate
      the Base Co-packing Fee (as defined in Exhibit “B”).  Should the
      Parties, after negotiating over a period of ninety (90) days in good
      faith, be unable to agree as to the revised Base Co-packing Fee, Reed’s
      may terminate this Agreement upon a further ninety (90) days’ written
      notice to The Lion, without further liability to each party other than
      obligations theretofore accrued.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (d)

              	
                Packaging
      Forms.  The Lion shall package the Products in the
      particular forms and packaging styles described in Exhibit
      “B”.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (e)

              	
                Shrinkage.  The
      Lion recognizes its responsibility to use packaging and ingredients
      supplied by Reed’s wisely and efficiently.  Further, both
      Parties recognize that the supply chain for ingredients includes multiple
      parties, such as Reed’s and its suppliers, and their respective ordering
      and fulfillment systems, and that, at the present time, the Parties may
      not have sufficient information and systems to determine actual and
      optimal shrinkage levels with sufficient
      precision.  Accordingly, within ninety (90) days of execution of
      this Agreement, The Parties shall cause their representatives to meet and
      use commercially reasonable efforts to institute (i) a yield tracking
      system  which will allow them to identify the actual causes and
      rates of shrinkage, and (ii) processes that will assure that average
      shrinkage rates are 3% or less for packaging and 8% or less for
      ingredients. Each Party shall provide all necessary information in its
      possession in furtherance of this
goal.

              


      

       

      
        
          
          

        

        
          5

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (f)

              	
                Product
      Recalls.  In case of any Product recall, the
      Parties shall promptly confer regarding the proposed response and any
      costs and keep each other informed as to all material developments and
      actions requested and required.  The Lion shall have the right
      to manage the process and control all material decisions whenever it is
      subjected to a claim or demand that The Lion bear responsibility for the
      recall and any costs thereof.  Any liability with respect to
      recalls shall be governed by the provisions of Article XI and Article
      XII.

              
	 
      	 
      	 
      	 
      
	 
      	
                IV.

              	
                PRICE/PAYMENT

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Co-packing Fee.  Reed’s
      hereby agrees to pay The Lion a brewing/co-packing fee (the “Co-packing
      Fee”) for all Products ordered by Reed’s and processed by The Lion
      as set forth in Exhibit “B.”
      The Co-packing Fee shall be subject to the adjustments set forth in Exhibit
      “B” and except as expressly provided in this Agreement shall
      be in addition to all other payments required hereunder and
      thereunder.  All Co-packing Fees shall be paid within thirty
      (30) days of production.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (b)

              	
                Pass-Through.  In addition
      to the Co-packing Fees, Reed’s will be invoiced for ingredients, packaging
      and shipping materials supplied by The Lion, at The Lion’s invoice cost,
      and for all recycled glass bottles at the price set forth in Exhibit “B”, for all Products ordered by
      Reed’s and processed by The Lion as set forth in Exhibit “B.”  All such
      pass-through payments shall be paid within thirty (30) days of
      production.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (c)

              	
                Shortfall
      Payment.  If for any period, Reed’s fails to meet
      its obligation to purchase the entirety of the Territory Requirements from
      The Lion, for any reason other than (i) The Lion’s inability or refusal to
      supply Products conforming to this Agreement (including on account of
      Force Majeure, as referred to in Section XIII(c)), or (ii) Reed’s exercise
      of its right to have Products brewed, produced, bottled and packaged at
      another production facility other than The Lion as set forth in Section
      I(d)(3) then, without prejudice to The Lion’s other rights, Reed’s shall
      pay The Lion an amount equal to the applicable Co-packing Fee for the
      Products that Reed’s was obligated to (but did not) purchase from The Lion
      during the applicable period (the “Shortfall
      Payment”).

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (d)

              	
                Taxes,
      etc.  The Co-packing Fee and all other amounts due
      hereunder shall be exclusive of any and all federal, state, or local sales
      use and other taxes, excises, duties, and similar government impositions
      now or hereafter in effect with respect to the production, sale,
      transportation, use or consumption of the Products or any packaging
      materials or other goods used or provided hereunder, all of which shall be
      born by Reed’s, excepting only taxes with respect to The Lion’s income,
      profits, assets, or franchises.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                V.

              	
                REED’S REPRESENTATION AND
      WARRANTIES.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                Reed’s
      makes the following representations and warranties to The
      Lion:

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Infringement, etc.  No
      Trademark, tradename or design used on the Products and specified by
      Reed’s, and no recipe, formulation, technology or process provided,
      specified by Reed’s for use in producing the Products, shall infringe upon
      or misappropriate any trademark, patent, copyright, trade secret or other
      proprietary right of any third
party.

              


      

       

      
        
          
          

        

        
          6

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (b)

              	
                No
      Conflicts.  The execution, delivery and
      performance of this Agreement will not violate, conflict with, constitute,
      or result in any default or event of default under any contract, loan
      document, commitment, arrangement, understanding, judgement, decree or law
      to which Reed’s is a party or by which Reed’s or any of its business or
      assets are bound.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                VI.

              	
                RECORDS AND AUDIT RIGHTS

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Records
      and Audits.  Each Party shall maintain accurate
      and complete books and records with respect to its transactions hereunder,
      and shall keep them available for inspection, auditing and copying
      (collectively, an “Audit”) by the
      other Party or its representatives at all times during normal business
      hours upon reasonable advance notice for at least two (2) years after the
      expiration or termination of the Term.  Audits shall be no more
      frequent than twice annually (unless a Party has reasonable cause for
      concern as to whether the other is in compliance with its obligations
      hereunder) and shall be limited to those books and records required to
      confirm compliance with the subject Party’s obligations
      hereunder.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (b)

              	
                Audit
      Expenses.  All Audits shall be at the expense of
      the requesting Party, unless the Audit reveals that the subject Party was
      overpaid (or had underpaid the requesting Party, as applicable) by more
      than 3.5% of the correct amount, or when the subject Party is Reed’s, it
      had purchased less than 96.5% of what it was obligated to purchase under
      this Agreement, in which case the subject Party shall bear all reasonable
      costs of the Audit, in addition to whatever adjustments, reimbursements or
      credits are necessary to correct the inaccuracy or instance of
      noncompliance, and in addition to any Shortfall
Payment.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                VII.

              	
                TERM

              	 
      	 
      
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                This
      Agreement shall be for an initial term of three (3) years beginning as of
      the Effective Date and ending three (3) years from that
      date.  Reed’s shall have the option to extend the Term by one
      additional year by providing written notice at least thirty (30) days
      before the end of the initial three (3) year term.  The Parties
      may mutually agree in writing to extend the Term (in addition to Reed’s
      one-year option), in their sole discretion.  “Term” as used
      herein, shall mean the original three-year term and any such
      extensions.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                VIII.

              	
                TERMINATION

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Termination
      by Reed's.

                 

                In
      the event The Lion shall fail to perform any of its obligations under this
      Agreement (other than on account of force majeure or a breach hereof by
      Reed’s) and such failure is not corrected within thirty (30) days after
      date of written notice to The Lion specifying the nature of such failure,
      Reed’s may give further notice to The Lion terminating this Agreement
      effective as of the date of such further notice.  Reed’s shall
      also have the right to terminate this Agreement in accordance with Section
      III(c).

              


      

       

      
        
          
          

        

        
          7

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (b)

              	
                Termination
      by The Lion.

                 

                In
      the event Reed’s shall fail to perform any of its obligations under this
      Agreement (other than on account of Force Majeure or a breach hereof by
      The Lion), The Lion may notify Reed’s in writing of such
      determination.  If Reed’s failure relates to moneys owed, Reed’s
      shall have ten (10) days in which to remedy the failure, but otherwise
      Reed’s shall have thirty (30) days within which to remedy the
      failure.  If Reed’s refuses to or fails to remedy the failure
      within the time allowed, The Lion may give further notice to Reed’s
      terminating this Agreement effective as of the date of such further
      notice.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (c)

              	
                Following
      Termination

                 

                Upon
      termination:

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (1)

              	
                The
      Lion will immediately cease all production of Products, but may in its
      discretion complete any batches then in process.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (2)

              	
                All
      obligations of either Party shall be adjusted up to and including the date
      of termination provided, however, that upon termination, Reed’s shall
      purchase at the applicable purchase price, all Products and all packaging
      which comply with the agreed-upon specifications and which are in storage
      or in process at the Plant or any warehouse.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (3)

              	
                The
      Lion will return all unused packaging materials that Reed’s had purchased
      for production use.  Reed’s shall purchase at cost any unused
      packaging materials The Lion had purchased specifically for production of
      the Products, which The Lion cannot use in or for its other products (not
      under this Agreement).  The Lion shall return all equipment
      owned by Reed’s and each Party shall return all Confidential Information
      (as defined in the following Article) and materials that are the property
      of the other Party.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                IX.

              	
                CONFIDENTIALITY AND PROPRIETARY
      RIGHTS

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Definitions.  As used
      herein, the term “Confidential
      Information” shall be defined as marketing and other information
      such as customer lists, price lists, pricing policies, marketing and
      business plans, information regarding customers’ needs or requirements,
      and arrangements with customers, consultants, licensees, and suppliers,
      and shall be deemed to include any confidential, proprietary, trade
      secret, technical or business information disclosed by one Party (the
      “Disclosing
      Party”) to the other Party (the “Receiving
      Party”), and includes formulations, processes, long-range and
      current strategic plans, operating results, earnings, costs of operation,
      accounts, products, product design, engineering and technical information,
      test data, product and material costs, policies, practices,
      correspondence, procedures, methods, manuals, records, information
      regarding projects and current and prospective employees, contractors,
      suppliers, customers, contracts and business arrangements, and trade
      secrets that the Receiving Party may obtain by participation, observation,
      examination or otherwise.  The Trademarks, and all of Reed’s
      formulations, process descriptions, packaging specifications and related
      technical information provided by Reed’s shall be Reed’s Confidential
      Information.

              


      

       

      
        
          
          

        

        
          8

          
            

          

        

        
          
          

        

         

      

      
        	 
      	 
      	
                (b)

              	
                Obligations.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (1)

              	
                All
      Confidential Information disclosed, provided or delivered or made
      available in connection with the performance of this Agreement is
      confidential and the property of the Disclosing Party, shall be held in
      strict confidence by the Receiving Party, and shall not be disclosed or
      disseminated to, or discussed with, any person other than the Receiving
      Party or used in any manner other than to perform this
      Agreement.  Each Party receiving the other’s Confidential
      Information shall take all commercially reasonable steps necessary to
      prevent any such disclosure or improper use by its employees, officers,
      directors, representatives or agents.  Each Receiving Party
      agrees to promptly return (upon request at any time during the Term and
      forthwith upon the termination or expiration of this Agreement) all the
      Disclosing Party’s Confidential Information and shall not retain any
      copies, extracts or memoranda therefrom.  The Lion shall use
      commercially reasonable efforts to procure written agreements from its
      brew masters in customary form in which they agree to honor Reed’s rights
      with regard to Confidential Information and agree that Reed’s may enforce
      such agreements directly against them.  If The Lion cannot
      obtain such contractual agreements from its brew masters, The Lion and
      Reed’s shall cooperate to enforce such rights as may exist under
      applicable law or otherwise against the brew masters.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (2)

              	
                Notwithstanding
      that recipes and formulations may be provided by Reed’s and may be Reed’s
      Confidential Information, all brewing processes in use by The Lion at any
      time that were not provided by Reed’s shall be the Confidential
      Information of The Lion and/or its brew masters, and shall not be subject
      to disclosure to Reed’s or its customers except as required by applicable
      law, and Reed’s shall have no right thereto.  Any processes that
      are or could be utilized by The Lion for production of any product other
      than the Products made using Reed’s recipes or formulations, or that are
      at any time conceived or developed by The Lion independently, shall be the
      intellectual property and Confidential Information of The
      Lion.  Each Party shall be free to use, disclose, transfer,
      license and otherwise deal with all such publicly available information
      and all of its own intellectual property without restriction except as
      expressly provided in this Agreement.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (3)

              	
                Because
      of the unique nature of the Confidential Information and the rights of the
      Disclosing Party hereunder, the Receiving Party understands and agrees
      that the Disclosing Party will suffer irreparable harm in the event the
      Receiving Party fails to comply with its obligations under this Agreement
      regarding Confidential Information, and that monetary damages will be
      inadequate to compensate the Disclosing Party for such breach.  In
      the event of a breach or threatened breach by the Receiving Party of the
      provisions of this Agreement relating to Confidential Information, the
      Disclosing Party shall be entitled to an injunction restraining the
      Receiving Party from violating the terms hereof, or from using or
      disclosing any Confidential Information of the Disclosing Party. 
      Nothing herein shall be construed as prohibiting the Disclosing Party from
      pursuing any other remedies available to it for such breach or threatened
      breach of this Agreement including recovery of damages from The
      Lion.

              


      

       

      
        
          
          

        

        
          9

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (c)

              	
                Exceptions.  “Confidential
      Information” does not include information which:

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (1)

              	
                was
      already in the Receiving Party’s possession at the time of disclosure
      hereunder, provided that such information has not been obtained from the
      Disclosing Party and that such possession can be demonstrated by the
      Receiving Party’s written records;

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (2)

              	
                is,
      or becomes, generally available to the public, through, for example, such
      sources as patents or other generally circulated publications, and such
      availability to the public does not result from any fault of the Receiving
      Party;

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (3)

              	
                is
      received by the Receiving Party in written form from a third party having
      no obligation to the Disclosing Party to keep it confidential;
      or

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	 
      	
                (4)

              	
                is
      independently developed by the Receiving Party provided that such
      development can be demonstrated by the Receiving Party’s written
      records.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                Specific
      technical and business information shall not be deemed to be within the
      exceptions of the preceding sentence merely because it is embraced by more
      general technical or business information within such exceptions, nor
      shall a combination of features be deemed to be within such exceptions
      merely because the individual features are within such
      exceptions.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (d)

              	
                Mandatory
      Disclosures.  A Receiving Party shall be free to
      disclose any information required pursuant to applicable laws,
      regulations, court orders, or subpoenas, so long as it advises the
      Disclosing Party as soon as reasonably practicable, to allow the
      Disclosing party to contest such requirement by appropriate means or take
      other appropriate measures to protect its legitimate
    rights.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                X.

              	
                NO AGENCY

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                The
      Lion and Reed’s understand and agree that neither Party is, by virtue of
      this Agreement or anything contained herein, including The Lion affixing
      any label to any Product, constituted or appointed the agent of the other
      Party for any purpose whatsoever, nor shall anything herein contained be
      deemed or construed as granting Reed’s or The Lion any right or authority
      to assume or to create any obligation or responsibility, express or
      implied, for or on behalf of or in the name of the other, or to bind the
      other in any manner or way whatsoever.  The relationship between
      the Parties is solely of independent contractors, as set forth in this
      Agreement, and no representation or warranty shall be made by either Party
      to any third person or Party to the contrary.  There are no
      third party beneficiaries of any rights hereunder.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                XI.

              	
                INDEMNIFICATION

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                By The
      Lion.  The Lion shall defend, indemnify and hold
      harmless Reed’s and all of its principals, directors, officers, employees,
      and subsidiaries from and against any and all claims, demands, losses,
      liabilities, costs and expenses of any nature whatsoever, including
      reasonable attorney's fees (collectively, "Claims and
      Damages"), to the extent arising out of (i) the improper storage,
      handling or alteration of the Products before delivery to Reed’s or Reed’s
      designee, (ii) any defect arising out of or related to The Lion’s
      manufacturing, packaging, or handling of the Products before delivery to
      Reed’s or Reed’s designee (including without limitation any failure to
      follow Reed’s specifications, recipes and instructions, and good
      manufacturing practices and other requirements of this Agreement), or
      (iii) The Lion’s negligence or willful
  misconduct.

              


      

       

      
        
          
          

        

        
          10

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (b)

              	
                By
      Reed’s.  Reed’s shall defend, indemnify and hold
      harmless The Lion and all of its principals, directors, officers,
      employees, and subsidiaries from and against any and all Claims and
      Damages to the extent arising out of (i) the improper storage, handling or
      alteration of the Products after delivery to Reed’s or Reed’s designee,
      (ii) any defect arising out of or related to the design, formula, recipe,
      warnings or any other type of defect (except for defects arising out of or
      related to The Lion’s manufacturing, packaging, or handling of the
      Products before delivery to Reed’s or Reed’s designee), (iii) any recipe,
      formulation, process, brewing ingredient, packaging material (other than
      bottles) or other materials supplied by Reed’s, (iv) any allegation that
      The Lion’s use of the Trademarks or any recipe, formulation, process,
      brewing ingredient, packaging material, know-how, technology or other
      intellectual property provided by Reed’s infringes or misappropriates the
      intellectual property rights or trade secrets of any person; or (v) Reed’s
      negligence or willful misconduct.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	
                XII.

              	
                LIMITATIONS OF LIABILITY

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                Notwithstanding
      the provisions hereof regarding indemnification, each Party’s aggregate
      liability for damages of any sort under or in connection with any and all
      claims arising under this Agreement, whether incidental, consequential,
      special, punitive or indirect or for loss of profits or business, of any
      nature or arising on account of any cause, and regardless whether such
      losses or damages were within the contemplation of the parties at any
      time, together with attorneys’ fees and other expenses in connection with
      such claims, shall not exceed the sum of Four Million Dollars
      ($4,000,000). The foregoing limitations shall not apply to damages arising
      from a Party’s fraud, knowing and intentional violation of applicable
      laws, willful misconduct, or violation of its obligations under Article IX
      relating to the other party’s Confidential Information.

              
	 
      	 
      	 
      
	 
      	
                XIII.

              	
                MISCELLANEOUS

              
	 
      	 
      	 
      
	 
      	 
      	
                (a)

              	
                Successors and
      Assigns.  Notwithstanding anything else set forth
      herein, this Agreement shall be binding on and inure to the benefit of the
      Parties and their respective successors and assigns.  Any such
      assignment or delegation by either Party shall not release the assigning
      or delegating Party of any of its obligations under this Agreement, and
      the assignee shall expressly assume all obligations hereunder as a
      condition of its enjoyment of any rights relating hereto.  Any
      assignment by a Party to a person who is not as creditworthy as the
      assignor shall require the other Party’s prior written consent, which
      shall not be unreasonably withheld.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (b)

              	
                Reorganization or
      Divestiture. Reed’s recognizes that The Lion is entering into this
      Agreement under the express expectation that for the entire Term, and
      subject to the terms hereof, The Lion will supply all of the Territory
      Requirements of all business units now or hereafter operated by Reed’s,
      and their successors and assigns, regardless of any change of control,
      merger, sale or offering of stock, consolidation, spin off, split up, sale
      or exchange of assets, liquidation, reorganization or other transaction
      that may alter the identity, ownership or structure or such business
      units.  Accordingly, before entering into any such transaction,
      Reed’s shall cause all entities which may succeed to those operations of
      Reed’s in which Products are used, distributed or resold, to agree
      expressly in writing to honor and assume this Agreement, in whole, on its
      then existing terms.  No such assignment, assumption or related
      transaction shall release Reed’s of any obligation hereunder, and without
      limiting any other rights of The Lion hereunder, Reed’s hereby expressly
      agrees to be liable to The Lion for any failure of any such successor to
      purchase the successor’s Territory Requirements of the relevant Products
      which it is using on the terms set forth herein, as if the successor were
      jointly and severally liable under this
  Agreement.

              


      

       

      
        
          
          

        

        
          11

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (c)

              	
                Force
      Majeure.  The Lion shall not be responsible for
      delays in production or delivery of Products due to riots, sabotage, fire,
      floods, differences with workmen (other than Reed’s own labor force),
      insurrections, acts of God, wars, governmental acts, difficulties with
      contractors, shortages of utilities, supplies, ingredients or materials,
      or breakdown or unavailability of equipment or processes (for reasons
      other than The Lion’s failure to maintain the same properly), or other
      events beyond The Lion’s reasonable control (“Force
      Majeure”).  During such periods, Reed’s has the right to
      have its Products brewed/produced at another facility.  If The
      Lion cannot (or cannot reasonably be expected to) resume normal production
      within one-hundred twenty (120) days after the onset of an event of Force
      Majeure, and no other brewery will fill Reed’s needs for the same
      applicable Products except on the condition that Reed’s enter into a
      long-term agreement that would be inconsistent with Reed’s obligations
      under Section I(a) hereof, Reed’s shall be permitted to enter into such
      other agreement, and Section I(a) of this Agreement shall be deemed
      amended to the extent necessary to accommodate such other
      agreement.  Reed’s shall take and pay for such portions of its
      Territory Requirements as The Lion is able to supply, and acknowledges
      that the right to obtain alternate supplies from other vendors is a full
      and sufficient remedy for The Lion’s failure to fill Reed’s
      orders.  Reed’s shall have no right to compensation from The
      Lion for any difference in price or other remedy for such
      failure.  If an event of Force Majeure impairs The Lion’s
      production capacity, or Reed’s places orders for Products in quantities
      substantially disproportionate to historic levels, The Lion shall have the
      right to allocate its production capacity in any reasonably equitable
      manner, taking into account its own needs, Reed’s needs, and the needs of
      The Lion’s other customers, who, for this purpose, include parties who
      have binding contracts with The Lion in force at the actual time the event
      of Force Majeure occurs or arises and others who are regular customers of
      The Lion, even if they do not have such contracts in force at that
      time.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (d)

              	
                Waivers,
      etc.  No waiver by either Party of a breach of the
      other Party’s obligations, agreements or covenants herein set forth shall
      be a waiver of any subsequent breach or any other obligation, agreement or
      covenant, nor shall any forbearance by any Party to seek a remedy for any
      breach by the other be a waiver by such Party of its rights and remedies
      with respect to that or any other
breach.

              


      

       

      
        
          
          

        

        
          12

          
            

          

        

        
          
          

        

      

       

      
        	 
      	 
      	
                (e)

              	
                Governing
      Laws.  This Agreement shall be interpreted and any
      dispute hereunder adjudicated according to the substantive laws of the
      Commonwealth of Pennsylvania, excluding its principles of conflict of
      laws.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (f)

              	
                Dispute
      Resolution.  The State and Federal courts sitting
      in Luzerne County, Pennsylvania shall have exclusive jurisdiction of all
      disputes arising from or related to this Agreement, and the Parties hereby
      consent to jurisdiction and venue in such courts.  The
      prevailing Party in any action relating hereto shall be entitled to
      reimbursement of all of its reasonable legal and other fees, costs and
      expenses incurred in connection therewith.  For the purposes of
      this Article, the “prevailing Party” shall be the Party awarded the
      preponderance of whatever relief is awarded, whether financial or
      equitable, as determined by the court.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (g)

              	
                Amendments. This Agreement may not
      be amended except by an instrument in writing signed by both
      Parties.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (h)

              	
                Entire
      Agreement. This Agreement constitutes a single integrated,
      written contract expressing the entire agreement of the Parties hereto
      relative to the subject matter hereof.  No other covenants,
      agreements, representations, or warranties of any kind whatsoever have
      been made by any Party hereto, except as specifically set forth in this
      Agreement.  All prior discussions and negotiations have been and
      are merged and integrated into, and are superseded by, this
      Agreement.

              
	 
      	 
      	 
      	 
      	 
      
	 
      	 
      	
                (i)

              	
                Prior
      Agreement Superseded.  This Agreement supersedes
      the Prior Agreement in all respects, and the Prior Agreement shall have no
      further force or effect, except that any amounts earned by The Lion under
      the Prior Agreement shall be due and payable according to its
      terms.  In the event that any provision of this Agreement should
      be held to be void, voidable, or unenforceable, the remaining portions
      hereof shall remain in full force and effect.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (j)

              	
                Notices.  All notices
      required herein shall be given by registered mail, return receipt
      requested, or by overnight courier service, in both cases with a copy also
      sent by telecopier or email, to the addresses given below the Parties’
      respective signatures below unless change thereof has previously been
      given to the Party giving the notice and shall be deemed effective when
      received.

              
	 
      	 
      	 
      	 
      
	 
      	 
      	
                (k)

              	
                Counterparts, etc.  This
      Agreement may be executed by the Parties hereto in separate counterparts,
      each of which when so executed and delivered shall be an original, but all
      such counterparts shall together constitute one and the same
      instrument.  Such counterpart may consist of a number of copies
      hereof each signed by less than all, but together signed by all of the
      Parties hereto.  Signatures hereon may be exchanged by facsimile
      or other electronic means.

              


      

       

      [signature
page follows]

       

      
        
          
          

        

        
          13

          
            

          

        

        
          
          

        

      

       

      IN
WITNESS WHEREOF, the Parties, intending to be legally bound, have signed this
Agreement the date and year set forth above by their duly authorized
officers.

       

       

      
        	 
      	
                REED’S
      INC.

                 

                By:
      /s/ Christopher
      J. Reed

                Christopher
      J. Reed, President and Chief Executive Officer

                 

                Address
      for Notices:

                 

                13000
      South Spring Street

                Los
      Angeles, California 90061

                Fax:
      310-217-9411

                Email:
      creed@reedsinc.com

                Attention:
      Christopher J. Reed, President and Chief Executive
  Officer

              
	 
      	 
      
	 
      	 
      
	 
      	
                THE
      LION BREWERY, INC.

                 

                By:
      /s/ Ronald
      Hammond

                Ronald
      Hammond, Chief Executive Officer

                 

                Address
      for Notices:

                 

                700 N.  Pennsylvania
      Avenue

                Wilkes-Barre,
      Pennsylvania 18705

                Fax:
      570-823-1820

                Email:
      crisell@lionbrewery.com

                Attention:  Clifford
      Risell, President and COO

              


      

       

      
        
          
          

        

        
          14

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
“A”

       

      PRODUCTS;
TRADEMARKS

       

      
        	
                Brewed Products and Related
      Trademarks:

              
	
                Reed's
      Original Ginger Brew

              
	
                Reed's
      Extra Ginger Brew

              
	
                Reed's
      Premium Ginger Brew

              
	
                Reed’s
      Raspberry Ginger Brew

              
	
                Reed's
      Spiced Apple Brew

              
	
                Reed's
      Cherry Ginger Brew

              
	
                Pasteurized Soft Drinks and Related
      Trademarks:

              
	
                Virgil’s
      Root Beer

              
	
                Virgil’s
      Diet Root Beer

              
	
                Virgil’s
      Cream Soda

              
	
                Virgil’s
      Diet Cream Soda

              
	
                Virgil’s
      Black Cherry

              
	
                Virgil’s
      Real Cola

              
	
                China
      Cola

              
	
                Cherry
      China Cola

              
	
                Diet
      Real Cola

              
	
                Diet
      Black Cherry Cream Soda

              


      

       

       

      
        
          
          

        

        
          1

          
            

          

        

        
          
          

        

      

       

      EXHIBIT
“B”

       

      PACKAGING
AND PRICING

       

      
        	
                Product

              	
                Base
      Copacking Fee

              
	
                Brewed
      Products

              	
                $X.XX(i) per
      case of 6-4 pks/12oz., 4-8 pks/7oz, 12pks/22oz, 2-12pk/12oz for bottled
      product

              
	
                Reed's
      Original Ginger Brew

                Reed's
      Extra Ginger Brew

                Reed's
      Premium Ginger Brew

                Reed’s
      Raspberry Ginger Brew

                Reed's
      Spiced Apple Brew

                Reed's
      Cherry Ginger Brew

              	
                $X.XX(i) per
      unit, for product in half or sixth barrels, kegs, half kegs, or other
      non-bottle containers
 
	Pasteurized
      Soft Drinks 	$X.XX(i) per
      case of 6-4 pks/12oz., 4-8 pks/7oz, 12pks/22oz, 2-12pk/12oz  for
      bottled product 
	
                Virgil’s
      Root Beer

                Virgil’s
      Cream Soda

                Virgil’s
      Black Cherry

                Virgil’s
      Real Cola

                China
      Cola

                Diet
      Real Cola

                Diet
      Black Cherry Cream Soda

              	
                $X.XX(i) per
      unit, for product in half or sixth barrels, kegs, half kegs, or other
      non-bottle containers

              
	(i)
      Confidential portion has been omitted and has been filed separately
      with the Commission pursuant to a request for confidential
      treatment.


      

      


       

      1.   Copacking
Fee.  The Copacking Fee shall consist of the “Base Copacking Fee”
stated in the table above, plus the Energy Surcharge and Labor Surcharge
referred to in Sections 2 and 3 below.

       

      2.   Energy
Surcharge.  An energy surcharge (the “Energy Surcharge”)
will be added to the Base Copacking Fee for bottled Products if the cost of
compressed natural gas (“CNG”) exceeds $8.00
per million BTU (“mmBTU”) during the
Term.  The Energy Surcharge will equal $0.01875 per case for every
dollar by which the price of CNG exceeds $8.00 per mmBTU, prorated for partial
dollar increases.  The price of natural gas as quoted at http://www.nymex.com/ng_fut_cso.aspx as of the close of
trading on the 288th day
(or last preceding business day) of each month (the “CNG Closing Price”)
shall be used to determine the Energy Surcharge to be applied to Products
produced during the ensuing calendar month.  The maximum Energy
Surcharge shall be $0.15 cents per case.  For example, if on November
28, 2008 the CNG Closing Price was $10.50 per mmBTU, an Energy Surcharge of
$0.0469 (or 2.5 times
$0.01875) per case would be added to the applicable Copacking Fee for each case
produced in December 2008.  The Lion shall provide reasonable back-up
information supporting the prices and calculations used on each invoice
reflecting an Energy Surcharge.

       

      
        
          
          

        

        
          2

          
            

          

        

        
          
          

        

      

       

      3.   Labor
Surcharge.

       

      (a)    The
Parties acknowledge and agree that the total cost of labor under The Lion’s
collective bargaining agreement with Operating Engineers Local 367 (the “CBA”) is currently
$0.77 per case for Brewed Products and $0.64 per case for Pasteurized Soft
Drinks.  A labor surcharge (the “Labor Surcharge”)
will be added to the Base Copacking Fee for bottled Products on each June 1
during the Term (the “Labor Adjustment
Date”), in the amount by which Lion’s total cost of labor under the CBA
exceeds $0.77 case for Brewed Products and $0.64 per case for Pasteurized Soft
Drinks.  The Lion shall provide Reed’s with reasonable supporting
documentation to indicate how total labor cost was calculated.  Upon
any disagreement as to such calculation, the Parties shall refer the matter to a
mutually agreeable independent certified public accounting firm, whose
determination shall be final.  The costs of such determination shall
be borne equally by the Parties, the determination shall be retroactive to the
applicable Labor Adjustment Date, and the Parties shall make such payments or
credits as are necessary to reflect the determination.

       

      (b)    If
year-over-year Reed’s volume growth produced at The Lion as of each Labor
Adjustment Date is 15% or greater, the Labor Surcharge will not be
added.  If volume growth in any year is less than 15% over the prior
year, The Lion will calculate the current cost per case for labor under the CBA
(or successor agreement) and the impact of the labor cost increase for that year
and adjust the Base Co-packing Fee accordingly.  The initial base year
for calculating volume (the “Base Volume Year”)
shall be June 1, 2007 to May 31, 2008, and “volume” shall mean the number of
cases of Product delivered.  For example, if The Lion delivered
700,000 cases of Product in the Base Volume Year and 806,000 cases during the
year ended May 31, 2009, the increase over the previous year exceeds 15%, and
there will be no Labor Surcharge for Products produced during the year beginning
June 1, 2009.  If for the year ended May 31, 2010, volume is 900,000
cases, the increase over the previous year (ending May 31, 2009) is less than
15%, and the Labor Surcharge will be added for the year beginning June 1, 2010,
using the cost of labor per case as of May 31, 2010 as the base figure and the
cost of labor per case as of June 1, 2010 as the new figure.

       

      4.   Bottle Cost
Reimbursement.

       

      (a)   New
Bottles.  Reed’s shall reimburse The Lion for all new bottles
used at the applicable invoice price plus the allocable portion of
any freight, fuel and energy surcharges born by The Lion.  The Lion
shall supply back-up invoices from suppliers, but Reed’s recognizes that such
information is confidential to The Lion’s suppliers, and therefor it shall be
disclosed only to Reed’s auditors (and not to Reed’s) and only if such auditors
enter into a reasonable confidentiality agreement to protect such
information.

       

      (b)   Recycled
Bottles.  Reed’s shall reimburse The Lion for all recycled
bottles used at the then-applicable current invoice price for new bottles (net
of any freight, fuel or energy surcharges) of the same color (whether purchased
on the spot market or under the current contract), less thirty cents ($0.30) per
24 bottle case. The Audits referred to in Section V of the Agreement shall at
Reed’s direction address The Lion’s purchases and usage of recycled and new
bottles.

       

      5.   Flavorings,
etc.  The prices stated in this Agreement are premised upon
Reed’s purchasing and providing The Lion with all flavorings.  Reed’s
shall be responsible for all die and plate charges relating to Product
packaging.  Reed’s shall be responsible for all licensing and label
approval charges incurred by The Lion on behalf of Reed’s.

       

      6.   General.  All
Prices are platform FOB at the Plant, Wilkes-Barre,
Pennsylvania.  Reed’s shall be responsible for the cost of partitions
in the event multipacks are not used.

       

      
        
          
          

        

        
          3

          
            

          

        

        
          
          

        

      

       

       

      ANNEX
“I”

       

      Plant
Visitors Agreement

       

      


      Reed’s Inc. (“Reed’s”) has reserved
certain rights to inspect facilities (the “Plant”), and/or to
receive and have access to certain information, of The Lion Brewery, Inc. (the
“Lion”) which
is confidential and/or proprietary to The Lion (“Confidential
Information”).  This Agreement represents the understanding
concerning the disclosure, use and handling of Confidential Information and any
such Plant visit.  In return for the disclosure by The Lion to Reed’s
of the Confidential Information and/or permission to visit The Lion’s Plant(s),
as applicable, the undersigned agree to abide by the terms and conditions set
forth in this Agreement.

       

      “Confidential
Information” shall have the meaning given in the Brewing Agreement
between Reed’s and The Lion, and shall include information a person may see or
hear during any visit to a Plant that relates to any of the
foregoing.

       

      The
undersigned shall not disclose Confidential Information to any third parties and
shall maintain all Confidential Information in strict confidence for the benefit
of The Lion.

       

      All
persons to whom Confidential Information is disclosed shall be informed of the
restrictions contained in this Agreement regarding disclosure, use and
reproduction of Confidential Information.  The undersigned shall not
reproduce Confidential Information without the express written consent of The
Lion.

       

      The
undersigned shall not retain (and shall destroy or return to The Lion) any
tangible Confidential Information including but not limited to drawings,
blueprints, descriptions, documents, software, models, or plans, and all copies
or summaries thereof.

       

      The
undersigned shall not at any time make any photographs, videotapes, sound
recordings, or other reproductions of Confidential Information or of anything
Reed’s may see or hear during a visit to The Lion Plant.  Visitors to
The Lion Plants must check all cell phones, cameras, PDAs, wireless devices,
sound recorders and similar equipment with The Lion Security during their
visit.  If the Confidential Information should become stored on the
undersigned’s electronic data processing systems, Reed’s shall see that it can
readily be fully and permanently destroyed or deleted in compliance with the
undersigned’s obligations to The Lion.

       

      The
undersigned hereby releases The Lion and its officers, directors, shareholders,
employees, and agents from any and all damages, liabilities, claims, demands,
actions, and causes of action (collectively, “Claims”) for property damage,
economic injury and personal injury, including death, which may arise as a
result of entry into production areas except for Claims resulting from The
Lion’s gross negligence or willful misconduct.  The undersigned also
agree to defend, indemnify and hold harmless The Lion, its officers, directors,
shareholders, employees, and agents, from and against any and all Claims for
property damage, economic injury and personal injury, including death, which may
arise as a result of your negligence or willful misconduct.

       

      Intending
to be legally bound, the undersigned agrees to the foregoing , effective as of
the date set forth below.

       

      


       

      
        	 
      	
                _________________________________
      (SEAL)

                Name:

                Title:

                Date:

              


      

       

       

      
        
          
          

        

        
          4