Document:

Exhibit 10.17

	 
	CONTRACT MANUFACTURING, PACKAGING AND DISTRIBUTION AGREEMENT
	 
	BETWEEN 
	 
	NATIONAL TOBACCO COMPANY, L.P.
	 
	AND
	 
	SWEDISH MATCH NORTH AMERICA, INC.
	 

September 4, 2008

 

	 

	 

 

	 	 	TABLE OF CONTENTS	 
	 	 	 	 
	 	 	 	Page
	 	 	 	 
	1.	Definitions	1
	 	 	 
	 	1.1	Ancillary Agreements	1
	 	 	 	 
	 	1.2	CCC	1
	 	 	 	 
	 	1.3	Common Ingredients	2
	 	 	 	 
	 	1.4	Distribution	2
	 	 	 	 
	 	1.5	FDA	2
	 	 	 	 
	 	1.6	Government Agency	2
	 	 	 	 
	 	1.7	Leased Equipment	2
	 	 	 	 
	 	1.8	Manufacturing Plant	2
	 	 	 	 
	 	1.9	NTC Products	2
	 	 	 	 
	 	1.10	OSHA	2
	 	 	 	 
	 	1.11	Plant Machinery	2
	 	 	 	 
	 	1.12	Tobacco Buyout Act	2
	 	 	 	 
	 	1.13	TTB	2
	 	 	 	 
	 	1.14	USDA	2
	 	 	 	 
	 	1.15	Proprietary Flavor	2
	 	 	 	 
	 	1.16	Terms Defined Elsewhere	3
	 	 	 	 
	2.	Term of Agreement	4
	 	 	 
	 	2.1	Term of Agreement	4
	 	 	 	 
	 	2.2	Renewal Terms of Agreement	4
	 	 	 	 
	 	2.3	Termination of Agreement	5
	 	 	 	 
	 	2.4	Mediation Remedy	6
	 	 	 	 
	3.	Manufacturing Plant	7
	 	 	 
	 	3.1	Location of the Manufacture of the NTC Products	7
	 	 	 	 
	 	3.2	Access to the Manufacturing Plant	7
	 	 	 	 
	4.	Pre-Manufacturing	7
	 	 	 
	 	4.1	Pre-Manufacturing Schedule	7
	 	 	 	 
	 	4.2	Plant Construction	7
	 	 	 	 
	 	4.3	Plant Machinery	8
	 	 	 	 
	 	4.4	Permits	8
	 	 	 	 
	 	4.5	Specifications	8

 

	-i-

	 

 

	 	 	 	 	 
	 	 	TABLE OF CONTENTS	 	 
	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	 
	 	4.6	Pre-Manufacturing and Start-up	 	9
	 	 	 	 	 
	 	4.7	Tax Matters	 	9
	 	 	 	 	 
	5.	Manufacturing	 	10
	 	 	 	 
	 	5.1	Exclusive Manufacturer	 	10
	 	 	 	 	 
	 	5.2	Budgeting Process	 	10
	 	 	 	 	 
	 	5.3	Manufacturing Process	 	10
	 	 	 	 	 
	 	5.4	Manufacturing Capacity	 	11
	 	 	 	 	 
	 	5.5	Manufacturing Components	 	11
	 	 	 	 	 
	 	5.6	Intentionally Omitted	 	13
	 	 	 	 	 
	 	5.7	Product Development; Pre-Production Processing	 	13
	 	 	 	 	 
	 	5.8	Work Force for Manufacturing	 	13
	 	 	 	 	 
	 	5.9	Maintenance and Consumables	 	14
	 	 	 	 	 
	 	5.10	Responsibility Allocation of Manufacturing Activities	 	14
	 	 	 	 	 
	 	5.11	Inventory Control	 	14
	 	 	 	 	 
	 	5.12	Completion of Manufacture; Inspection	 	15
	 	 	 	 	 
	 	5.13	Compliance with Regulations	 	15
	 	 	 	 	 
	 	5.14	Supply of Information	 	16
	 	 	 	 	 
	6.	Manufacturing Fee	 	16
	 	 	 	 
	 	6.1	Manufacturing Fee	 	16
	 	 	 	 	 
	 	6.2	Reflection of Cost Change	 	17
	 	 	 	 	 
	7.	Payment Terms	 	19
	 	 	 	 
	8.	Modified or New NTC Products	 	19
	 	 	 	 
	 	8.1	Modified NTC Products	 	19
	 	 	 	 	 
	 	8.2	New NTC Products	 	19
	 	 	 	 	 
	9.	Transportation	 	20
	 	 	 	 
	 	9.1	Transportation Logistics	 	20
	 	 	 	 	 
	 	9.2	Transportation Cost Responsibility	 	20
	 	 	 	 	 
	10.	Customer Returns	 	20
	 	 	 	 
	11.	Recall and Other Service Campaigns	 	21
	 	 	 	 
	 	11.1	Government Inquiry	 	21
	 	 	 	 	 
	 	11.2	Recall Campaigns	 	21
	 	 	 	 	 

	-ii-

	 

 

TABLE OF CONTENTS

	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	 
	 	 	 	 	 
	 	11.3	Expenses	 	21
	 	 	 	 	 
	12.	Indemnification and Limitation of Liability	 	22
	 	 	 	 
	 	12.1	Indemnification by NTC	 	22
	 	 	 	 	 
	 	12.2	Indemnification by SM	 	22
	 	 	 	 	 
	 	12.3	Product Liability Claims	 	22
	 	 	 	 	 
	13.	Change of Control; NTC’s Right of First Refusal with Respect to SM’s Sale of its Chewing Tobacco Unit or Sale, Lease or Disposition of the Manufacturing Plant	 	23
	 	 	 	 
	 	13.1	Adoption of Agreement	 	23
	 	 	 	 	 
	 	13.2	NTC’s Right of First Refusal to Acquire the Manufacturing Plant	 	24
	 	 	 	 	 
	14.	Representations and Warranties	 	26
	 	 	 	 
	 	14.1	Representations and Warranties of SM	 	26
	 	 	 	 	 
	 	14.2	Representations and Warranties of NTC	 	27
	 	 	 	 	 
	15.	General Provisions	 	27
	 	 	 	 
	 	15.1	Assignment	 	27
	 	 	 	 	 
	 	15.2	Amendments; Persons Authorized to Act for the Parties	 	27
	 	 	 	 	 
	 	15.3	Notice	 	27
	 	 	 	 	 
	 	15.4	Force Majeure	 	28
	 	 	 	 	 
	 	15.5	Transaction Upon and After Expiration or Termination	 	28
	 	 	 	 	 
	 	15.6	Third Person	 	29
	 	 	 	 	 
	 	15.7	Cumulative Remedies; Specific Performance	 	29
	 	 	 	 	 
	 	15.8	Alternative Dispute Resolution	 	29
	 	 	 	 	 
	 	15.9	Governing Law and Forum	 	30
	 	 	 	 	 
	 	15.10	Nondisclosure of Confidential and Proprietary Information	 	30
	 	 	 	 	 
	 	15.11	Severability	 	31
	 	 	 	 	 
	 	15.12	Survival	 	31
	 	 	 	 	 
	 	15.13	Insurance	 	31
	 	 	 	 	 
	 	15.14	Compliance with Applicable Law	 	32
	 	 	 	 	 
	 	15.15	Exhibits; Entire Agreement	 	32
	 	 	 	 	 
	 	15.16	Counterparts	 	32
	 	 	 	 	 
	 	15.17	Successors and Assigns	 	32
	 	 	 	 	 
	 	15.18	Enumeration and Headings; Gender and Number	 	32

 

	-iii-

	 

 

	 	 	 	 	 
	 	TABLE OF CONTENTS	 	 
	 	 	 	 	 
	 	 	 	 	Page
	 	 	 	 	 
	 	15.19	Construction	 	32
	 	 	 	 	 
	 	15.20	Non-solicitation of Employees	 	33
	 	 	 	 	 
	 	15.21	Publicity	 	33
	 	 	 	 	 
	 	15.22	Right to Provide Services	 	33

	-iv-

	 

 

CONTRACT MANUFACTURING, PACKAGING AND DISTRIBUTION AGREEMENT 

 

This Contract Manufacturing, Packaging and Distribution Agreement (the “Agreement”) is made and entered into on and as of the 4th day of September, 2008 (“Effective Date”), between National Tobacco Company, L.P., a Delaware limited partnership (“NTC”), and Swedish Match North America, Inc., a Delaware corporation (“SM”). 

 

Whereas, NTC owns facilities and equipment necessary for the production, manufacture, packaging and distribution of chewing tobacco products; and 

 

Whereas, SM owns facilities and equipment necessary for the production, manufacture, packaging and distribution of chewing tobacco products; and 

 

Whereas, by manufacturing the parties’ chewing tobacco products at SM’s modem plant, rather than NTC’s outdated facility, the parties can jointly achieve efficiencies in variable costs, overhead absorption and capital expense in light of increasing government regulation that they could not achieve on their own. 

 

Whereas, SM desires to produce, manufacture, package and distribute the NTC Products (as defined herein) on behalf of NTC, and NTC desires for SM to produce, manufacture, package and distribute the NTC Products, in accordance with the terms of this Agreement.

 

Now Therefore, the parties hereto agree as follows:

 

1. Definitions. In addition to the terms that are defined herein, the terms defined below )shall have the following meanings:

 

1.1 Ancillary Agreements. The term “Ancillary Agreements” shall mean such additional agreements entered into by and between SM and NTC, as may be necessary to accomplish the transaction contemplated herein for the production, manufacture, packaging and distribution of the NTC Products, all as referenced herein, including, but not limited to:

 

(a) Provisional Lease Agreement, as defined in Section 2.3(a);

 

(b) Office Space and Research Laboratory Lease Agreement, as defined in Section 4.2;

 

(c) Equipment Lease, as defined in Section 4.3(a);

 

(d) Software License Agreement, as defined in Section 4.3(b);

 

(e) Confidentiality Agreement, as attached hereto as Exhibit A; and

 

(f) Permission Letter, as defined in Section 5.5(a)(2).

 

If a dispute arises as to such terms and conditions to be contained in any of the Ancillary Agreements, the provisions of Section 15.9 of this Agreement shall apply.

 

1.2 CCC. The term “CCC” shall mean the Commodity Credit Corporation.

 

	 

	 

 

1.3 Common Ingredients. The term “Common Ingredients” shall mean those ingredients that are listed on Schedule 5.5(a), which may be amended from time to time to include replacement ingredients comparable to the ingredients listed on Schedule 5.5(a).

 

1.4 Distribution. The terms “Distribution” shall mean the transportation of the NTC Products by SM to a first level distribution center.

 

1.5 FDA. The term “FDA” shall mean the Food and Drug Administration.

 

1.6 Government Agency. The term “Government Agency” shall mean any federal, state or local government or governmental agency or authority. 

 

1.7 Leased Equipment. The term “Leased Equipment” shall mean all of the equipment, machinery, tooling, and computer and information technology equipment necessary for the production, manufacture, packaging and distribution of the NTC Products that SM shall lease from NTC in accordance with Section 4.3(a) and the Equipment Lease.

 

1.8 Manufacturing Plant. The term “Manufacturing Plant” shall mean SM’s manufacturing plant located at 1121 Industrial Drive, Owensboro, Kentucky 42301 or any other location that SM produces and manufactures its chewing tobacco products in the United States, as determined by SM in its sole discretion in accordance with the terms and conditions of Section 3.1.

 

1.9 NTC Products. The term “NTC Products” shall mean the chewing tobacco products presently produced by NTC, as more particularly described on Schedule 1.9, as may be amended from time to time, and which are to be produced, manufactured and distributed by SM Pursuant to this Agreement.

 

1.10 OSHA. The term “OSHA” shall mean the Occupational Safety & Health Act of 1970, as amended.

 

1.11 Plant Machinery. The term “Plant Machinery” shall mean the machinery, equipment, tooling, computer and information technology equipment necessary for the production, manufacture, packaging and distribution of the NTC Products, which includes such equipment (i) owned by SM (ii) leased or licensed by SM or (iii) leased or licensed to SM by NTC in accordance with Section 4.3.

 

1.12 Tobacco Buyout Act. The term “Tobacco Buyout Act” shall mean the Fair and Equitable Tobacco Reform Act of 2004.

 

1.13 TTB. The term “TTB” shall mean the Alcohol and Tobacco Tax and Trade Bureau.

 

1.14 USDA. The term “USDA” shall mean the United States Department of Agriculture.

 

1.15 Proprietary Flavor. The term “Proprietary Flavor” shall mean any flavor or ingredient supplied by NTC to SM for inclusion in an NTC Product (or New NTC Products, as applicable). Proprietary Flavors does not include the Common Ingredients listed on Schedule 5.5(a).

 

	-2- 

		 	 

 

1.16 Terms Defined Elsewhere. The following is a list of additional terms used in this Agreement and a reference to the Section hereof in which such term is defined:

 

	Term	Section
	 	 
	Access Personnel	3.2
	Additional Fees	6.1(c)
	Agreement	Preamble
	Amended Agreement	13.1(b)(2)
	Annual CPI	6.2(a)
	Approved Employees	15.10(c)
	Attachments	15.15
	Base Rate	6.1(a)
	Base Rate Increase	6.2(a)
	Breach Cure Period	2.3 (a)(1)
	Budget Forecast	5.2
	Buy-Out Fee	13.1(b)(2)
	CAGR	6.2(a)
	CPI	6.1(a)
	CPI Increases	6.2(a)
	Capacity Limits	5.3
	Confidential Information	15.10(a)
	Provisional Lease Agreement	2.3(a)(1)
	ffective Date	Preamble
	quipment Lease	4.3(a)
	Extension Cure Period	2.3(a)(2)
	Firm Forecast	5.3
	Five Year Annual Growth Rate	6.2(a)
	Forecast Date	5.35.2
	Force Majeure	15.4
	Fuel Surcharges	6.1(c)
	Government Expenses	6.1(b)
	Incentives	4.6(b)
	Initial Term	2.1
	Inventory	5.5(a)
	Laws	5.13
	Losses	12.1
	Maintenance Items	5.9(a)
	Manufacturing Fee	6.1
	Manufacturing Forecasts	5.3
	MSDS	4.5
	NTC	Preamble
	NTC Indemnitees	12.2
	NTC Inspection	5.12
	NTC Items	5.5(a)
	New NTC Products	8.2
	Non-Chewing Tobacco Manufacturer Transaction	13.1(b)

 

	-3- 

		 	 

 

	Notice	15.3
	Office Space and Research Laboratory Lease	4.2
	Packaging Materials	5.5(a)(2)
	Permission Letter	5.5(a)(2)
	Permits	4.4
	Policy for Ingredients	4.5
	Pre-Manufacturing Activities	4.6(a)
	Pre-Manufacturing Performance Standards	4.6(a)
	Previous Year	6.2(b)
	Product Development	5.7
	Product Liability Claims	12.3
	Provisional Lease Agreement	23(a)(1)
	Renewal Term	2.2
	Right of Access	3.2
	Right of First Refusal	13.2
	SM	Preamble
	SM Base Distribution	6.1(a)
	SM Chewing Tobacco Unit	13.2
	SM Indemnitees	12.1
	SM Items	5.5(a)
	Software License Agreement	4.3(b)
	Specifications	4.5
	TMA	13.1(b)(2)a
	Term	2.2
	Termination Period	2.2
	Volume Increase Adjustment	6.2(c)
	Volume Reduction Fee	6.2(b)
	Year 1 Pounds	13.1(b)(2)a
	Year 2 Fee	13.1(b)(2)
	Year 2 Pounds	13.1(b)(2)a
	Year 2 Pounds Calculation	13.1(b)(2)b
	Year 3 Fee	13.1(b)(2)
	Year 3 Pounds	13.1(b)(2)b

 

2. Term of Agreement. 

 

2.1 Term of Agreement. The initial term of this Agreement shall commence on the Effective Date and continue for a ten (10) year period (the “Initial Term”).

 

2.2 Renewal Terms of Agreement. Upon the expiration of the Initial Term, this Agreement shall automatically renew for five (5) successive ten year periods (each a “Renewal Term” and, collectively the “Renewal Terms”), unless (a) a party delivers written notice to the other party at least one-hundred and eighty (180) days prior to the commencement of a Renewal Term of its intent to terminate this Agreement two (2) years from the date of the commencement of such Renewal Term (“Termination Period”) or (b) the Agreement is otherwise terminated or cancelled pursuant to the terms herein. The Initial Term and the Renewal Terms shall be collectively referred to herein as the “Term.” In the event that SM elects to terminate this Agreement in accordance with the terms and conditions of this Section set forth above, NTC may, in its sole discretion, elect to commence the Provisional Lease Agreement, upon delivery of written notice to SM as set forth in Section 2.3(a)(1), which shall automatically commence on the next calendar day after expiration of the Termination Period. 

 

	-4- 

		 	 

 

2.3 Termination of Agreement. NTC shall have the right, but not the obligation, to terminate this Agreement pursuant to Sections 2.2, 2.3(a)(1) and 2.3(a)(3), and as otherwise provided herein. SM shall have the right, but not the obligation, to terminate this Agreement pursuant to Sections 2.2, 2.3(b) and as otherwise provided herein. A termination of this Agreement for any reason by any party shall automatically constitute a simultaneous cancellation and termination of all Ancillary Agreements as of the effective termination date, except as otherwise provided in this Agreement and/or the Ancillary Agreements.

 

(a) Events of Default by SM. 

 

(1) If SM breaches any material provision of this Agreement and such breach is not cured to NTC’s reasonable satisfaction within a period of sixty (60) calendar days (“Breach Cure Period”) after NTC delivers written notice to SM describing the breach in sufficient detail to allow SM to initiate a cure, the term of the Provisional Lease Agreement between NTC and SM, substantially in the form of Exhibit B (“Provisional Lease Agreement”), shall commence on the next calendar day after expiration of the Breach Cure Period and receipt by SM of written notice from NTC that NTC will initiate the Provisional Lease Agreement unless NTC opts to terminate this Agreement or accept such incident of breach as set forth in Section 2.3(a)(2). Pursuant to the terms of, and following commencement of, the Provisional Lease Agreement, this Agreement shall be modified as set forth in the Provisional Lease Agreement and SM shall lease to NTC the portion of the Manufacturing Plant and Plant Machinery utilized by SM for the production, manufacture, packaging and distribution of the NTC Products. Upon commencement of the Provisional Lease Agreement, the obligations of SM hereunder to manufacture, produce, package and distribute the NTC Products shall forever cease and SM shall have no liability pursuant to the terms of this Agreement for acts or omissions occurring after commencement of the Provisional Lease Agreement. 

 

(2) Instead of opting to initiate the Provisional Lease Agreement following an uncured breach in the manner set forth herein, NTC shall have the right, but not the obligation, to (i) terminate this Agreement after expiration of the Breach Cure Period after delivery of written notice of termination to SM, if such incident of breach of a material provision remains uncured to the reasonable satisfaction of NTC; (ii) accept such incident of breach; or (iii) elect to extend the Breach Cure Period as provided herein. At the expiration of the Breach Cure Period, NTC shall have the right, but not the obligation, to extend the Breach Cure Period upon delivery of written notice to SM for twelve (12) successive 30 day periods (“Extension Cure Period”). If at the end of the twelve (12) Extension Cure Periods SM has not cured such incident of breach that triggered the Breach Cure Period, NTC shall either: (i) accept such incident of breach; (ii) terminate this Agreement; or (iii) elect to commence the Provisional Lease Agreement. If NTC accepts such incident of breach during either the Breach Cure Period or Extension Cure Period, NTC waives its rights to (i) terminate this Agreement and (ii) elect to commence the Provisional Lease Agreement, with respect to such incident of breach only. Failure by NTC to notify SM in writing of its intention to (i) commence an Extension Cure Period; (ii) terminate this Agreement; or (iii) elect to commence the Provisional Lease Agreement all in the manner set forth herein shall cause this Agreement to continue in full force and effect, and NTC waives its right to terminate this Agreement or commence the Provisional Lease Agreement with respect to such incident of breach only.

 

	-5- 

		 	 

 

(3) If SM materially refuses, halts, suspends, terminates, delays or stops the production, manufacture, packaging and/or distribution of the NTC Products without cause (excluding repairs, scheduled maintenance and holidays) for a period of at least fourteen (14) calendar days, NTC may at any time after such period elect to commence the term of the Provisional Lease Agreement pursuant to the terms of the Provisional Lease Agreement upon prior written notice to SM.

 

(4) If SM files a petition in bankruptcy, or a petition in bankruptcy is filed against SM, or SM becomes insolvent, bankrupt, or makes a general assignment for the benefit of its creditors, or goes into liquidation or receivership, in the event SM is unwilling or unable to continue with its obligations of production, manufacturing and distribution of the NTC Products hereunder, NTC shall, subject to approval by the Trustee in Bankruptcy and the Bankruptcy Court, have (i) a right of first refusal to purchase the Manufacturing Plant provided (x) NTC agrees to assume by contract assignment any then existing tobacco product manufacturing agreement(s) applicable to the Manufacturing Plant in effect at that time in which SM has duties similar to some or all of the SM duties in this Agreement (and subject to the specific written approval of such third parties to such contract assignment) and (y) NTC’s purchase price for the Manufacturing Plant meets or exceeds the price at which the bankruptcy trustee or debtor-in-possession proposes to sell the Manufacturing Plant and such sale is approved by the Bankruptcy Court; or (ii) terminate this Agreement upon delivery of written notice to SM. 

 

(b) Events of Default by NTC. If NTC breaches any material provision of this Agreement and such breach is not cured to SM’s reasonable satisfaction after SM delivers written notice of such breach to NTC within a period of (i) thirty (30) days in the case of a payment default; (ii) ninety (90) days in the case of a failure to comply with a reporting or forecasting obligation or a material default of any other obligation of NTC, except as otherwise provided in this Section 2.3(b); or (iii) two (2) years in the case of bankruptcy, liquidation, receivership or insolvency of NTC or NTC makes a general assignment for the benefit of its creditors, SM may terminate this Agreement after the expiration of the applicable period to cure.

 

(c) Termination by Mutual Agreement. This Agreement may be terminated or amended by mutual written agreement of the parties at any time.

 

(d) Non-Waiver. Termination of this Agreement by default or breach by a party shall not constitute a waiver of any rights of the other party in reference to services performed prior to such termination, including but not limited to, the right to payments hereunder, rights to be reimbursed for out-of-pocket expenditures or any other rights such other party might have under this Agreement at law, in equity or otherwise.

 

2.4 Mediation Remedy. If a dispute arises out of this Agreement and if the dispute cannot be settled through negotiation, the parties agree to try in good faith to settle the dispute by mediation before resorting to arbitration, litigation, or some other dispute resolution procedure. The parties agree to use The Center For Dispute Resolution Inc., located in Cincinnati, Ohio. The fees for the mediation will be borne equally by the parties.

 

	-6- 

		 	 

 

3. Manufacturing Plant. 

 

3.1 Location of the Manufacture of the NTC Products. SM shall produce, manufacture, package and distribute the NTC Products at the Manufacturing Plant. If at any time during the Term of this Agreement SM intends to transfer, move or relocate the production, manufacture, packaging and distribution of its chewing tobacco operations, SM shall provide NTC with 180 days prior written notice of such intention to transfer the production of its chewing tobacco operations to another facility or site in the United States. The result of any such transfer, move or relocation of the chewing tobacco operation of SM or Manufacturing Plant will not result in an increase to the Manufacturing Fee. 

 

3.2 Access to the Manufacturing Plant. At all times during normal business hours during the Term and subject to the terms hereof, NTC’s designated employees, agents or authorized representatives, including, but not limited to, any auditors of NTC, (“Access Personnel”) shall have the right of access to those areas of the Manufacturing Plant specific to the production, processing, packaging and distribution of NTC Products (“Right of Access”). SM reserves the right to limit the number of Access Personnel to a number of individuals deemed reasonable and which will not unduly interrupt or disrupt normal operations at such Manufacturing Plant. NTC shall submit to SM the names of the Access Personnel not directly employed by NTC for approval, which shall not be unreasonable withheld and based on the determination that such Access Personnel does not work for a competitor (other than NTC). Such Access Personnel shall at all times while at the Manufacturing Plant. comply with SM rules of conduct (a copy of which shall be provided to NTC) and they shall be accompanied by one or more SM representatives. Each of the Access Personnel shall be bound in writing to the NTC duties of confidentiality , provided hereunder and the Confidentiality Agreement prior to SM allowing access to the Manufacturing Plant by such Access Personnel. NTC shall provide evidence of such writing to SM after request by SM. Notwithstanding the foregoing, SM reserves the right to limit or deny access to the Manufacturing Plant to any Access Personnel that SM considers detrimental to SM’s operation due to a violation of the rules of conduct of SM.

 

4. Pre-Manufacturing. 

 

4.1 Pre-Manufacturing Schedule. NTC and SM shall cooperate in the performance of the Pre-Manufacturing Activities (defined below) in order to commence the production, manufacture, packaging and distribution of the NTC Products at the Manufacturing Plant with a target of 180 days from the Effective Date. NTC will provide sufficient quantities of NTC Products, as mutually agreed upon by SM and NTC, for SM to use as control products during this six month start-up period. These start-up NTC Products will be used to ensure SM’s ability to produce the NTC Products. NTC certifies that the NTC Products have at least a four month shelf life to cover development time. Such NTC Products will be supplied at NTC sole expense. 

 

4.2 Plant Construction. SM shall, at its own cost, construct such new facilities, or expand or modify the existing Manufacturing Plant, as necessary to produce, manufacture, package, store, inventory and distribute the NTC Products under this Agreement, including all materials, components, and other items for the NTC Products in accordance with the terms and conditions of this Agreement. SM shall provide all utilities for construction and operation of the Manufacturing Plant, including, but not limited to, gas, water and electricity. Contemporaneously herewith, SM and NTC shall enter into a lease for office and research laboratory space at the Swedish Match Leaf location at 1100 Ewing Road, Owensboro, Kentucky 42301 or such other facility as mutually agreed and as set forth in Exhibit C (“Office Space and Research Laboratory Lease”). NTC will be responsible for all costs, procurement and installation of all furnishings and equipment that it requires at such facility.

 

	-7- 

		 	 

 

4.3 Plant Machinery. Except as otherwise provided herein, SM shall purchase, procure, maintain, lease, license and provide all necessary machinery and equipment for the production, manufacture, packaging and distribution of the NTC Products. SM shall also license and/or lease from NTC the Leased Equipment under the terms and conditions set forth in the following agreements to be entered into by and between NTC and SM:

 

(a) equipment lease agreement for the Leased Equipment substantially in the form of Exhibit D (the “Equipment Lease”); and

 

(b) license agreement for software for the Leased Equipment substantially in the form of Exhibit E (the “Software License Agreement”).

 

The Manufacturing Fee as set forth in Section 6.1 includes all costs incurred by SM for the procurement, maintenance, lease and license of Plant Machinery. The Leased Equipment may be used by SM for the production, manufacture, packaging and distribution of the NTC Products and any similar products of SM and other parties, including, but not limited to, chewing tobacco. 

 

4.4 Permits. SM shall, at its own costs and expense, obtain and/or maintain any necessary permits or other governmental approvals; including, but not limited to, those required by the FDA, with respect to the construction and operation of the Manufacturing Plant and the production, manufacture, packaging and distribution of the NTC Products as of the Effective Date (the “Permits”). All costs for Permits required in the future shall be paid by SM; provided, however, the costs of such Permits attributable to the NTC Products that SM would not have otherwise incurred absent this Agreement shall be allocated to NTC on the applicable per unit basis. NTC will fully cooperate with SM, at NTC’s own cost and expense, in obtaining any necessary Permits.

 

4.5 Specifications. NTC shall provide to SM, in, writing, all quality and composition requirements, components, manufacturing instructions, coded recipes, NTC Items (defined below in Section 5.5(a)), inspection standards and other documents and data (collectively, the “Specifications”) reasonably required by SM to produce, manufacture, package and distribute the NTC Products under this Agreement. SM shall keep and treat the Specifications as Confidential Information as provided for in Section 15.10 and the terms and conditions of the Confidentiality Agreement. SM must review and pre-approve all Specifications for the purpose of assuring that SM is capable of providing the enumerated services hereunder for the NTC Products within said Specifications and within the pricing assumptions of the Base Rate. All Specifications provided by NTC must comply with the SM Policy for Ingredients (“Policy for Ingredients”) attached hereto as Schedule 4.5. If during the Term, SM or any affiliate of SM changes or amends the SM Policy for Ingredients so that the Specifications for the NTC Products do not comply with such amended Policy for Ingredients, then SM must use commercially reasonable efforts to obtain an exemption to allow non-compliance for the Specifications. If SM is unable to obtain such compliance exemption for the Specifications, then NTC may either (i) revise the non-complying Specifications, and such revisions shall be at the sole cost and expense of SM; or (ii) elect to trigger the application of the provisions of Section 8.2 for the NTC Products with the non-conforming Specifications. Any reduction to the volume of the NTC Products as a result of NTC moving the production of the NTC Products with the non-conforming Specifications or because of an amendment or change to the Policy for Ingredients shall not be included in the volume of the NTC Products when determining the Volume Reduction Fee. Once Specifications are approved by SM, NTC will not modify or amend the Specifications unless authorized in advance, in writing, by SM, such approval not to be unreasonably withheld and as set forth in Section 8. SM shall ensure that the necessary processes and quality systems are in place to comply with the Specifications for the production, manufacture, packaging and distribution of the NTC Products. NTC will be responsible for, and will directly and timely pay each vendor for all costs associated with the development and delivery to SM of material safety data sheets (“MSDS”) for each Proprietary Flavor. 

 

	-8- 

		 	 

 

4.6 Pre-Manufacturing and Start-Up. 

 

(a) Pre-Manufacturing Activities. SM shall be responsible for the installation, start-up and trial of the Plant Machinery, and all other activities necessary to prepare the Manufacturing Plant for the production, manufacture, packaging and distribution of the NTC Products (“Pre-Manufacturing Activities”). The Pre-Manufacturing Activities shall include specific process and inspection plans, targets of achievement (as they pertain to product quality), and all other standards or requirements for the Pre-Manufacturing Activities (collectively, the “Pre-Manufacturing Performance Standards”). SM shall (i) procure from NTC or third parties all equipment, parts, ingredients, components or materials which are needed and (ii) conduct such activities that are necessary to achieve the Pre-Manufacturing Performance Standards during the Pre-Manufacturing Activities period. NTC will be responsible for all costs associated with related artwork and cylinder charges including, but not limited to, packaging material changes. In the event that sample batches, in whole or in part, are reused or reworked into NTC Products by NTC (in its discretion), at its facilities, NTC shall reimburse SM for its proportional expense of such materials used for such sample batches and labor costs saved by NTC. 

 

(b) Pre-Manufacturing Training. Upon the request of SM, NTC shall provide adequate support and assistance to SM as necessary to successfully complete the Pre-Manufacturing Activities. For a period of six (6) months after the Effective Date of this Agreement, SM shall have the exclusive right to seek any national, state and local economic and tax incentives which may be provided by the Commonwealth of Kentucky, City of Owensboro, or other third parties to the parties as a result of the activities engaged in by the parties in connection with or during the performance of this Agreement or the production, manufacture, packaging and distribution of the NTC Products (collectively, the “Incentives” and individually an “Incentive”). After the expiration of such six (6) month period, NTC shall also have the right to seek all possible Incentives. Any Incentives obtained by either party shall remain the exclusive benefit of such party.

 

4.7 Tax Matters. As of the Effective Date, SM shall be responsible for payment of all federal excise taxes associated with the production, manufacturing, packaging and distribution of the NTC Products, and such taxes are reflected in the Government Expenses component of the Manufacturing Fee. Any increases in federal excise tax during the Term will be timely paid by NTC in a mutually agreeable manner, either by adjusting the Manufacturing Fee or direct billing and payment.

  

	-9- 

		 	 

 

5. Manufacturing. 

 

5.1 Exclusive Manufacturer. During the Term of this Agreement, SM shall be the exclusive manufacturer of the NTC Products set forth in Schedule 1.9, as may be amended from time-to-time to add any New NTC Products, subject to the terms and conditions of Section 8. 

 

5.2 Budgeting Process. Upon execution of this Agreement, NTC will provide SM with a twelve month forecast for calendar year 2009 in accordance with the informational requirements of Schedule 5.2. On or before July 1 of each year during the Term, NTC shall provide SM with the next calendar year’s anticipated annual volumes of NTC Products to be produced, manufactured, packaged and distributed pursuant to this Agreement, subject to the terms and conditions of the Confidentiality Agreement (“Budget Forecast”) in accordance with the Informational Requirements of Schedule 5.2. The parties understand and agree that the Budget Forecast provided by NTC each year is only the best estimate of NTC at that time and does not create a binding obligation for NTC to meet such volumes specified on the Budget Forecast. 

 

5.3 Manufacturing Process. Throughout the Term, NTC shall provide SM with monthly rolling forecasts of NTC’s manufacturing requirements for the NTC Products for the immediately succeeding six (6) months (“Manufacturing Forecasts”). Such Manufacturing Forecasts shall be supplied on or before the first day of each calendar month (“Forecast Date”). The Manufacturing Forecasts shall provide the requirements for the NTC Products on a SKU by SKU basis and by first level distribution center. The Manufacturing Forecast will be used by SM as part of its material resource planning process, and, as such, NTC will be responsible for the costs of any materials, which are located in the Manufacturing Plant or on the floor at the supplier, that have been obtained by SM based on the Manufacturing Forecasts and used exclusively in the NTC Products. The quantities of the NTC Products reflected in the first month of the Manufacturing Forecast will be broken down on a weekly basis, by SKU for each first level distribution center, and may only be modified by prior written notice from NTC to SM which must be approved by SM and such approval shall not be unreasonably withheld (“Firm Forecast”). SM shall have the obligation to satisfy each Firm Forecast, with the understanding that if the volume of any Firm Forecast exceed the monthly capacity limits for the production of the NTC Products (“Capacity Limits”) set forth on Schedule 5.3 by more than seven percent (7%), then NTC will incur a ten percent (10%) increase to the Base Rate for only those amounts that exceed 107% of the Capacity Limits. Capacity Limits shall be revised by SM on an annual basis and such revisions shall be based upon on the percentage change in volume of the NTC Products in the preceding calendar year. Furthermore, additional increases in quantities to such Firm Forecast may result in additional costs (a reasonable estimate of such costs to be identified to NTC prior to production for NTC’s approval), which also will be reflected in an adjusted Manufacturing Fee for those NTC Products required in such Firm Forecast. SM shall provide NTC, in writing, with a production schedule reflecting the production completion dates and SKUs for the NTC Products as soon as such schedule is determined by SM and/or if SM alters such production schedule with respect to the NTC Products. NTC acknowledges that SM will require the flexibility to build inventory for planned Manufacturing Plant shut downs and agrees to reasonably cooperate with SM.

 

	-10- 

		 	 

 

Forecast Model

	 	 
	Forecast Date:	June 1
	 	 
	Manufacturing Forecasts:	July 1 – December 31
	 	 
	Firm Forecast by SKU and Distribution Center:	July 1 - July 31
	 	 

 

5.4 Manufacturing Capacity. SM shall give NTC written notice as soon as practicable after SM becomes aware of, and at minimum ninety (90) days prior to, any potential or regularly scheduled shut-downs. Even if SM provides notice of a potential or regularly scheduled shut-down more than ninety (90) days before such shutdown, the Capacity Limits for the month(s) of such shutdown shall not be reduced and the amount of the NTC Products on the applicable Manufacturing Forecast shall still be met. Notwithstanding the foregoing, SM shall give NTC six (6) months prior written notice of any and all labor negotiations.

 

5.5 Manufacturing Components. 

 

(a) Inventory. On behalf of NTC, SM shall order all tobacco leaf material and Proprietary Flavor (the “NTC Items”) that must be used in the production, manufacture and packaging of the NTC Products in accordance with any and all instructions or guidelines provided by NTC, which shall be approved by SM in accordance with Sections 4.5 and 8.1. NTC shall pay for such NTC Items, including freight costs. NTC will notify SM of any special storage instructions for the NTC Products, including, but not limited to, conditioned space and refrigeration. SM will take possession of NTC Items upon delivery at the Manufacturing Plant. SM shall, at its sole cost and expense, provide the Packaging Materials and all other standard packing materials and Common Ingredients (as per Schedule 5.5(a)) required for the production, manufacture, packaging and distribution of the NTC Products based upon the Specifications (the “SM Items”). SM shall provide NTC with monthly reports that list the amounts of NTC Items and SM Items on site and ordered for each item of Inventory and any other information that NTC should reasonably request be included in such reports. NTC Items, SM Items, Packaging Materials and any NTC Products produced, manufactured and packaged by SM hereunder shall be collectively referred to herein as “Inventory.”

 

(1) Certification of Tobacco Leaf. NTC will supply tobacco leaf to SM, NTC shall supply SM with any USDA, FDA or other Government Agency certifications required for tobacco leaf. NTC shall supply written certifications from its suppliers to SM, with each shipment, that all tobacco purchased and provided to SM hereunder by NTC and used in the production, manufacture and packaging of NTC Product in the Manufacturing Plant will be free from disease, defects, contamination by illegal or unauthorized pesticides, or other problems that would render such tobacco as defective and prohibit its use in the NTC Product under applicable Law. NTC will bear all costs associated with such defective tobacco supplied by NTC or its agents, including but not limited to storage and destruction, recalls, returns, and any applicable fines, penalties, levies and other expenses. NTC shall use its best efforts to assure that all tobacco delivered to SM by NTC or its agents will have undergone the same strict processing standards as were adhered to by NTC immediately prior to the Effective Date of this Agreement.

 

	-11- 

		 	 

 

(2) Packaging Materials. SM shall purchase the foil, cartons, and all other necessary materials for the packaging of the NTC Products (“Packaging Materials”), in accordance with any and all instructions or guidelines provided by NTC, which shall be approved by SM for the purpose of assuring that SM is capable of performing its obligations within any such instructions or guidelines. NTC will be responsible for conducting all shelf life studies associated with the NTC Product in the Packaging Materials. If SM packages the NTC Products in conformity with the Specifications, it is understood and agreed that SM assumes no responsibility or liability for any adverse consumer perception or action of any kind against NTC or third parties due to any NTC requested packaging changes and NTC shall defend and indemnify SM and hold it harmless from any resulting legal action, including payment of SM’s reasonable attorneys’ fees. NTC will be solely responsible for insuring that all Packaging Materials required in the Specifications conform to all applicable Laws. To the extent required by SM’s vendors of the Packaging Materials, NTC shall grant written permission to said vendors to provide to SM any of the proprietary Packaging Materials for the sole and limited purpose of carrying out the terms of this Agreement in accordance with the terms and conditions hereof. Such permission shall be substantially in the form of the attached Exhibit F (“Permission Letter”). NTC shall provide SM with at least one hundred and fifty (150) days prior written notice of any changes to the Packaging Materials which must be approved by SM, which shall not be unreasonably withheld. Any revisions to such Packaging Materials by NTC are subject to the terms and conditions of Section 8.1. All Packaging Materials will be ordered as per the example in Schedule 5.5(a)(2) Packaging Material Ordering Matrix and in accordance with the minimum order guaranties for foil and cartons set forth on Schedule 5.5(a)(2)(i). If SM intends to order more than 120 sales days of inventory, based upon the Budget Forecast provided pursuant to Section 5.2, for the Packaging Material for any NTC Products, then SM must notify NTC of such order and allow NTC an opportunity to, (i) approve such order and accept all potential obsolescence associated with the order, or (ii) modify such order and accept all incremental costs associated with the smaller volume runs at the supplier. NTC will provide a response to SM regarding its request to order certain Packaging Materials beyond 120 Sales Days within 5 business days of receiving such notification and if NTC does not respond within 5 business days, SM will order such quantities of the Packaging Material described in the notice in accordance with the Packaging Material Ordering Matrix set forth on Schedule 5.5(a)(2). SM will use commercially reasonable efforts to minimize obsolescence of any Packaging Materials; provided, however, the costs of all Packaging Materials purchased by SM for use in NTC Products, whether stored at an SM location or at the supplier and which is based on the Manufacturing Forecast is the responsibility of NTC. If SM changes its specifications for packaging of the NTC Products, SM must give NTC 120 days prior written notice of any such changes to the packaging specifications of SM that will affect the NTC Products and SM shall, at its own cost and expense, test the NTC Products with the new packaging specifications. SM will request NTC approval, not to be unreasonably withheld, when it intends to test NTC Products with packaging specifications other than those provided by NTC to SM. NTC must respond to SM’s request for approval of such testing on the NTC Products within ten days or such request is deemed approved. SM will be responsible for all costs of any obsolescence of Packaging Materials caused by changes to the packaging specifications initiated by SM.

 

	-12- 

		 	 

 

(b) Promotional Materials. NTC shall have the right to contract with third parties for the final packaging of promotional materials related to the NTC Products. SM may, at NTC’s sole discretion, submit a bid to obtain a contract with NTC for the final packaging of any such promotional materials. NTC shall be under no obligation to award SM a contract for any final packaging of promotional materials. If NTC does award SM a contract to provide the final packaging of promotional materials for NTC, the costs to be paid to SM that are associated with the final packaging of the promotional materials shall be in addition to the Manufacturing Fee and shall be invoiced in accordance with the terms and conditions of Section 7.

 

(c) Use of NTC Items. NTC Items may not be sold by SM to third parties and/or utilized by SM, except as otherwise provided herein, without the prior written permission of NTC.

 

5.6 Intentionally Omitted. 

 

5.7 Product Development; Pre-Production Processing. SM shall make a reasonable amount of time and space available to NTC on the manufacturing line at the Manufacturing Plant to allow NTC to produce samples of NTC Products and to perform test runs for the development (“Product Development”) of potential new products for NTC. NTC will not be allowed to conduct any Product Development at the Manufacturing Plant during the Pre-Manufacturing Activities phase of this Agreement. NTC shall provide at least thirty (30) days written notice to SM to schedule the space and time for the Product Development. All test run product and samples of potential new NTC Products shall be stored in a segregated area in the Manufacturing Plant and NTC Access Personnel shall be granted reasonable access rights thereto in accordance with Access Rights set forth above. NTC will be responsible for all direct costs, including, but not limited, to labor and materials, associated with the Product Development and SM shall provide a detailed breakdown of all direct costs within 15 calendar days of NTC’s notice of Product Development. (SM will provide a detailed estimate of direct costs in advance). Should NTC wish to utilize SM’s third party sensory panel group contractors to test products or for other approved purposes, NTC must provide SM with reasonable advance written notice. If SM approves such use of the sensory panel group within its sole discretion, NTC will be responsible for all costs associated with such use.

 

5.8 Work Force for Manufacturing. SM shall provide a fully trained and skilled work force, including management, labor and technical services, sufficient to perform all of its obligations under this Agreement. If at any time within the first two (2) years from the Effective Date SM requires additional labor to perform its obligations under this Agreement, SM will first consider offering such additional positions to the employees qualified for such positions that were employed by NTC during the calendar year prior to the Effective Date, all subject to then applicable SM hiring practices, including, but not limited to, acceptable background check and drug testing, and in all instances SM, in its sole discretion, shall hire the best qualified candidate. All employee hiring and firing decisions shall be at SM’s sole discretion. All SM personnel shall be and remain employees of SM and shall not be considered employees of NTC. SM shall bear all legally required responsibilities for the SM personnel. Except as otherwise specifically set forth herein or as required by applicable law, the relationship between SM and NTC shall be that of an independent contractor. Neither SM employees, nor its directors, officers, agents or other SM personnel shall be considered employees of NTC, and none of such individuals of SM shall, as a result of this Agreement, be entitled to participate in any pension, stock, bonus, profit sharing or other benefit plans for NTC’s employees.

 

	-13- 

		 	 

 

5.9 Maintenance and Consumables. 

 

(a) Maintenance. SM shall maintain and repair all Plant Machinery used by SM in the production, manufacture, packaging and distribution of the NTC Products, including, but not limited to, the Leased Equipment. SM shall purchase, own and maintain all necessary inventories of replacement parts for the machine specifications. Replacement parts and materials for the Leased Equipment shall be of equal or better quality than such items purchased and stocked for the equipment owned by SM (“Maintenance Items”). The maintenance and repair cost, including the on-going replenishment of the inventory items described as Maintenance Items, shall be paid by SM and such cost shall be covered by the Manufacturing Fee. In relation to the Plant Machinery and Maintenance Items, both parties agree to the following:

 

(1) SM shall keep detailed maintenance records for all Leased Equipment in accordance with SM’s then current maintenance record keeping policy for its own equipment of a similar nature.

 

(2) After termination of this Agreement, SM shall provide NTC or any designee of NTC all maintenance records kept pursuant to Section 5.9(a)(l).

 

5.10 Responsibility Allocation of Manufacturing Activities. 

 

(a) Production Yield. SM will utilize commercially reasonable efforts to maximize the production yield on all of the NTC Products it produces hereunder. SM will track production yields on the NTC Products in accordance with its then current policy for tracking its own product production yields and communicate the results to NTC.

 

(b) Process Control. NTC’s Access Personnel shall have the Right of Access to the Manufacturing Plant pursuant to Section 3.2. At all times during the production, manufacture, packaging and distribution of the NTC Products, Access Personnel shall have the right to observe and inspect the processes, methods, techniques, actions and activities utilized by SM’s employees or agents used during the production, manufacture, packaging and distribution of the NTC Products in order to meet the requirements of SM hereunder. NTC and/or SM, as appropriate, in conjunction with the other party hereto, will take corrective measures for any instance in which the NTC Product falls outside the Specifications.

 

(c) Quality Control. SM shall utilize quality control services in the manufacturing, production, packaging, distribution of the NTC Products to a comparable extent and degree that SM monitors the quality of its own products of a similar nature, all in accordance with the IS0 standards of SM. NTC’s Access Personnel shall have the right to reasonably monitor or audit the quality control process utilized by SM.

 

5.11 Inventory Control. SM shall routinely perform thorough inspections and inventory all Inventory located at the Manufacturing Plant in accordance with SM inventory control practices set forth on Schedule 5.11. Access Personnel of NTC shall have the right to observe the inspection of the Inventory and may audit the Inventory records at any time upon reasonable notice. SM shall provide NTC with secure segregated storage space at the Manufacturing Plant for the storage of the Proprietary Flavor. SM shall be responsible for the inventory management of all Inventory.

 

	-14- 

		 	 

 

5.12 Completion of Manufacture; Inspection. Throughout the Term, SM will utilize its then current quality standards and practices to assure NTC Product is in compliance with Specifications. NTC may conduct periodic and reasonable inspections (each an “NTC Inspection”) of the NTC Products in a manner that will not unduly disrupt SM operations. Upon reasonable request by NTC, SM shall transport any NTC Products designated for inspection to a mutually agreed location within the Manufacturing Plant. NTC may conduct reasonable audits of the Manufacturing Plant and process associated with the manufacture, production and packaging of NTC Products at any time upon reasonable prior notice, but limited to no more often than once every calendar quarter. SM shall reasonably cooperate with NTC during any audit. SM shall give prompt notice to NTC of any defects or discrepancies it discovers in the NTC Products. SM shall rerun, repair or correct any material defects or discrepancies in the NTC Products that are discovered by either SM or NTC. SM shall be responsible for all costs associated with any such rerun, repair or corrective actions; provided, however, NTC will be responsible for all costs associated with any such rerun, repair or corrective action if due to (i) non-conforming materials/ingredients supplied by NTC or the vendors of NTC, (ii) gross negligence or willful misconduct of NTC or (iii) any other action directly caused by NTC.

  

5.13 Compliance with Regulations. SM shall comply with all laws of any Government Agency, including, but not limited to, environmental, manufacturing, hazardous materials compliance, OSHA, TTB, USDA, CCC, Tobacco Buyout Act and FDA (collectively, “Laws”), with respect to the production, manufacture, packaging and distribution of the NTC Products and/or the operation or maintenance of the Manufacturing Plant. SM shall obtain NTC’s prior written approval, not to be unreasonably withheld, for any report required by Laws to be submitted by SM regarding the NTC Products. NTC will be responsible for all government reporting applicable to NTC Products for 2008. Beginning with the 2009 reporting year, SM will assume responsibility for government mandated tobacco ingredient and constituent reporting for NTC Products manufactured under this Agreement provided NTC provides SM with the specific ingredient information in a format and timeframe that allows SM to prepare, obtain NTC approval, and submit reports that timely meet the reporting requirements and, where possible, include such NTC Products information in a composite format with SM products to better protect proprietary information. NTC shall provide all necessary ingredients information necessary for government reporting. NTC is responsible for securing all necessary consents from suppliers for any required ingredient disclosures. SM shall pay all costs, fees and expenses to comply with all FDA regulations as they exist as of the Effective Date that impact both SM and NTC equally. Any future increases in such FDA related costs attributable to the NTC Products that SM would not have otherwise incurred absent this Agreement shall be allocated to NTC on the applicable per unit basis and reflected in an amended Manufacturing Fee. SM shall comply with all necessary reporting obligations to comply with any of the Laws. SM shall indemnify NTC for any loss, expense, cost or damages, including penalties, interest and reasonable attorneys’ fees, incurred by NTC as a result of SM’s failure to comply with such Laws. SM shall, at its own cost and expense, comply with all Laws regarding testing and/or analysis of the NTC Products. If SM voluntarily executes or participates in any agreement or settlement, including without limitation, the Smokeless Tobacco Master Settlement Agreement and any other smokeless tobacco settlement agreement, that may affect, restrict, limit, impede or impact the production, manufacture, packaging or distribution of any NTC Product by SM at the Manufacturing Plant the parties will work together to eliminate any adverse impact such settlement has on the production, manufacture, packaging or distribution of NTC Products. If the parties are not able to eliminate the adverse impact on the NTC Products, NTC may, in its sole discretion, elect to commence the Provisional Lease Agreement in accordance with the terms and conditions of Section 2.3(a). NTC must elect to commence the Provisional Lease Agreement within two (2) years of the execution of an agreement by SM that would trigger NTC’s rights under this Section or NTC will be deemed to have forever waived the right to trigger the Provisional Lease Agreement with respect to that isolated agreement.

 

	-15- 

		 	 

 

5.14 Supply of Information. SM shall furnish NTC with periodic reports consistent with the normal reporting practices of SM or as otherwise mutually agreed, including, but not limited to, reports regarding (i) governmental reporting, (ii) a reconciled inventory statement, which includes all work in progress, production, finished goods and any other required information, and (iii) manufacturing, all to be in a form and provided at such times or intervals as may be reasonably requested by NTC. SM shall keep accurate records and statements of accounts relating to the NTC Products produced, manufactured, packaged and distributed by SM. During SM’s regular business hours, NTC shall, with reasonable prior notice, have a right to inspect such records during the Term and for one (1) year after the termination or cancellation of this Agreement, or longer if required by Laws. Each party shall promptly provide the other party with any facts or information which would reasonably be expected to materially affect the production, manufacture, packaging and distribution of the NTC Products or as needed to achieve the purposes of this Agreement, including, but not limited to, facts or information on any Laws pertaining to or affecting the content, importation, taxation or the production, manufacture, packaging and distribution of the NTC Products.

 

6. Manufacturing Fee.

 

6.1 Manufacturing Fee. NTC shall pay SM a manufacturing fee (“Manufacturing Fee”) in accordance with Schedule 6.1 for each pound of the NTC Products produced, manufactured, packaged and distributed by SM hereunder, subject to periodic adjustments set forth in Section 6.2.

 

(a) Base Rate. The Manufacturing Fee has been determined based on the following pricing assumptions of SM (the “Base Rate”): (i) the price for the SM Items, labor, Packaging Materials, rent and utilities utilized in the manufacture, production and packaging of the NTC Products; (ii) a base volume of 7,153,000 for the NTC Products; (iii) the price for the storage of a maximum of two (2) weeks worth of tobacco leaf in the Manufacturing Plant (approximately 120,000 pounds); (iv) the price to load the NTC Product onto a truck (destined for NTC’s designated location) at the dock of the Manufacturing Plant; provided that NTC shall pay the freight costs to transport the NTC Product to the designated location (“SM Base Distribution”); (v) the per pouch weight of the NTC Products; (vi) Specifications are reasonably similar to the specifications of SM and/or industry standards; (vii) excludes the use of anything other than full Tersa bales and boxes for the leaf; (viii) quantity discounts and minimum order quantities for ingredient/materials and (xix) the cost of those items described as included in the Manufacturing Fee in this Agreement and the Ancillary Agreements.

 

	-16- 

		 	 

 

(b) Government Fees, Costs Assessments or Other Expenses of NTC. Any fees of a Governmental Agency imposed on SM and directly attributable to the NTC Products, which SM would not have otherwise incurred absent this Agreement (“Government Expenses”), shall be allocated to NTC on the applicable per unit basis of the Government Agency, including, but not limited to, the federal excise tax and all such fees, costs and expenses described in Section 5.2.

 

(c) Additional Fees. The Manufacturing Fee does not include the following costs or savings of SM incurred, which shall be assessed to NTC in addition to the Manufacturing Fee in accordance with this Section 6.1(c) (“Additional Fees”): (i) the applicable ratable portion of the fuel surcharges incurred by SM in the purchase of those materials that are considered SM Items, which shall be based on the actual volume of the NTC Products attributable to such fuel surcharges, as set forth on Schedule 6.1(c) (“Fuel Surcharges”); and (ii) any distribution services provided by SM, except as otherwise set forth herein.

 

(d) Extreme Cost Fluctuations. If during the Term of this Agreement SM experiences an extraordinary and temporary increase to the cost of a Common Ingredient, which is beyond the reasonable control of SM, SM may request that NTC approve a temporary increase to the Base Rate to accommodate for such extraordinary and temporary increase that SM is experiencing; provided, however, if NTC approves such increase to the Base Rate, such increase shall not exceed the costs directly attributable to the NTC Products, based on volume. If SM requests that NTC approve such temporary increase to the Base Rate, SM shall provide NTC with detailed, current and historical, pricing information and supporting information for each month during the immediately preceding 12 months or from the date of the last CPI Increase to the Base Rate (whichever period is less), for all Common Ingredients. NTC is under no obligation to approve the temporary increase to the Base Rate. If NTC does approve such temporary increase, SM shall (i) continue to provide all price information for the Common Ingredients to NTC during such increase to the Base Rate, and (ii) all increases shall be invoiced separately in accordance with the invoice requirements of Section 7. If NTC does not approve such temporary increase to the Base Rate, SM may seek to mediate the dispute in accordance with the terms and conditions of Section 2.4. During any such mediation, the current and historical pricing information (described above) for all Common Ingredients shall be reviewed to determine the appropriateness of an increase to the Base Rate for such extreme and temporary cost increases in the Common Ingredients. Any adjustments to the Base Rate pursuant to this Section 6.1(d) shall not occur more than once during a 12 month period for the same Common Ingredient.

 

6.2 Reflection of Cost Change. Following the national publication of the annual CPI index, which is normally around January 15th of each calendar year during the Term, SM will provide notice of any adjustment to the Manufacturing Fee to reflect any applicable changes in costs incurred by SM in accordance with this Section 6.2. NTC shall pay the Manufacturing Fee of the previous calendar year during the month of January. Any Adjustments to the Manufacturing Fee will become effective on February 1 of the applicable calendar year.

 

(a) CPI Increases. SM may modify the Base Rate of the Manufacturing Fee to reflect the cost increases or decreases (if any) directly attributable to the components of the Base Rate of the Manufacturing Fee that SM will incur in the performance of its obligations provided herein (“Base Rate Increases”). Any increase by SM to the Base Rate to accommodate for the Base Rate Increases (“CPI Increases”) shall not exceed the five (5) year rolling National Consumer Price Index (“CPI”) as set forth on Schedule 6.2(a). The CPI Increase shall be calculated using the Compound Annual Growth Rate (“CAGR”) for each of the last five (5) years annual CPI (“Annual CPI”), which shall be calculated by: (i) dividing the Annual CPI of the previous calendar year by the Annual CPI from five (5) years ago; (ii) the quotient from (i) above shall be raised to the 1/5 power (“Five Year Annual Growth Rate”); and (iii) the number one (1) shall be subtracted from the Five Year Annual Growth Rate.

 

	-17- 

		 	 

 

	Example of Calculation for CPI Increases	 
	 	 
	Description	Amount
	 	 
	Annual CPI 2002	179.900
	Annual CPI 2007	207.342
	Divide (CPI 2007 / CPI 2002)	1.153
	Raise to the 1/5th Power	1.0288
	Subtract One for Average % Increase	2.880%
	 	 

As a one time occurrence, the CPI Increase assessed on February 1,2009, shall be computed by (i) determining the Annual CPI for the 12 months ended December 2008 (this should be nationally published around January 15, 2009); and (ii) dividing the Annual CPI of 2008 by two (2).

 

(b) Volume Reduction Fee. SM may modify the Base Rate due to a reduction of the actual volume of the previous year (“Previous Year”) on all NTC Products compared to the actual volume of the year preceding the Previous Year (“Volume Reduction Fee”). The Volume Reduction Fee shall not be subject to the cap of CPI Increase. Any reduction to the actual volume determined using the method set forth above that is less than one (1) percent shall not trigger the application of the Volume Reduction Fee to the Base Rate. To determine the Volume Reduction Fee, every one (1) percent decrease in volume (plus fractional percentages greater than one (1) percent) shall cause an increase of .25 percent (one quarter of a percent) to be applied to the Base Rate. The 2008 base volume for the NTC Products will be 7,153,000 pounds. Schedule 6.2(b) sets forth an illustrative calculation of the Volume Reduction Fee and CPI Increase. Any and all calculations required pursuant to this Section 6 shall be rounded to the third decimal place.

 

(c) Volume Increase Adjustment. 

 

(1) Organic Volume Increase Adjustment. Beginning in 2012 (“Lock-Out Period”), SM shall modify the Base Rate due to an increase of the actual volume of the Previous Year on all NTC Products compared to the actual volume of the year preceding the Previous Year (“Organic Volume Increase Adjustment”). The Organic Volume Increase Adjustment shall not be subject to the cap of the CPI Increase. Any increase to the actual volume determined using the method set forth above that is less than one (1) percent shall not trigger the application of the Organic Volume Increase Adjustment to the Base Rate. To determine the Organic Volume Increase Adjustment, every one (1) percent increase in volume shall cause a decrease of 0.250 percent to the Base Rate. Schedule 6.2(c)(1) sets forth an illustrative calculation of the Organic Volume Increase Adjustment.

 

	-18- 

		 	 

 

(2) Acquisition Volume Increase Adjustment. Notwithstanding the foregoing, the Lock-Out Period shall not apply for any increase in the actual volume as a result of (i) acquisitions by NTC of other producérs of chewing tobacco or (ii) contractual arrangements entered into by NTC with other producérs of chewing tobacco (“Acquisition Volume Increase Adjustment”) The terms Acquisition Volume Increase Adjustment and Organic Volume Increase Adjustment shall be collectively referred to herein as “Volume Increase Adjustment.” The Acquisition Volume Increase Adjustment will be determined as follows: every one (1) percent increase in total actual volume shall cause a decrease of 0.1 percent to the Base Rate and in no case will the total decrease to the Base Rate be greater than 10%. Schedule 6.2(c)(2) sets forth an illustrative calculation of the Acquisition Volume Increase Adjustment.

 

7. Payment Terms. Every Monday, or the next business day if Monday is a national holiday, SM shall deliver by email to NTC an invoice, together with an itemized accounting, for the Manufacturing Fee incurred during the preceding week, and such invoice shall include the informational requirements set forth on Schedule 7. Additionally, any provision in this Agreement and any Ancillary Agreement that requires payment by NTC to SM in addition to the Manufacturing Fee shall be subject to the invoicing and payments of this Section 7. NTC shall pay such invoice within seven (7) days from the date of invoice. Payments of the Manufacturing Fee and any invoices shall be made through ACH Debit. If there is any dispute over an invoice, NTC shall pay the invoice as delivered and the parties shall negotiate in good faith to resolve any issues regarding any amounts in dispute. In the event payment is not timely received by SM, interest and penalties will apply as set forth on Schedule 7.

 

8. Modified or New NTC Products. 

 

8.1 Modified NTC Products. During the manufacturing stage of this Agreement, SM shall make such modifications to the Specifications, NTC Items or SM Items for the NTC Products, as listed on Schedule 1.9, excluding those modifications described in Section 8.2, as reasonably directed by NTC, and subject to the prior approval of SM of the physical characteristics of such changes, which shall not be unreasonably withheld. The parties shall negotiate in good faith to determine any changes in the Manufacturing Fee directly associated with changes to costs as a result of such modifications and test run samples. If the parties are unable to reach an agreement regarding any such changes to the Manufacturing Fee, NTC may elect, in its sole discretion, to trigger the application of the provisions of Section 8.2.

 

	-19-

	 

 

8.2 New NTC Products. If NTC desires to have SM manufacture, produce, package and distribute additional or new products in accordance with the terms and conditions of this Agreement (“New NTC Products”), NTC shall provide written notice of its intent to add any such New NTC Products to Schedule 1.9. A chewing tobacco product of NTC shall be considered a New NTC Product if such product is not listed on Schedule 1.9. SM shall provide NTC with an estimated cost to manufacture, produce, package and distribute the New NTC Products based on existing costs for the NTC Products and the parties shall negotiate in good faith to determine a price for the New NTC Products. If there is no material change in the cost to manufacture, produce, package and distribute the New NTC Products, SM shall manufacture, produce, package and distribute the New NTC Products at a price that is the most comparable (in size and volume) to an existing NTC Product, as may be adjusted by the parties to reflect the costs attributable to the New NTC Product. If the parties are unable to reach an agreement on the price for the New NTC Products, NTC shall have the right to seek third party bids for the New NTC Products and select any such third party to manufacture, produce, package and distribute the New NTC Products. If SM is awarded the right to manufacture, produce, package and distribute any such New NTC Product, the parties shall amend Schedule 1.9 to include the New NTC Products within the definition of NTC Products and NTC shall provide SM with the Specifications for any such New NTC Products. Such Specifications will be reviewed and approved by SM for the purpose of assuring that SM is capable of providing the enumerated services hereunder for the New NTC Products within said Specifications and within SM’s normal cost standards, and such approval shall not be unreasonably withheld by SM. SM shall not be obligated to utilize any new automated equipment acquired by SM after the Effective Date for a maximum of twelve months for the production, manufacture or packaging of New NTC Products. If after that 12 month period, SM has available capacity SM will utilize available capacity to produce NTC products on said equipment (SM will make available to NTC all straight time production hours after SM products have been produced for the day and SM will make available to NTC overtime hours at an additional fee). If at any time, NTC desires to acquire and install any automated equipment in the Manufacturing Plant, NTC may either (i) purchase such automated equipment itself and SM shall install such automated equipment or (ii) SM shall (at the direction of NTC) purchase automated equipment. In both circumstances, SM shall adjust the Base Rate accordingly and SM shall only use such equipment on the packaging of the NTC Products.

 

9. Transportation. 

 

9.1 Transportation Logistics. SM shall be responsible for the unloading of all Inventory for the NTC Products at the Manufacturing Plant and the loading of the NTC Products onto the designated carriers of NTC (“Designated Carriers”), a list of such carriers shall be provided to SM and may be amended from time to time by NTC upon prior written notice to SM. SM shall also be responsible for the coordination and arrangements for the transportation of the NTC Products with the Designated Carriers. NTC shall receive control and possession of the NTC Products either upon receipt of a bill of lading after the NTC Products have been loaded or upon completion of the unloading of the NTC Products at a distribution center.

 

9.2 Transportation Cost Responsibility. 

 

(a) Normal Cost. SM shall pay the costs associated with arranging and coordinating the logistics services for the NTC Products with the Designated Carriers as well as loading and unloading the NTC Products at the Manufacturing Plant. NTC shall pay the Designated Carriers for the actual transportation costs of the NTC Products from the Manufacturing Plant to the designated delivery location.

 

(b) Abnormal Cost. SM shall be responsible for additional costs associated with emergency logistics requirements, expediting parts or other abnormal expenses resulting from any production inefficiency, willful misconduct or negligence of SM.

 

	-20-

	 

 

10. Customer Returns. NTC shall be responsible for delivery of all returned NTC Products to the Manufacturing Plant. NTC will assure that all returns comply with SM returned product requirements with respect to size, weight and electronic notification of content and SM will reasonably cooperate with NTC to allow it to comply with the SM requirements. SM shall provide NTC with training and education on its return system and requirements. SM shall process all returns at its sole cost and expense provided the TTB accepts the alternative method for handling the NTC product as it has for SM’s current product SM shall provide the TTB with an opportunity to inspect and certify destruction of the returned NTC Products. It is understood that_SM destroys all returned products, resulting in no reclaim. SM will seek and must receive approval from the TTB for any alternative procedure for the destruction of NTC Product other than as set forth herein before SM can be responsible for handling returned NTC Product. The responsibilities for the returns shall be allocated between SM and NTC in accordance with Schedule 10.

 

11. Recall and Other Service Campaigns. 

 

11.1 Government Inquiry. In the event that any request, allegation or inquiry from, or any initial or final determination by, any Government Agency concerning suspected or alleged noncompliance with any governmental standard or regulation relating to any of the NTC Products is received by SM, SM shall promptly notify NTC and provide written notice describing such request or inquiry. NTC shall thereupon assume full responsibility to represent the interests of the parties in connection with such request, allegation, inquiry or determination. NTC, in its sole discretion, shall make the decision whether or not to conduct a recall campaign, or whether or not to challenge the determination of a Government Agency before the appropriate agency or in court. SM will reasonably cooperate with either decision by NTC regarding a recall campaign or challenge.

 

11.2 Recall Campaigns. If, as a result of field experience, test data or otherwise, SM believes it may be necessary or desirable to conduct a recall campaign or other service campaign relating to any of the NTC Products, written notice describing the evidence supporting such determination or belief shall be provided to NTC as soon as practicable. NTC, in its sole discretion, shall decide whether to conduct a recall campaign. If NTC decides to conduct a recall campaign for any of the NTC Products for any reason, SM shall reasonably cooperate in any such recall campaign. Unless otherwise agreed upon, all costs and expenses incurred as a result of a recall attributable to a Specification defect for the NTC Products or defects in NTC Items or other items supplied to SM by NTC or its agents, shall be the sole responsibility of NTC. All costs and expenses incurred as a result of a recall attributable to the production, manufacture or packaging of the NTC Products not in conformity with the duties of SM hereunder, shall be the responsibility of SM. NTC may, at its sole discretion, pay any costs or expenses associated with a recall campaign based on the non-conforming production, manufacture, packaging and distribution of the NTC Products; provided, however, NTC shall be reimbursed by SM for all reasonable costs and expenses that are associated with such recall.

 

11.3 Expenses. SM will indemnify and hold NTC harmless from and against any and all claims, losses, demands, penalties, fines, suits, judgments, settlements, damages (including incidental and consequential damages), costs and expenses (including, without limitation, reasonable attorneys’ fees), and expenses connected therewith, which, directly or indirectly arise out of or result from a recall attributable to the production, manufacture or packaging of the NTC Products that does not conform with the duties of SM hereunder. NTC shall be entitled to recover from SM, and SM shall reimburse NTC for, any and all reasonable and actual damages of NTC resulting from a recall attributable to the non-conforming production, manufacture or packaging of the NTC Products.

 

	-21-

	 

 

12. Indemnification and Limitation of Liability. 

 

12.1 Indemnification by NTC. NTC shall indemnify, defend and hold harmless SM and its directors, officers, employees, agents, partners, affiliates and their personal representatives, successors and assigns (“SM Indemnitees”) from, and shall pay to SM Indemnitees the amount of any and all claims, liabilities, losses, demands, penalties, fines, suits, judgments, settlements, damages (including incidental and consequential damages), costs and expenses (including, without limitation, reasonable attorneys’ fees) (“Losses”) which SM Indemnitees shall suffer, sustain or become subject to by virtue of or which, directly or indirectly, arise out of or result from: (i) any act or omission of NTC in connection with any obligation under this Agreement or any Ancillary Agreement, (ii) any third party product liability claim or action (including claims or actions resulting from a defect attributed to the Specifications), (iii) the negligent, willful or intentional misconduct of NTC, (iv) any violation of any Laws, (v) any authorized act or omission of SM in connection with any obligation under this Agreement or any Ancillary Agreement, (vi) any breach of its obligations and warranties under this Agreement, or (vii) those Losses set forth in Section 12.3(b).

 

12.2 Indemnification by SM. SM shall indemnify, defend and hold harmless NTC and its directors, officers, employees, agents, partners, affiliates, and their personal representatives, successors and assigns (“NTC Indemnitees”) from, and shall pay to NTC Indemnitees the amount of, any and all Losses which NTC Indemnitees shall suffer, sustain or become subject to by virtue of or which, directly or indirectly, arise out of or result from: (i) any unauthorized act or omission of SM in connection with any obligation under this Agreement or any Ancillary Agreement, (ii) any third party product liability claim or action (excluding claims or actions resulting from a defect attributed to the Specifications), (iii) the negligent, willful or intentional misconduct of SM, (iv) any violation of any Laws, (v) any breach of its obligations and warranties under this Agreement, or (vi) those Losses set forth in Section 12.3(a). NTC shall have the authority, in its sole discretion, to settle any claims, complaints or other grievances of customers of the NTC Products without seeking the approval of SM; provided (x) the amount of an individual claim is not in excess of $250; (y) NTC obtains a release from such customer at or about the time at which payment is made; and (z) the aggregate total amount of such claims during a calendar year does not exceed $10,000.

 

12.3 Product Liability Claims. With respect to third-party product liability claims, whether based upon negligence, strict liability, or any other legal theory and whether including personal injury or property damage (individually or collectively, the “Product Liability Claims”), the parties agree as follows:

 

(a) Manufacturing Defects and Specification Non-Conformance. SM agrees to indemnify, defend and hold harmless NTC and the NTC Indemnitees from and against any and all Losses incurred by NTC or any NTC Indemnitee arising out of or related to Product Liability Claims resulting from any manufacturing defect relating to the NTC Products or the failure of the NTC Products to conform to the Specifications.

 

	-22-

	 

 

(b) Failure to Warn and Design Defects. NTC agrees to indemnify, defend and hold harmless SM and SM Indemnitees from and against any and all Losses incurred by SM or any SM Indemnitee arising out of or related to Product Liability Claims resulting from any failure to warn or design defect relating to the NTC Products, but only to the extent the NTC Products comply with the Specifications.

 

(c) Consumer Complaint Information. Upon execution of this Agreement NTC shall provide SM with the necessary historical information (preceding 24 months) regarding its consumer complaints related to the NTC Products. NTC shall, as soon as practical and at least once a week (if applicable) provide necessary information to SM of all consumer complaints it receives with respect to NTC Products produced by SM. All consumer complaint information should be sent to SM’s Quality Department representatives as determined by SM and provided to NTC in writing.

 

13. Change of Control; NTC’s Right of First Refusal with Respect to SM’s Sale of its Chewing Tobacco Unit or Sale, Lease or Disposition of the Manufacturing Plant. 

 

13.1 Adoption of Agreement. 

 

(a) Change of Control of SM. If SM intends to transfer all or substantially all its assets or transfers more than 50% of its equity interests to a third party, such third party must specifically adopt this Agreement in writing in order for SM to transfer its rights and.obligations under this Agreement. As a condition of any such transaction, any third party acquirer shall adopt this Agreement in writing. SM acknowledges and agrees that the failure of the third party acquirer to adopt this Agreement is a breach of a material provision of this Agreement and the terms and conditions of Section 2.3(a) shall apply. Any breach by a successor of SM, shall be treated as a default under this Agreement and the terms and conditions of Section 2.3(a) shall apply.

 

(b) Change of Control of NTC. 

 

(1) Sale or transfer by NTC to third party who is not engaged in the manufacture of chewing tobacco products. NTC may transfer all or substantially all of its assets or transfer more than 50% of its equity interests to a third party that is not at the time of such transfer engaged in the manufacture of chewing tobacco products (“Non-Chewing Tobacco Manufacturer Transaction”). As a part of any such Non-Chewing Tobacco Manufacturer Transaction, NTC shall have the right to assign and delegate its rights, liabilities and obligations hereunder to such third party acquirer, and such third party acquirer shall specifically adopt this Agreement in writing.

 

(2) Sale or transfer by NTC to third party who is engaged in the manufacture of chewing tobacco products. If NTC intends to transfer all or substantially all its assets or transfers more than 50% of its equity interests to a third party who is at the time engaged in the manufacture of chewing tobacco products, such third party must specifically adopt this Agreement in writing in order for NTC to transfer its rights, liabilities and obligations under this Agreement; except the parties shall amend this Agreement (“Amended Agreement”) to (i) reduce the Term to a three (3) year period from the date of adoption by such third party acquirer, and (ii) grant the third party acquirer the option to transfer all, or any portion, the production and manufacture of the NTC Products in the 2nd and 3rd years of the Amended Agreement for a per pound fee [$0.50 per pound in year 2 (“Year 2 Fee”) and $0.10 per pound in year 3 (“Year 3 Fee”)] of the NTC Products transferred from the Manufacturing Plant (“Buy-Out Fee”). If the third party acquirer elects to transfer any of the NTC Products from the Manufacturing Plant during the 2nd year and/or 3rd year of the Amended Agreement, all Buy-Out Fees shall be paid to SM in accordance with Section 7 of this Agreement at the beginning of each applicable year.

 

	-23-

	 

 

a.           Year Two Pounds. To calculate the projected pounds of the NTC Products in the 2nd year of the Amended Agreement that may be subject to a Buy-Out Fee, the parties shall determine the total pounds of the NTC Products produced in the Manufacturing Plant during the 1st year of the Amended Agreement (“Year 1 Pounds”) and reduce the Year 1 Pounds by the average industry Tobacco Merchants Association (“TMA”) category decline in volume for the immediately preceding three (3) calendar years (“Year 2 Pounds”); provided, however, if there is a change in control of NTC during the first 12 months of the Term of this Agreement, for purposes of this Section 13.1(b)(2)a the year 1 Pounds shall be 7,153,000 pounds. If the third party acquirer elects to transfer any or all of the NTC Products from the Manufacturing Plant in the 2nd year of the Amended Agreement, the third party acquirer shall pay the Year 2 Fee for each pound of the NTC Products transferred from the Manufacturing Plant based on the Year 2 Pounds.

 

b.           Year Three Pounds. To calculate the projected pounds of the NTC Products in the 3rd year of the Amended Agreement that may be subject to a Buy-Out Fee, the parties shall determine the total pounds of the NTC Products either (i) actually produced in the Manufacturing Plant during the 2nd year (if any) of the Amended Agreement; or (ii) the Year 2 Pounds calculated pursuant to Section 13.1(b)(2)a herein (“Year 2 Pounds Calculation”) and reduce the Year 2 Pounds Calculation by the average industry TMA category decline in volume for the immediately preceding three (3) calendar years (“Year 3 Pounds”). If the third party acquirer elects to transfer any or all of the NTC Products from the Manufacturing Plant in the 3rd year of the amended Agreement, the third party acquirer shall pay the Year 3 Fee for each pound of the NTC Products transferred from the Manufacturing Plant based on the Year Three Pounds.

 

(3) Breach or Default. As a condition of any such transaction, any third party acquirer shall adopt this Agreement in writing. NTC acknowledges and agrees that the failure of the third party acquirer to adopt this Agreement is a breach of a material provision of this Agreement and the terms and conditions of Section 2.3(b) shall apply. Any breach by a successor of NTC, shall be treated as a default under this Agreement and the terms and conditions of Section 2.3(b) shall apply.

 

13.2 NTC’s Right of First Refusal to Acquire the Manufacturing Plant. 

 

(a) NTC’s Right of First Refusal. In accordance with and subject to the terms of this Section 13.2, SM hereby grants to NTC the right of first refusal (“Right of First Refusal”) to purchase the Manufacturing Plant. Such Right of First Refusal shall commence on the Effective Date and shall end on the termination of this Agreement.

 

	-24-

	 

 

(b) NTC’s Right of First Refusal with respect to SM’s Sale of its Chewing Tobacco Unit. In the event that SM intends to sell, transfer, assign, or otherwise dispose of all or substantially all of its loose leaf chewing tobacco business unit or assets thereof (“SM Chewing Tobacco Unit”), NTC may exercise its Right of First Refusal unless one of the following events occur prior to the commencement of any sale, transfer, assignment or disposition of SM’s Chewing Tobacco Unit:

 

(1) SM and NTC agree in writing to move the manufacture, production, packaging and distribution of the NTC Products to another location of SM;

 

(2) Any proposed purchaser, transferee or assignee adopts this Agreement in accordance with the terms and conditions herein; or

 

(3) NTC waives in writing all of its rights with respect to this Section 13.2.

 

(c) NTC’s Right of First Refusal with Respect to SM’s Proposed Sale of Manufacturing Plant. In the event SM or any affiliate or successor of SM determines that it intends to sell the Manufacturing Plant, other than in a sale/lease back financing plan in which SM continues to be the operating entity, SM shall give written notice of such intention to NTC along with a fully executed copy of a purchase agreement between SM and a third party purchaser which sets forth the price and all other terms of the proposed sale. NTC shall have thirty (30) days after its actual receipt of such notice and copy of the purchase agreement from SM within which to elect to purchase the Manufacturing Plant at the price and under the same terms as that contained in the purchase agreement. In the event NTC does not elect to exercise such Right of First Refusal, then SM may sell the Manufacturing Plant, free of the Right of First Refusal, but only under the terms of the purchase agreement and only to the same party disclosed to NTC. If the sale does not take place as therein provided, NTC’s Right of First Refusal shall be reinstated and apply to all subsequent offers during the Term.

 

(d) NTC’s Right of First Refusal with Respect to SM’s Proposed Lease, Transfer, Assignment, Closure or Other Disposition of the Manufacturing Plant. In the event SM or any affiliate or successor of SM determines that it intends to lease, transfer, close or otherwise dispose of the Manufacturing Plant, SM, or its successor, shall give written notice of such intention to NTC describing all terms and conditions of such event. NTC shall have thirty (30) days after its actual receipt of such notice within which to elect to purchase the Manufacturing Plant at a price determined by an independent certified appraiser selected by the parties. In the event NTC does not elect to exercise such Right of First Refusal, SM may lease, transfer, close or dispose of the Manufacturing Plant, free of the Right of First Refusal, but only under the terms and conditions described in the notice. If such lease, transfer, closure or other disposition does not take place as therein provided, NTC’s Right of First Refusal shall be reinstated and apply to all subsequent events.

 

	-25-

	 

 

(e) NTC’s Election not to Exercise its Right of First Refusal to Acquire or Lease the Manufacturing Plant Pursuant to Section 13.2(c) or 13.2(d). In the event that SM intends to sell, lease, transfer, assign, close or otherwise dispose of the Manufacturing Plant and NTC does not elect to exercise its Right of First Refusal in accordance with Sections 13.2(c) or 13.2(d), one of the following events must occur prior to the commencement of any sale, lease, transfer, assignment, closure or other disposal of the Manufacturing Plant:

(1) SM and NTC agree in writing to move the manufacture, production, packaging and distribution of the NTC Products to another location of SM;

(2) Any proposed purchaser, lessee, transferee or assignee adopts this Agreement in accordance with the terms and conditions of Section 13.1; or

(3) NTC waives in writing all of its rights with respect to this Section 13.2.

(f) SM’s Compliance with Agreement. SM shall not (i) sell, transfer or dispose of its Chewing Tobacco Unit; nor (ii) sell, lease, transfer, assign, close or otherwise dispose of the Manufacturing Plant without complying with the applicable provisions of this Section 13.2(f). The provisions of this Section 13.2 shall not affect SM’s rights of relocation pursuant to Section 3 of this Agreement.

14. Representations and Warranties. 

14.1 Representations and Warranties of SM. SM hereby represents, warrants, covenants and guarantees to NTC:

(a) The NTC Products shall conform to the Specifications, as approved by SM, and any other requirements of the NTC Products agreed to by SM that NTC has delivered to SM in writing. The NTC Products shall be suitable and fit for their intended purpose as tobacco products. The NTC Products shall be produced, manufactured, packaged and distributed in accordance with all applicable Laws;

(b) At no time during the Term nor for a period of three (3) years after the termination of this Agreement, shall SM, or any employee, agent, or representative of SM, reverse engineer any NTC Item, component, Proprietary Flavor, or any other materials used in the NTC Products;

(c) SM shall provide NTC with written notification of any reasonably anticipated material disruption or interruption of the services provided hereunder;

(d) The execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate corporate action. Furthermore, neither the execution nor delivery of this Agreement nor the consummation of the transactions contemplated hereby will, directly or indirectly, violate any provision of any contract, agreement, or other obligation of SM. The performance by SM of any of the terms and conditions of this Agreement does not and will not constitute a breach or violation of any judgment or order or any agreement to which it is a party or by which it is bound;

 

	-26-

	 

(e) There are no adverse proceedings, claims or actions pending or threatened against SM which would impair or adversely affect SM’s ability to perform and comply with all terms, conditions and provisions contained in this Agreement; and

(f) SM has the technical and business know-how and technical ability to produce, manufacture, package and distribute the NTC Products in compliance with this Agreement in a timely manner. SM has and shall maintain the necessary personnel to conduct its business in the manner required by this Agreement.

14.2 Representations and Warranties of NTC. NTC hereby represents, warrants, covenants and guarantees to SM:

(a) The NTC Products, if produced, manufactured, packaged and distributed in accordance with the Specifications and all applicable Laws, shall be suitable and fit for their intended purpose as tobacco products;

(b) At no time during the Term nor after the termination of this Agreement, shall NTC, or any employee, agent, or representative of NTC, make any personal or third party use of any SM Item or disclose any Confidential Information of SM in violation of the terms of this Agreement;

(c) The execution and delivery of this Agreement and the performance of the transactions contemplated hereby have been duly authorized by all appropriate corporate action. Furthermore, neither the execution nor delivery of this Agreement nor the consummation of the transactions contemplated hereby will, directly or indirectly, violate any provision of any contract, agreement, or other obligation of NTC. The performance by NTC of any of the terms and conditions of this Agreement does not and will not constitute a breach or violation of any judgment or order or any agreement to which it is a party or by which it is bound; and

(d) There are no adverse proceedings, claims or actions pending or threatened against NTC which would impair or adversely affect NTC’s ability to perform and comply with all terms, conditions and provisions contained in this Agreement.

15. General Provisions. 

15.1 Assignment. Neither this Agreement, nor any right (other than a right to receive payment), nor obligation hereunder may be assigned or delegated to any third person or entity in whole or in part whether by operation of law or otherwise. Any attempt to assign this Agreement shall trigger the provisions of Section 13.

15.2 Amendments; Persons Authorized to Act for the Parties. Each change, variation or modification of this Agreement shall be effective only when made in writing and signed by an authorized officer or representative of each of the parties.

 

	-27-

	 

15.3 Notice. Any notices permitted or required by this Agreement shall be deemed made on the day personally delivered in writing, mailed by certified or registered mail, postage paid, to the other party or received via email at the address set forth below, or to such other persons and address as either party may designate in writing (the “Notice”):

 

	 	If to NTC:	National Tobacco Company, L.P.
	 	 	3029 W. Muhammad Ali Blvd.
	 	 	P.O. Box 32980
	 	 	Louisville, KY 40232-2980
	 	 	Attn: General Counsel
	 	 	 
	 	With a copy to:	Greenebaum Doll & McDonald PLLC
	 	 	3500 National City Tower
	 	 	101 South Fifth Street
	 	 	Louisville, Kentucky 40202
	 	 	Attn: C. Christopher Muth
	 	 	          Richard S. Cleary
	 	 	 
	 	lf to SM:	Swedish Match North America, Inc.
	 	 	7300 Beaufont Springs Drive, Suite 400
	 	 	Richmond, Virginia 23225
	 	 	Attn: Vice President, Operations & Supply
	 	 	 
	 	With a copy to:	Swedish Match North America, Inc.
	 	 	7300 Beaufont Springs Drive, Suite 400
	 	 	Richmond, Virginia 23225
	 	 	Attn: General Counsel

15.4 Force Majeure. In the event that either party hereto finds itself unable, by reason of Force Majeure as defined herein, to carry out its obligations hereunder, in whole or in part, the obligations of the party to the Agreement to the extent that it is affected by such Force Majeure shall be suspended as long as the impossibility so caused lasts, except as otherwise provided herein. The term “Force Majeure” as used herein means any event, whether accidental or not, beyond the control of the party affected by such event, but not necessarily unpredictable by such party, including, but not limited to, any natural calamity, war (whether declared or not), civil war, terrorism, riot, sabotage, blockade, organized labor strike or work stoppage, fire, explosion, wind, flood, earthquake or weather which materially interrupts manufacturing facilities or transportation systems.

During an event of Force Majeure affecting only a certain portion of SM’s ability to perform its obligations under this Agreement, SM shall allocate its resources and capacity to manufacture, produce, package and distribute its own products and the NTC Products on a pro rated basis proportional to the latest 6 months of historical volumes by the parties during the Force Majeure.

 

	-28-

	 

15.5 Transaction Upon and After Expiration or Termination. Upon the expiration or termination of this Agreement for any reason whatsoever, (i) the credits and liabilities which have effectively arisen under this Agreement prior to such expiration or termination. shall continue to remain in force; (ii) neither SM nor any third party at the request of SM shall produce, manufacture, package and distribute the NTC Products unless otherwise agreed by NTC in writing; (iii) neither party hereto shall disclose to any third party for any purpose or use for such party’s own benefit, any (1) information regarding the process or technique of manufacturing the NTC Products or parts for the NTC Products, (2) the design, processes and operations of SM in the production, manufacturing, packaging or distribution of the NTC Products, and (3) the intellectual property or any other confidential know-how, information or knowledge of the other party which has been obtained under or in connection with this Agreement, unless otherwise permitted by the owner thereof in writing; (iv) each party shall return to the other, or dispose of, any items of the other party in its possession as directed by such other party; (v) within 30 days following such termination or expiration of this Agreement, NTC may enter and inspect the Manufacturing Plant in order to ensure that SM has observed its obligations stipulated in this Section 15.5 or elsewhere in this Agreement; and (vi) within 30 days following such termination or expiration of this Agreement, SM may enter upon and inspect any NTC facility in order to ensure that NTC has observed its obligations stipulated in this Section 15.5. Each party reserves the right to claim damages against the other in the event of a failure by such other party to perform its obligations stipulated herein. In no event shall (i) NTC have the right to purchase SM-owned Plant Machinery, or (ii) SM have the right to purchase the Leased Equipment without prior written consent.

15.6 Third Person. Except as expressly contemplated in this Agreement by the parties hereto, nothing in this Agreement is intended, or shall be construed, to confer upon or to give any other person or entity any legal or equitable rights, remedies or benefits under or by reason of this Agreement.

15.7 Cumulative Remedies; Specific Performance. No right or remedy conferred upon or reserved to any of the parties under the terms of this Agreement is intended to be, nor shall it be deemed, exclusive of any other right or remedy provided in this Agreement or by law or equity, but each shall be cumulative of every other right or remedy. The parties understand and acknowledge that a party may be damaged irreparably by reason of a failure of another party to perform any obligation under this Agreement. Accordingly, if any party attempts to enforce the provisions of this Agreement by specific performance (including preliminary or permanent injunctive relief), the party against whom such action or proceeding is brought waives the claim or defense that the other party has an adequate remedy at law. Each party hereby affirmatively waives the requirement that a party seeking enforcement of this Section 15.7 post any bond, demonstrate the likelihood of irreparable damage, or demonstrate that any actual damages will be suffered as a result of a party’s breach of any provision of this Agreement.

15.8 Alternative Dispute Resolution. Subject to either party’s right to seek injunctive relief, in the event of a dispute concerning this Agreement or the parties’ obligations hereunder, the parties shall endeavor in good faith to settle the dispute through negotiation and the Mediation Remedy set forth in Section 2.4. If the dispute cannot be resolved through negotiation or mediation or another mutually agreeable dispute resolution mechanism, the parties agree to submit the matter in dispute to binding arbitration. Written notice of the intent to submit a matter to arbitration shall be given by the party requesting it. The arbitration proceedings shall be conducted in accordance with the Commercial Arbitration Rules of the American Arbitration Association and its Supplementary Procedures for Large, Complex Disputes and conducted in a neutral location mutually agreed upon by the parties. Three (3) arbitrators shall be used to decide the outcome of the arbitration. Each party shall select one (1) arbitrator, and the two (2) selected arbitrators will then select a third arbitrator. 

 

	-29-

	 

15.9 Governing Law and Forum. This Agreement is made in the Commonwealth of Kentucky and shall be governed by, construed and enforced in accordance with the laws of Kentucky, without regard to principles of conflicts of laws. Notwithstanding that the parties have agreed that any dispute hereunder shall be resolved pursuant to Section 15.7 of this Agreement, the parties agree that the federal and state courts sitting in Cincinnati, Ohio have personal jurisdiction over the parties and that proper jurisdiction and venue for any dispute arising from or under this Agreement which shall be the subject of an injunction, such other equitable relief as may be necessary to protect a party’s interest, or the enforcement of an arbitration panel or similar alternative dispute resolution body, shall be commenced in the federal or state courts sitting in Cincinnati, Ohio.

15.10 Nondisclosure of Confidential and Proprietary Information. 

(a) Confidential Information. The term “Confidential Information” shall mean: (i) any items, concepts, processes, systems, technical know-how or information promotional material, recipes, documents, specifications (including Specifications), proprietary information, supplied, disclosed, divulged and/or provided by either party in connection with (a) the production, manufacture, packaging and distribution of the NTC Products, (b) the production, manufacture, packaging and distribution of any products of SM, and/or (c) this Agreement; (ii) the intellectual property of a party; (iii) all documents, records, data compilations, computerized records, drawings, photographs, models or other items, concepts, process or information to which either party may be provided access by the other party; (iv) any other information derived by either party as a result of performing the obligations of this Agreement; and (v) certain terms and conditions of this Agreement that are not excluded pursuant to Section 15.10(b).

(b) Exclusions. The term “Confidential Information” shall not include information that is: (i) or becomes available in the public domain through no wrongful act of either party; (ii) already in a party’s possession prior to the performance of the obligations hereunder without an obligation of confidentiality; (iii) independently developed by a party without access to the Confidential Information; (iv) required to be disclosed by a party in the course of performance of its obligations under this Agreement; (v) required to be disclosed pursuant to any applicable Law; or (vi) required to be disclosed pursuant to any final and unappealable order of a court of competent jurisdiction or Government Agency served on either party, provided that (to the extent legally permitted) the receiving party gives the other party written notice within two (2) days of receipt of such order and at least thirty (30) days prior to the disclosure of any Confidential Information pursuant to such order. The required disclosures of information in subsections (iv) and (v) of this Section 15.10 shall be limited in scope to that which is necessary to fulfill obligations herein and/or comply with applicable Laws.

(c) Use of Confidential Information. Except as otherwise authorized in writing by either party, or except as may be required by a final and unappealable order of a court of competent jurisdiction or a Government Agency, and in accordance with the terms and conditions of the Confidentiality Agreement, neither party shall and neither party shall permit any related parties, or any other person under the control of such party, to (i) communicate, disclose, describe, characterize, duplicate, imitate or otherwise make known any Confidential Information to any third person or entity; or (ii) use any Confidential Information for the party’s financial benefit, or the financial benefit of any employee, officer, director or agent of such party, or for any other purpose than to achieve the purposes of the Agreement. Each party shall communicate and/or disclose such Confidential Information to only those employees, officers, directors or affiliates of such party that have a need to know and must receive certain Confidential Information for the performance of his or her activities hereunder (“Approved Employees”).

 

	-30-

	 

 

(d) Protection of Certain Confidential Information. Pursuant to the terms and conditions of the Confidentiality Agreement, each party shall designate in writing the type of Confidential Information of such party that an Approved Employee of the other party is entitled to access or receive, and such other party shall not disclose or communicate, or permit disclosure or communication of, any other type of Confidential Information to such Approved Employee.

(e) Other Obligations. In accordance with the terms and conditions of the Confidentiality Agreement, the parties shall (i) take all reasonable steps to keep the Confidential Information confidential and (ii) cause each of their respective directors, officers, employees, subcontractors and agents exposed to any of the Confidential Information to keep all Confidential Information confidential. The parties specifically agree that due to the highly sensitive nature of the Confidential Information, the obligations to maintain secrecy and confidentiality set forth herein shall continue indefinitely beyond the termination of the Agreement.

(f) Agreement to Return all Property and Information. SM agrees that, upon (i) written request by NTC; or (ii) the expiration or termination of this Agreement, SM shall promptly deliver to NTC all property, information, documents, and Confidential Information of NTC. NTC agrees that, upon (i) written request by SM; or (ii) the expiration or termination of this Agreement, NTC shall promptly deliver to SM all property, information, documents, and Confidential Information of SM. Each party may keep one copy of all records and other Confidential Information only to the extent needed for archival purposes and as otherwise required by law.

15.11 Severability. If any provision of this Agreement is held invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect. If any provision is held invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances.

15.12 Survival. The provisions of this Agreement which by their very nature are intended to survive the termination of this Agreement, including, but not limited to, Sections 4.5, 5.9(a)(2), 5.14, 10, 11, 12, 14.1(b), 15.5, 15.6, 15.7, 15.8, 15.9, 15.10, 15.11 and 15.21 shall survive the termination of this Agreement and remain the binding obligations of the parties hereto.

15.13 Insurance. During the term of this Agreement, SM shall, at its own cost and expense, procure and maintain in full force and effect, insurance with reputable insurance companies rated A or better by insurance rating companies such as A.M. Best, of the type and in such amounts as adequate for all risks in accordance with customary business practices within the industry, which may include the use of high deductible or retention policies, including, but not limited to (i) worker’s compensation and employer’s liability insurance providing statutory coverage that will comply in all respects to the statutes of the Commonwealth of Kentucky and providing employer’s liability limits consistent with SM’s current coverage for all claims in one policy period; (ii) commercial general liability, including coverage for products, completed operations, contractual liability, bodily injury and property damages consistent with SM’s current combined single limit per occurrence; (iii) automobile liability and/or vehicle liability, including owned, non-owned and hired vehicles with limits in accordance with SM policies and procedures; and (iv) umbrella liability and excess liability coverage consistent with SM’s current coverage per occurrence applying excess of employer’s liability and of insurance required in (ii) and (iii) above. Coverage may be in the form of automobile and/or vehicle liability and/or umbrella coverage. At NTC’s request, NTC, and any additional entity related to NTC, shall be added as an additional insured party on all policies effected to obtain the above coverage. Upon the execution of this Agreement, SM shall provide to NTC certificates of insurance endorsed by an authorized representative of the insurance provider evidencing that the insurance required hereunder is in full force and effect and that such insurance will not be canceled or materially changed without giving NTC at least thirty (30) days prior written notice.

 

	-31-

	 

15.14 Compliance with Applicable Law. Each party agrees to comply with all applicable Laws in the performance of this Agreement.

15.15 Exhibits; Entire Agreement. All referenced exhibits, schedules, appendices or other attachments to this Agreement (collectively, the “Attachments”) shall constitute part of this Agreement and shall be deemed to be incorporated into this Agreement by reference and made a part of this Agreement as if set out in full at the point where first mentioned. This Agreement, including the Attachments constitutes the entire understanding between the parties with respect to the subject matter hereof, and supersedes any and all prior understandings and agreements, either oral or written, relating thereto. By signing this Agreement, the parties acknowledge receipt of all Attachments, and the terms thereof, incorporated by reference into this Agreement.

15.16 Counterparts. This Agreement may be executed in any number of counterparts and by each party hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which together shall constitute one and the same instrument, and it shall not be necessary in making proof of this Agreement to produce or account for more than one such counterpart. Facsimile copies of signatures will be treated as originals for all purposes.

15.17 Successors and Assigns. Subject to the provisions of Section 13, this Agreement is binding on the parties hereto and their respective successors and permitted assigns.

15.18 Enumeration and Headings; Gender and Number. All enumeration, headings and captions contained in this Agreement are for convenience of reference only and shall not affect, or be construed as affecting, the meaning, interpretation or construction of this Agreement. The plural form and masculine form of all nouns and pronouns used herein shall be construed as including the singular form and feminine form, respectively, and the singular form and feminine form of all nouns and pronouns used herein shall be construed as including the plural form and masculine form, respectively, as the context may require.

15.19 Construction. This Agreement has been negotiated by the parties and their respective counsel. This Agreement will be fairly interpreted in accordance with its terms and without any strict construction in favor or against either party. Any ambiguity will not be construed or interpreted against the drafting party.

 

	-32-

	 

15.20 Non-solicitation of Employees. Except as provided in this Agreement, during the Term and for 6 months after the expiration or termination of this Agreement, neither party shall directly solicit any employees of the other party without such other party’s written consent; however, this shall not preclude the indirect solicitation of employees through general advertisements or recruiting efforts conducted by persons who were not directly involved in the management of the delivery or receipt of the services hereunder and are not acting under the direction of persons so involved, and either party may discuss employment with, and hire, such persons who respond to such indirect solicitations or initiate such discussions on their own. Further, during the term and for 6 months after expiration of the termination of this Agreement, NTC shall not directly solicit any member of SM’s sensory panel referenced in Section 5.7 above without SM’s prior written consent.

15.21 Publicity. Except as otherwise required by applicable Laws, neither party shall use the other party’s name in any media release, public announcement or public disclosure relating to this Agreement without the prior written consent of the other party.

15.22 Right to Provide Services. Except as otherwise expressly set forth herein or agreed to in writing by the parties, SM and the SM personnel providing services to NTC may perform similar services for other parties, and this Agreement shall not prevent SM from using personnel and equipment utilized hereunder for such other parties.

 

[Signature Page Follows]

 

	-33-

	 

 

In Witness Whereof, each of the parties has caused this Agreement to be duly executed by their respective duly authorized representatives as of the Effective Date.

 

	 	National Tobacco Company, L.P.	 
	 	 	 	 	 
	 	By:	       	 
	 	 	 	 	 
	 	Title: 	 	 
	 	 	 	(“NTC”)	 
	 	 	 	 	 
	 	Swedish Match North America, Inc.	 
	 	 	 	 	 
	 	By:	 	 
	 	 	 	 
	 	Title: 	 	 
	 	 	 	(“SM”)	 

 

	-34-

	 

 

In Witness Whereof, each of the parties has caused this Agreement to be duly executed by their respective duly authorized representatives as of the Effective Date.

 

	 	National Tobacco Company, L.P.	 
	 	 	 	 	 
	 	By:	 	 
	 	 	 	 	 
	 	Title: 	 	 
	 	 	 	(“NTC”)	 
	 	 	 	 	 
	 	Swedish Match North America, Inc.	 
	 	 	 	 	 
	 	By:	   	 
	 	 	 	 
	 	Title:	      President	 
	 	 	 	(“SM”)	 

 

	-34-Exhibit 10.18

 

 

EXECUTION COPY

 

ELECTRONIC CIGARETTE DISTRIBUTION AGREEMENT

 

This Electronic Cigarette Distribution Agreement (“Agreement”) is entered into on October 15, 2013 (the “Execution Date”) to be effective as of September 1, 2013 (the “Effective Date”) by and between Intrepid Brands, LLC, a Delaware limited liability company (“Intrepid”) and VMR Products, LLC, a Florida limited liability company (“VMR”), each, a “Party” and, collectively, “the Parties.”

 

VMR has represented that it has significant experience and capabilities in designing, sourcing, manufacturing and marketing electronic cigarettes, some of which carry the V2CIGS and V2 trademarks. Intrepid has represented that it, and its Affiliates, have significant experience and capabilities in the wholesale and retail distribution of tobacco products in the United States.

 

This Agreement addresses the marketing, supply and distribution of electronic cigarette products branded with the V2CIGS or V2 trademarks.

 

A.         DEFINITIONS

 

When used in this Agreement, the following terms shall have the meanings indicated. Additional defined terms will be found in the attached appendices.

 

1.         “Acquirer” means the surviving entity, buyer (in the event of a sale of substantially all assets) of VMR or Intrepid, as applicable, following a Change in Control.

 

2.         “Addendum” means a written addendum to this Agreement, signed and dated by the Parties, which shall become a part of and otherwise be governed by the terms of this Agreement.

 

3.         “Adulterated” means, In relation to any V2 Product, a product: (1) that consists in whole or in part of any filthy, putrid, or decomposed substance, or is otherwise contaminated by any added poisonous or added deleterious substance that may render the product injurious to health; or (2) that has been prepared, packed, or held under insanitary conditions whereby it may have been contaminated with filth, or whereby it may have been rendered injurious to health.

 

4.         “Affiliate” of a Party means any other entity directly or indirectly Controlling, Controlled by or under common Control with that Party, e.g., a subsidiary, sister, cousin or parent corporation. For purposes of this definition, “Control” and its correlative terms “Controlled” and “Controlling” means (1) the legal, beneficial or equitable ownership, directly or indirectly, of at least a majority of the equity interests of an entity; or (2) the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of an entity or the election of a majority of the board of directors or comparable governing body of an entity, whether through the ownership of voting securities, by contract or otherwise.

 

5.         “Applicable Laws” means all U.S. federal, state or local laws, including all regulations and re-interpretations of regulations, having any bearing on the subject matter of this Agreement, the Parties, their products or their business dealings and practices.

 

6.         “Average Equivalized Share” means average market share measured by the sale of MSA EQ Units as opposed to sales units.

 

7.         “Bricks & Mortar Distribution” means distribution through the Bricks and Mortar Distribution Channel.

 

8.         “Bricks & Mortar Distribution Channel” means US sellers of tobacco products who sell or distribute products, including tobacco products, primarily through a physical location, as opposed to over the internet.

 

9.         “Bricks & Mortar Distributor” means a distributor in the Bricks & Mortar Distribution Channel. 

 

Page 1

 

 

	 

	 

 

 

EXECUTION COPY

 

10.       “Bricks & Mortar Trade Show” means a trade show, trade exhibition, or exposition organized, attended by, and directed primarily toward members of the Bricks & Mortar Distribution Channel, as opposed to individual consumers.      

     

11.       “Bulk Shipping Standards” means that, with respect to shipments of V2 Products, all common items (by SKU) are organized together and all product is shipped upright.

 

12.       “Business Day” means any day other than a Saturday, Sunday or public holiday, as defined in 5 U.S.C. section 6103.

 

13.       “Certificate of Compliance” means a certificate issued by VMR to Intrepid prior to the shipment of V2 Products stating that the subject products are (i) in all respects in compliance with the applicable V2 Product Specifications and the warranties with regard thereto provided in Section G.1 of this Agreement and (ii) the number of cases of V2 Products in the shipment upon delivery is within three percent of the number of cases of V2 Products shown on the bill of lading.

 

14.       “Change in Control” means the occurrence of any of the following events: (a) any consolidation or merger directly or indirectly involving VMR or Intrepid in which the holders of VMR’s or Intrepid’s outstanding units immediately prior to such consolidation or merger do not, immediately after such consolidation or merger, retain either (i) units representing a majority of the voting power of the surviving entity, or (ii) units representing a majority of the voting power of an entity that wholly owns, directly or indirectly, the surviving entity; (b) the sale, transfer or assignment of securities of VMR or Intrepid representing a majority of the voting power of all of VMR’s or Intrepid’s outstanding voting securities to an acquiring party or group in a single transaction or series of transactions; or (c) the sale of all or substantially all of VMR’s or Intrepid’s assets; provided, however, that transactions intended to effectuate an internal reorganization, including changing the domicile of the company, that are not intended to, and do not, effectuate any change in ultimate ownership shall not be deemed to constitute a “Change in Control.”

 

15.       “Combined COGS” means the sum of VMR Delivered COGS and the Intrepid Selling Expense.

 

16.       “Confidential Information” means all confidential or proprietary information, documents, and materials, whether printed or in machine-readable form or otherwise, including but not limited to technical and non-technical information, patents, patent applications, trade secrets, copyrighted information, ideas, techniques, sketches, drawings, works of authorship, models, inventions, know-how, processes, marketing and sales data, apparatuses, equipment, current, future, and proposed products and services, information concerning research, experimental work, development, design details and specifications, engineering information, financial information, procurement requirements, purchasing, manufacturing, customer lists, investors, directors, employees, business and contractual relationships, business forecasts, sales and merchandising, marketing plans and any information a Disclosing Party may provide regarding third parties.

 

a)         Confidential Information includes all information that should reasonably have been understood because of legends or other markings, the circumstances of disclosure, or the nature of the information itself, to be proprietary and confidential, regardless of whether such information is marked “Confidential” or “Proprietary.”

 

b)         Confidential Information does not include information that:

 

I.           was obtained from a third party, who was or was believed to have been in lawful possession of such information and was not in violation of any contractual or legal obligation with respect to such information;

 

ii.           is part of the public domain through no fault of the Receiving Party or its Representatives;

 

iii.           was independently ascertained or developed by the Receiving Party without reference to the Confidential Information of the Disclosing Party;

 

Page 2

 

 

	 

	 

 

 

EXECUTION COPY

 

                   iv.      consists solely of the existence of this Agreement and its terms, but only to the extent such information must be disclosed in order to carry out the intents and purposes of this Agreement; or 

 

v.       was approved for disclosure and release by written authorization of the Disclosing Party.

 

17.       “Consumer Marketing” means those activities directed to consumers for the purpose of promoting V2 Products and increasing the Gross Margin Pool, including but not limited to print, radio and television media, consumer direct mail, and in-store, chain-purchased signage packages. Consumer Marketing does not include any expenditure by VMR in relation to the promotion of products to Bricks & Mortar Distributors or its participation in trade shows, Bricks & Mortar Trade Shows or otherwise.

 

18.       “Consumer Marketing Commitment” means ten (10) percent of the Gross Margin Pool, which VMR shall expend on V2 Products Consumer Marketing.

 

19.       “Cast/Profit Model” means the metrics and rationale and all other information captured and described in Appendix A with respect to V2 Products. All references to the terms used in the Cost/Profit Model shall be deemed to reference the appropriate line item in Appendix A depending on the context.

 

20.       “Day” shall have its ordinary meaning, and shall not mean Business Day.

 

21.       “Disclosing Party” means a Party who has disclosed to the other Confidential Information.

 

22.       “Effective Date” is specified in the Preface to this Agreement.

 

23.       “Electronic Cigarette” means an electronic device containing or intended to be used with tobacco-derived ingredients and/or nicotine, including any disposable device, rechargeable device, cartomizer, atomizing cartridge, tank cartridge, liquid, and/or applicable accessories.

 

24.       “Electronic Cigarette Average Retail Prices” means the price as reflected in syndicated Nielsen Convenience data for Electronic Cigarettes on an EQ Unit basis. For the avoidance of doubt, the Electronic Cigarette Average Retail Prices are calculated as follows: Assume three EQ Units sold (one single unit disposable sold for $10, and one two-pack disposable sold for $18 for both), the Electronic Cigarette Average Retail Price would be $9.33 ((10+18)/3).

 

25.       “EQ Unit” means equivalent units as used by Nielsen, MSA and others in order to compare the number of products sold taking into account the variable number of products offered in different consumer selling units. For the avoidance of doubt, a two pack of Electronic Cigarettes equals two EQ Units, a five pack of cartomizers is equal to five EQ Units. A starter kit is equal to as many cartomizers as are included in such kit.

 

26.       “Express Kit” means a rechargeable Electronic Cigarette battery, sold with a single flavor cartridge and a USB charger.

 

27.       “FDA” means the United States Food and Drug Administration.

 

28.       “Final Termination Date” means the later to occur of (a) the effective termination date of this Agreement or (b) the last date upon which Intrepid has any rights under this Agreement to sell V2 Products.

 

29.       “FOB Intrepid-Designated Warehouse” means, with regard to VMR’s shipment of V2 Products, the ship-to address set out in an Intrepid Purchase Order. VMR shall pay all shipping costs and remain responsible for the products until Intrepid or its agent takes physical possession of the products. For the avoidance of doubt, all risk of loss or damage arising during transportation and delivery shall lie solely with VMR, with the risk of loss transferring to Intrepid only upon its or its agent’s receipt of the products.

 

30.       “Force Majeure” means any of the following events: an act of God (such as a fire, explosion, earthquake, drought, tidal wave and flood), war, hostilities, act of foreign enemies, embargo, revolution, insurrection, military or usurped power or civil war, contamination by radioactivity or from any nuclear waste, assembly, riot, strike, lock out, stoppage and delay by Customs, and acts or threats of terrorism; provided, however, that no act of Force Majeure shall exist if the event was within the reasonable control of the party claiming such Force Majeure or the event was caused by the negligence of the claiming party.

Page 3

 

	 

	 

  

 

EXECUTION COPY

 

31.       “Government Levies” means any and all government fees, taxes, or levies.

 

32.       “Gross Margin Pool” means the Intrepid List Price less the Combined COGS.

 

33.       “Indemnitee” means an Intrepid Indemnified Person or VMR Indemnified Person, as the case may be.

 

34.       “Indemnity Claims” means any and all losses, liabilities, claims, damages, actions, judgments, assessments, tax, costs and expenses, including without limitation, interest, penalties and reasonable legal fees and disbursements.

 

35.       “Intellectual Property” means all (i) trademarks, service marks, brand names, Internet domain names, logos, symbols, trade dress, assumed names, fictitious names, trade names, and other indicia of origin, all applications and registrations for all of the foregoing, and all goodwill associated therewith and symbolized thereby, including all extensions, modifications and renewals of same (collectively, “Trademarks”); (ii) inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all patents, registrations, and applications therefor, including divisions, continuations, continuations-in-part and renewal applications, and including renewals, extensions and reissues (collectively, “Patents”); (iii) confidential and proprietary information, trade secrets and know-how, including research and development, manufacturing and production processes, product configurations, schematics, formulae, designs, drawings, prototypes, models, specifications and any confidential, secret or proprietary aspects of a business (including, without limitation, customer lists, supplier lists, marketing information, pricing arrangements with customers or suppliers, capital structure or financial information) (collectively, “Trade Secrets”); (iv) published and unpublished works of authorship, whether copyrightable or not, copyrights therein and thereto, and registrations and applications therefor, and all renewals, extensions, restorations and reversions thereof (collectively, “Copyrights” ); and (v) all other intellectual property or proprietary rights and claims or causes of action arising out of or related to any infringement, misappropriation or other violation of any of the foregoing, including rights to recover for past, present and future violations thereof (collectively, “Other Proprietary Rights”).

 

36.       “Intellectual Property Rights” means any and all rights in Intellectual Property.

 

37.       “Intrepid Indemnified Persons” means intrepid and its respective directors, officers, Affiliates, employees, agents.

 

38.       “Intrepid List Price” means the published price at which Intrepid offers V2 Products to Bricks & Mortar Distributors.

 

39.       “Intrepid Margin” means the Intrepid List Price less the Intrepid Selling Expense.

 

40.       “Intrepid Purchases from VMR” means the dollar amount of Purchase Orders for V2 Products Issued by Intrepid to VMR over the 12 months immediately preceding any Change in Control involving VMR.

 

41.      
“Intrepid Returns” means the return of
V2 Products by Intrepid’s direct customers. For purposes of the Cost/Profit Model (Appendix A), the rate of Intrepid Returns
has been estimated at two (2) percent in the Intrepid Selling Expense.

 

42.       “Intrepid Sales to Trade” means the Intrepid Purchases from VMR, multiplied by the Trade Markup Factor.

 

43.       “Intrepid Selling Expense” means the sum of Intrepid’s applicable selling expenses, specifically, and limited to, shipping, returns, discounts, allowances and merchandising, subject to the following:

 

            a)         The Intrepid Selling Expense shall also reflect Intrepid trade pricing incentives on applicable Non-Pre-Priced Products;

 

Page 4

 

 

	 

	 

 

 

EXECUTION COPY

 

            b)         If less than one hundred percent (100%) of the Non-Pre-Priced/List Price Increment is returned to Trade, the margin surplus received therefrom shall be included in the Gross Margin Pool and shall not be categorized as an Intrepid Selling Expense;

 

            c)         Should Intrepid offer trade pricing incentives on applicable Non-Pre-Priced Product greater than the Non-Pre-Priced/List Price Increment, without the prior written consent of VMR, Intrepid shall absorb the additional cost associated with the difference between the trade pricing incentive offered and the Non-Pre-Priced List Price Increment. If VMR provides prior written approval, VMR and Intrepid shall share the additional cost associated with the difference between the trade pricing incentive offered and the Non Pre-Priced List Price Increment equally.

 

44.       “Intrepid Selling Expense Percentage” means the Intrepid Selling Expense as a percentage of the Intrepid List Price.

 

45.       “Intrepid Unsatisfactory Quarter” means the following, beginning on January 1, 2016. For 2016, Intrepid Unsatisfactory Quarter means Intrepid’s failure to sustain a V2 Products Average Equivalized Share for any calendar quarter that is seventy-five percent (75%) or greater than that established in the fourth calendar quarter of 2015.

 

For 2017 and for each year thereafter, Intrepid Unsatisfactory Quarter shall mean Intrepid’s failure to sustain a V2 Products Average Equivalized Share for any calendar quarter that is seventy-five percent (75%) or greater than that established for the highest Average Equivalized Share calendar quarter in the previous four consecutive calendar quarters.

 

46.       “Intrepid V2 Product Inventory Date” means June 24, 2013.

 

47.       “Intrepid’s Regulatory Department” means the Senior Director of Scientific and Regulatory Affairs, the Vice President of Regulatory Affairs, and the Assistant General Counsel responsible for FDA compliance, which such positions are currently held by Dr. David M. Johnson, Ron Tully, and Susan R.H. Gernert, respectively. Contact information for such persons is as follows and will be updated by Intrepid as it changes: dmjohnson@NationalTobacco.com (502-494-8847), rtully@NationalTobacco.com (917-596-8567), and sgernert@NationalTobacco.com (502-439-0339).

 

48.       “Intrepid Sales to Trade % of VMR Total Effective Net Sales” means Intrepid Sales to Trade divided by VMR Total Effective Net Sales.

 

49.       “Material Breach” means, as to Intrepid, as defined in Section C.2.a.iv. of this Agreement and, as to VMR, as defined in Section C.3.a.i, of this Agreement.

 

50.       “Misbranded” means, in relation to any V2 Product, a product (1) the labeling of which is false or misleading in any particular; or (2) the associated advertising of which is false or misleading in any particular.

 

51.       “Model Intrepid Selling Expense Percentage” means the Intrepid Selling Expense Percentage, as set out in the V2 Cost/Profit Model (Appendix A).

 

52.       “Model VMR Delivered COGS” means the VMR Delivered COGS, as set out in the V2 Cost/Profit Model (Appendix A). In relation to products not covered in Appendix A as of the Effective Date, any future Addendum shall dictate the relevant Model VMR Delivered COGS. Model VMR Delivered COGS shall be deemed a maximum, meaning no VMR Delivered COGS may exceed such number.

 

53.       “MSA” means Management Science Associates, Inc.

 

54.       “NTC” means National Tobacco Company, L.P., a Delaware limited partnership and an Affiliate of Intrepid.

 

55.       “Nielsen” means the Nielsen Company.

  

56.       “Non-Competitive” means, in the context of an environment of declining Electronic Cigarette Average Retail Prices, the failure of the 12 week average applicable VMR Delivered COGS (measured as of the Electronic Cigarette Average Retail Prices determination date) to be less than the product of the applicable Reference COGS Compression Rate (as defined in Appendix B) multiplied by the applicable twelve week Electronic Cigarette Average Retail Prices as of the most recent Nielsen Convenience data. See Appendix B for illustrative examples of Non-Competitive pricing calculations and further explanation. For the avoidance of doubt and in the event that there is a conflict between the definition and the formula, the formula governs.

Page 5

 

  

	 

	 

 

 

EXECUTION COPY

  

57.       “Non-Compliant Products” means those V2 Products that do not conform to the V2 Product Specifications or do not conform to a Certificate of Compliance.

 

58.       “Non-Pre-Priced Products” means those products, the packaging of which does not reflect a suggested retail selling price.

 

59.       “Non-Pre-Priced/List Price Increment” means the difference between Intrepid’s List Price for a Non-Pre-Priced Product and the corresponding Pre-Priced Product.

 

60.       “Non-Traditional Sales Channels” means US only retail kiosk business, both franchises and VMR owned, hospitality sales (e.g. hotels and cruise lines) and VMR’s vending machine franchise business.

  

61.       “OEM Business” means the sourcing, manufacturing or supply of Electronic Cigarettes by VMR to third-party manufacturers, sellers, and distributors of Electronic Cigarettes.

 

62.       “POS” means point-of-sale advertising materials and displays.

 

63.       “Pre-Priced Products” means those V2 Products, as applicable, the packaging of which reflects a suggested retail selling price.

 

64.       “Product Delivery Date” means the date identified in Intrepid’s Purchase Order on or before which VMR shall deliver V2 Products to Intrepid’s designated warehouse. During the first twelve (12) months after the Intrepid V2 Product Inventory Date, the Product Delivery Date shall not be less than ninety (90) days after the Purchase Order date. After this initial twelve (12) month period, with the understanding that the ordering and delivery process will become more efficient, the Product Delivery Date shall not be less than seventy (70) days after the Purchase Order date.

 

65.       “Product Issue” means, with respect to V2 Products covered by this Agreement: (1) any issue relating to a potential safety hazard or unsafe condition caused by or associated with such product, (2) any issue related to the quality of the products, including, but not limited to, manufacturing or design defects that may impact the quality of the products, labeling, packaging, declared net contents ingredients, or formula, or (3) advisement of an issue or condition stipulated by any governmental authority having jurisdiction over such products.

 

66.       “Product Order & Payment Process” means the process and requirements set out in Appendix C.

 

67.       “Purchase order” means Intrepid’s written order which specifies (1) the identity and quantity of each product; (2) the price for each such product; (3) a Product Delivery Date; and (4) a designated Intrepid warehouse to which VMR shall deliver the products.

 

68.       “Quarterly Meetings” means meetings or conference calls that shall be held within forty-five (45) Days after the end of each calendar quarter, at or during which Representatives of each Party shall participate and address various agenda items, as described elsewhere in this Agreement, keeping minutes of same and creating Addenda as may be required.

 

69.       “Recall” means recall, recovery, replacement, and/or retrofit due to FDA requirements or for other reasons reasonably determined by either Party related to a Product Issue and the implementation process and expense of such Recall.

 

70.       “Receiving Party” means a Party who has received Confidential Information from the other Party.

Page 6

 

 

	 

	 

 

EXECUTION COPY

 

71.       “Reference Average Retail Price” means the Electronic Cigarette Average Retail Price for a product as measured by Nielsen for the 12-week period ending July 6, 2013, except that for new products it shall mean the Electronic Cigarette Average Retail Price reported by Nielsen for that product as of the closest relevant release date.

 

72.       “Reference COGS Compression Rate” means the number calculated on Appendix B. Such calculation method shall also be used for products not otherwise specifically identified on Appendix B, if necessary for interpretation of this Agreement.

 

73.       “Remaining Margin Pool” means the Gross Margin Pool less Consumer Marketing Commitment.

 

74.       “Representative” means a director, officer, employee, agent, consultant, licensor, independent contractor or other representative of a Party or the Affiliate of a Party. For the avoidance of doubt, with regard to Confidential Information, an Acquirer or anticipated Acquirer shall be deemed to be a Representative.

 

75.       “Review Material” means reports, notes, analyses, compilations, files, data, forecasts, studies, memoranda or other documents that contain or otherwise reflect Confidential Information.

 

76.       “RW3” means Intrepid’s proprietary field sales database.

 

77.       “SKU” means stock keeping unit.

 

78.       “Statistically Significant” means that number of defective V2 Products that, when the sampling procedures provided in Appendix F are followed, would allow Intrepid to reject the entire shipment in which such V2 Products were shipped.

 

79.       “Terms and Conditions of Sale” means any terms or conditions associated with the sale of a product, including but not limited to pricing.

 

80.       “Total Purchase Price Paid for VMR” means the following, as applicable:

 

a)       If a Change in Control with regard to VMR shall occur as the result of a series of transactions, it shall mean the greater of (i) the amount received as a result of the final transaction that resulted in the Change in Control, divided by the incremental percentage of ownership acquired by the Acquirer in that final transaction, or (ii) the cumulative amounts received in all transactions in which any portion of ownership of VMR was transferred, including the final transaction that resulted in the Change in Control, divided by the cumulative ownership percentage in VMR transferred in all those transactions.

 

b)       If a Change in Control with regard to VMR shall occur in a single transaction pursuant to which VMR goes to less than 50% controlled by the members who own VMR as of the Effective Date, it shall mean the amount received in that transaction divided by the percent ownership in VMR acquired by the Acquirer in that transaction.

 

For purposes of determining amounts received under this definition, any deferred or contingent payout amounts will be deemed to have been received at the same time as amounts actually received upon the completion of the transaction resulting in the Change in Control.

 

81.       “Trade Markup Factor” means that number determined by taking Intrepid’s latest 12-month aggregate sales to the trade and dividing that figure by the sum resulting from the following calculation: for each SKU of V2 Products sold to the trade by Intrepid during that 12-month period, multiply the number of units of such SKU sold during the period by the then current VMR Delivered COGS per unit for that SKU, and then add the sum of the products obtained.

 

82.       “TTB” means the United States Alcohol and Tobacco Tax & Trade Bureau.

 

Page 7

 

	

	 

 

EXECUTION COPY

 

83.       “UPC” means uniform product code.

 

84.       “US” means the fifty States of the United States, the District of Columbia, and worldwide U.S. military commissaries and exchanges.

 

85.       “V2CIGS Marks” means trademarks, trade names, logos, copyrights, and other identifying material relating to VMR’s V2CIGS® brand.

 

86.       “V2CIGS Web Platform” means any VMR-owned website on which V2 Products are sold.

 

87.       “V2 Marks” means trademarks, trade names, logos, copyrights, and other identifying material relating to VMR’s V2TM brand.

 

88.       “V2 Products” means those products that carry either the V2CIGS Marks or the V2 Marks.

 

89.       “V2 Products Forecast” means a rolling, six (6)-month, good faith, estimation of the demand for V2 Products by SKU, by month.

 

90.       “V2 Products Intellectual Property” means any and all Intellectual Property associated with the V2 Products.

 

91.      “V2 Product Prices” means VMR’s price to Intrepid for the V2 Products. The V2 Product Prices shall be i) FOB Intrepid-Designated Warehouse, and ii) equal to the sum of the VMR Delivered COGS and the VMR Gross Margin as set forth on Appendix A. The Parties shall create an Addendum in relation to any amendment of V2 Product Prices or the negotiated price of any V2 Product not subject to this Agreement on the Effective Date. With regard to any product not subject to this Agreement on the Effective Date, the Addendum shall also set forth all information needed to complete Appendix A, as applicable, and Appendix B, as reasonably agreed by the Parties. The V2 Product Prices are inclusive and no additional charges, including for shipping, taxes, labeling, duties, storage and insurance shall be charged to Intrepid.

 

92.       “V2 Product Specifications” means the requirements for each V2 Product listed in Appendix H, as amended from time to time as mutually agreed to by the Parties.

 

93.       “V2 Work Plan” means a forward-looking work plan developed, maintained and executed by Intrepid in consultation with VMR in relation to the distribution, sale, and trade marketing of the V2 Products within the Bricks & Mortar Distribution Channel, which shall encompass no less than a three-month period of time.

 

94.       “VMR Delivered COGS” means the costs of goods sold in relation to V2 Products, which shall include but not be limited to all expenses associated with product design, production, quality assurance, importation, insurance, logistics, Government Levies, duties and other charges as may be applicable, as set out in Appendix A. Should any new Government Levies not reflected in the Cost/Profit Model (Appendix A) or V2 Product Prices on the Effective Date be imposed, the Parties shall in good faith amend Appendix A by mutual agreement reflecting in VMR’s Delivered COGS such Government Levies as indicated in the Cost/Profit Model, i.e., on a pass through basis and not be subject to any mark-up such as the Maximum VMR Logistics Costs rate.

 

95.       “VMR Distribution Appointment Exceptions” means those customers, trade channels and products identified in Appendix D, which shall be the only exceptions to the exclusive Bricks & Mortar Distribution rights granted to Intrepid.

 

96.       “VMR US Eligible e-Nicotine Internet Net Sales” means those VMR US net sales of VMR Products containing nicotine over the internet. If a ban on internet sales of VMR Products is in effect, Column B in Appendix I applies and the numerical value entered for VMR US Eligible e-Nicotine Internet Net Sales shall be equal to zero (0).

 

97.       “VMR US Eligible Non-Nicotine Internet Net Sales” means those VMR US net sales of VMR Products not containing nicotine including, without limitation, batteries and accessories, over the internet. If a ban on internet sales that includes non-nicotine VMR Products is in effect, Column B in Appendix I applies and the numerical value entered for VMR US Eligible Non-Nicotine Internet Net Sales shall equal zero (0).

 

Page 8

 

	

	 

 

EXECUTION COPY

 

98.       “VMR Gross Margin” means the amount calculated on Appendix A, as applicable for each product.

 

99.       “VMR Indemnified Persons” means VMR and its respective directors, officers, Affiliates, employees and agents.

 

100.     “VMR Net Margin Split” means fifty percent (50%) of the Remaining Margin Pool.

 

101.     “VMR OEM Excluded Businesses” means those businesses listed in Appendix E, subject to the additional terms set forth therein. For purposes of this definition, “acquisition” includes participation in a merger, sale of stock, or disposition of all or substantially all of an entity’s assets.

 

102.     “VMR Product” means any product designed, manufactured, sourced, marketed or sold by VMR.

 

103.     “VMR’s Regulatory Department” means the VP, Compliance & General Counsel, which such position is currently held by Sanjiv S. Desai, Contact information for such persons is as follows and will be updated by VMR as it changes: sanjiv@v2cigs.com (305-515-2791).

 

104.     “VMR Total Effective Net Sales” means VMR Eligible Total Net Sales plus the difference between Intrepid Sales to Trade and Intrepid Purchases from VMR.

 

105.     “VMR Eligible Total Net Sales” means net sales by VMR from all product lines over the 12 months immediately preceding the effective date of any Change in Control involving VMR, provided, however, that if at the time VMR Eligible Total Net Sales are to be determined, internet sales of Electronic Cigarettes are not yet subject to a ban at the federal level but are subject to effective bans in specific states, sales from those states will be excluded in determining the VMR Eligible Total Net Sales figure. For example:

 

a)        If a ban on internet sales of VMR Products is in effect, Column B in Appendix I applies and the VMR Eligible Total Net Sales shall exclude the sales of those VMR Products affected by such ban.

 

b)        If no ban is effect or there are no announcements, regulations or other indications of intent on the part of regulatory authorities in the US to promulgate such a ban, Column B in Appendix I applies.

 

c)       If there are announcements, regulations or other Indications of intent on the part of regulatory authorities in the US to promulgate a ban of nicotine and non-nicotine products over the internet, then Column D in Appendix I applies.

 

d)       If there are announcements, regulations or other Indications of intent on the part of regulatory authorities in the US to promulgate a ban solely on nicotine products over the internet, then Column F in Appendix I applies.

 

106.      “Weighted Electronic Cigarette Distribution” has the meaning set forth in Section B.3.a. As an example, meeting the Weighted Electronic Cigarette Distribution test would occur if the following is true: If 100,000 retail store locations carry any number of brands of Electronic Cigarettes and sell a total of 26 Million EQ Units over the applicable thirteen week period, and 40,000 retail store locations carry three or more brands of Electronic Cigarettes and sell thirteen million EQ Units over the same applicable thirteen week period (13/26 = 50%), then the Weighted Electronic Cigarette Distribution test has been met.

 

B.        DISTRIBUTION OF V2 PRODUCTS

 

1.         Distribution Appointment – Subject only to the VMR Distribution Appointment Exceptions, VMR:

 

     a)       Appoints Intrepid as its exclusive distributor within the Bricks & Mortar Distribution Channel of V2 Products; and

 

Page 9

 

	

	 

 

  

EXECUTION COPY

 

b)          Agrees that it will not prior to the Final Termination Date appoint or grant to any third party the right to distribute the V2 Products within the Bricks & Mortar Distribution Channel.

 

2.          Obligations of VMR – VMR shall:

 

a)          Transition of Bricks and Mortar Distribution to Intrepid.

  

i.          Immediately, upon execution of this Agreement, cease all efforts to obtain new distribution for V2 Products within the Bricks & Mortar Distribution Channel;

 

ii.          Transition to Intrepid all existing VMR Bricks and Mortar Distributors within one hundred twenty (120) Days from the Intrepid V2 Product Inventory Date, other than those customers identified as VMR Distribution Appointment Exceptions (Appendix D);

 

iii.           If Intrepid incurs any costs or charges from Bricks and Mortar Distributors relating to damaged or unsaleable product claims with respect to V2 Products sold to such Bricks and Mortar Distributors by any party or parties other than Intrepid or NTC, or has to accept returns of any such V2 Products, VMR shall reimburse Intrepid for all such costs, charges and return payments within thirty (30) Days after receipt from Intrepid of an invoice providing reasonable detail with respect to such costs, charges and return payments, and shall if reasonably possible provide VMR with physical possession of such damaged or unsaleable products;

 

iv.           Refrain from fulfilling any orders from Bricks and Mortar Distributors for V2 Products on or after thirty (30) Days from the Intrepid V2 Product Inventory Date; and

 

v.          Use commercially reasonable efforts to avoid and mitigate any conflicts between the exclusive distribution rights granted to Intrepid and the VMR Distribution Appointment Exceptions, and work cooperatively with Intrepid to resolve such conflicts.

 

b)          Sales of Certain V2 Products - Neither market nor sell on V2CIGS Web platform the following V2 Products:

 

i.          Disposable Electronic Cigarettes, the consumer selling unit of which comprises less than five (5) individual 

Electronic Cigarettes; and

 

ii.          Express Kits.

 

c)          OEM Business – Refrain from supplying, selling, sourcing on behalf of or otherwise providing Electronic Cigarettes to VMR OEM Excluded Businesses.

 

d)          Product Design – Have sole authority over and be solely responsible for (a) the design of the V2 Products, and (b) the development and design of the V2 Product packaging, subject to B(5) below.

 

e)          Manufacture & Supply - Manufacture and supply the V2 Products to Intrepid.

 

f)          Consumer Marketing – For the sole purpose of promoting V2 Products sales within the Bricks & Mortar Distribution Channel, as opposed to online, expend the Consumer Marketing Commitment on Consumer Marketing in such manner as it determines in its sole but reasonable discretion; provided, however, VMR shall expend all such funds solely on direct to consumer marketing. The content of such Consumer Marketing shall be determined by VMR in its sole but reasonable discretion, but shall be subject to the approval of Intrepid’s Legal Department, whose evaluation shall be based solely on legal, legislative and regulatory risks and whose approval shall not be unreasonably withheld, conditioned or delayed. VMR shall work cooperatively with Intrepid’s Legal Department in relation to such evaluation and approval. Further, if the balance of Consumer Marketing Commitment funds exceeds the amount accrued over the two closed quarters immediately preceding the most recent closed calendar quarter, such excess shall flow into the Remaining Margin Pool and be split equally, at Intrepid’s discretion, between the Parties and Intrepid’s half immediately paid over to it.

 

Page 10

   

  

 

 

 

 

EXECUTION COPY 

 

g)          POS Materials

 

i.          Design V2 Product POS materials in consultation with Intrepid. These POS materials shall be subject to the approval of Intrepid’s Legal Department which approval shall not be unreasonably withheld, conditioned or delayed and based solely on legal, legislative and regulatory risks.

 

ii.          Approve or disapprove all POS orders and reorders within seven days, or approval shall be deemed to have occurred.

 

h)           Technical Assistance - Confer with Intrepid on technical issues as Intrepid may reasonably request. With regard to any third-party, out-of-pocket costs related to such technical issues, the Parties shall confer and agree upon how the Parties will share such costs, and neither Party shall have any liability for such costs unless it has agreed to incur such costs in writing.

 

i)           Store Locator - Place a store locator on the V2CIGS Web Platform upon Intrepid’s achievement of distribution in 10,000 retail accounts, as measured by Intrepid’s RW3 software, MSA or any other reliable source of such data including, without limitation, non-reporting jobbers and sub-jobbers.

 

j)           Quality Assurance and Bulk Shipping Standards – Take appropriate measures to ensure that V2 Products are produced in accordance with good manufacturing practices and meet the production and quality requirements contained in the V2 Product Specifications. VMR shall use commercially reasonable efforts to ensure that V2 Products comply with the Bulk Shipping Standards. In the event that a shipment fails to meet the Bulk Shipping Standards, VMR and Intrepid agree to share equally the costs required to reorganize such shipment to meet the Bulk Shipping Standards.

 

k)           FDA & Other Regulatory Submissions & Compliance – Make all FDA and other regulatory submissions in relation to the V2 Products. VMR shall provide updates to Intrepid regarding VMR’s communication to and filings with the FDA that relate to the V2 Products or that reasonably might be expected to have a material adverse effect on Intrepid or its ability to distribute the V2 Products under this Agreement. If the Parties disagree whether any such communications to or filings with the FDA are required or warranted that relate to the V2 Products or that reasonably might be expected to have a material adverse effect on Intrepid or its ability to distribute the V2 Products, they agree to consult immediately with independent experienced FDA regulatory counsel and to abide by the conclusions and recommendations of such counsel.

 

3.          Obligations of Intrepid – Intrepid shall:

 

a)          Promotion & Sale – Make the primary focus of its sales organization driving growth in sales of the V2 Products and devote such time, skill and attention as is reasonably required to actively and effectively promote, market, sell, and create a demand for the V2 Products until the following conditions are met: (1) V2 Products are in distribution in 35,000 or more retail stores; and (2) any three (3) or more Electronic Cigarette brands are in retail store locations, and such store locations account for fifty percent (50%) or more of the total Electronic Cigarette Bricks and Mortar Distribution Channel volume based on EQ Units as measured over a rolling thirteen week period by MSA (“Weighted Electronic Cigarette Distribution”). After attaining such goals, Intrepid shall continue to use commercially reasonable efforts to pursue continued store and share growth.

 

b)           Distribution – Establish and implement sales plans that support distribution of V2 Products in not less than 50,000 retail stores within the first twelve (12) months after the Intrepid Product Inventory Date.

 

c)           Trade Marketing – Pay for and execute all trade marketing initiatives and communication, including displays, POS, placement and program allowances and distributor sales drives.

 

Page 11

 

  

 

 

  

 

EXECUTION COPY

 

d)          Order Fulfillment - Fulfill orders for V2 Products in a timely and commercially reasonable manner, consistent with its fulfillment of orders for other products.

 

e)           Facilitation of Product Delivery Date – In order to facilitate VMR’s compliance with the Product Delivery Date, Intrepid shall provide to VMR on a monthly basis documentation regarding its sales and inventory position.

 

4.           Incidental Costs & Expenses – With regard to incidental costs and expenses absorbed or paid by one Party on behalf of the other Party, where the other Party has previously agreed in writing to pay such costs or expenses, each Party agrees to reimburse the other for such costs and expenses within thirty (30) Business Days after notice thereof.

  

5.           Product Changes – VMR may, at its sole discretion, modify the V2 Product Specifications, provided however, that with respect to substantial modifications, it shall provide at least seven (7) days’ written notice prior to the implementation of such modifications to Intrepid and shall consider but shall not be obligated to implement any changes suggested by Intrepid during such seven (7) day period. Any change to the V2 Product Specifications or the applicable packaging which would require a change to such products’ UPC shall require mutual consent of the Parties.

 

6.           Certificate of Compliance - With regard to all V2 Products, VMR shall Issue to Intrepid a Certificate of Compliance with respect to each Purchase Order which VMR shall provide to Intrepid prior to each shipment, and in no case later than the Product Delivery Date.

 

7.           Rejection of Non-Compliant Products – VMR shall promptly process the return of Non-Compliant Products and refund or credit Intrepid’s account in an amount equal to the Intrepid payments made in relation to Non-Compliant Products. If Intrepid establishes that a Statistically Significant number of any given V2 Product in any shipment are Non-Compliant Products, VMR shall either:

 

i. Refund or credit Intrepid’s account for the entire shipment; or

  

ii. Solely bear the burden of expeditiously inspecting one hundred percent (100%) of such Products in the subject shipment in order to segregate and establish the number of discrete Non-Compliant Products, and refund or credit Intrepid’s account in an amount equal to the Intrepid payments made in relation to the number of Non-Compliant Products.

  

VMR shall be entitled to receive the results of any tests conducted that result in the rejection by Intrepid of Non-Compliant Products.

 

8.          Development of Trade Marketing & Sales Presentation Materials – Subject to legal review by both VMR and Intrepid, the Parties shall collaboratively develop trade marketing and sales presentation materials, utilizing shared internal data sources and each Party shall bear the costs it incurs In connection with the development of such materials.

 

9.          Recall Procedures – In the event of a Product Issue, the Parties shall follow the following procedures:

 

a)          If either Party learns of a Product Issue, it will promptly contact the Intrepid Regulatory Department and the VMR Regulatory Department and each Party will communicate to the other all relevant facts known to It. The Parties will cooperate In communication with the public and governmental agencies and in correcting any such condition that is found, alleged or suspected to exist. The Parties will consult with one another prior to making any statements to the public or to any governmental agency concerning the Product Issue, except in circumstances in which doing so would prevent timely notification that may be required to be given under applicable law or regulation.

 

Page 12

 

 

 

 

 

  

EXECUTION COPY

  

b)           In addition, the Parties shall contact Intrepid’s Regulatory Department and the VMR Regulatory Department immediately, i.e. within approximately sixty (60) minutes of becoming aware of a malfunction that could result in serious Injury or a serious injury associated with a V2 Product. A malfunction that could result in serious injury or a serious injury includes, but is not limited to, the failure of the V2 Product to meet the V2 Product Specifications or otherwise perform as intended, and such malfunction is likely to cause an injury or illness that is life threatening, results in permanent impairment of a body function or permanent damage to a body structure, or necessitates medical or surgical intervention to preclude permanent impairment of a body function or permanent damage to a body structure.

 

c)           The Parties each agree to comply diligently and promptly with all Recall, correction or removal procedures and related requests of the other Party or any regulatory body. If the Parties disagree whether a Recall, correction, removal, or related request is warranted, they agree to consult immediately with independent experienced FDA regulatory counsel and to abide by the conclusions and recommendations of such counsel.

  

d)           Each Party shall reimburse the other for all reasonable, direct, out-of-pocket expenses or payments actually incurred or made by the Party to be reimbursed that are associated with the correction of a Product Issue or institution and implementation of a Recall, correction or removal, including but not limited to, the actual cost of the products, as well as the costs of inspection, investigation, replacement, retrieval, segregation, storage, transportation, destruction and/or disposal, and reasonable attorneys’ fees, that result from (1) the Indemnifying Party’s failure to comply with the terms of this Agreement, or (2) the negligent act or omission, willful misconduct or fault of the indemnifying Party or, in the case of VMR, its manufacturers.

 

10.        Bricks & Mortar Trade Shows – Intrepid shall manage participation in Bricks and Mortar Trade Shows. However, should VMR choose to attend and feature V2 Products at Bricks & Mortar Trade Shows, VMR may do so, subject to the following:

 

a)           VMR shall be responsible for all associated costs which shall not be credited against the Consumer Marketing Commitment;

 

b)           VMR shall obtain and comply with Intrepid’s guidance regarding all relevant legal and regulatory matters, including but not limited to the design of trade show materials and booth;

 

c)           VMR shall rely on Intrepid personnel to staff the trade show facility in coordination and consultation with VMR; and

 

d)           VMR shall be available at such trade shows for the purpose of providing support to Intrepid as may be reasonably requested.

 

11.        Pricing

 

a)          V2 Product Pricing - VMR shall sell the V2 Products to Intrepid at the V2 Product Prices. The Model VMR Delivered COGS shall be deemed a maximum for VMR Delivered COGS.

 

Page 13

 

 

 

 

 

EXECUTION COPY

 

b)           Most Favored Nations Terms and Conditions of Sale - In the event VMR grants to any third party Terms and Conditions of Sale on V2 Products or products substantially similar to V2 Products more favorable than those provided to Intrepid, VMR shall promptly advise Intrepid of such fact, and the relevant terms of this Agreement shall be reset automatically to the more favorable Terms and Conditions of Sale unless Intrepid waives or chooses to limit its rights under this paragraph in writing.

 

12.       V2 Product Orders, Fulfillment & Payment - Intrepid shall issue Purchase Orders (the terms and conditions of which, to the extent that they are in addition to or different from the terms set forth in this Agreement; shall not control) and shall pay for the V2 Products pursuant to the Product Order & Payment Process, with which VMR shall also comply. VMR shall fulfill Intrepid’s Purchase Orders for V2 Products on or before the Product Delivery Date. All risk of loss or damage arising during transportation and delivery shall Iie solely with VMR, with the risk of loss transferring to Intrepid only upon its receipt of the products. Any orders for delivery during January through March of any year must be received by December 1 of the prior year. No Purchase Orders shall be submitted after January 1 of each year until February of that year for April or May delivery. Maximum orders shall be no more than 125% of the fourth month in the last forecast, except that for orders for delivery during Chinese New Year the maximum will be 125% of the total for the months of January and February in the most recent forecast.

  

13.       Increase in Intrepid List Price – Should Intrepid Increase the Intrepid List Price, for reasons unrelated to taxes, fees, or other inherent product costs, Intrepid shall notify VMR within seven (7) Business Days after the date of notification to its trade customers of such increase. VMR, in turn, may within the next thirty (30) Days, increase the V2 Product Prices in conformity with the formula set forth In Appendix A. The resulting increase In the V2 Product Prices shall be added into Cumulative VMR Share of Intrepid Net Margin Increase from List Price Increases (line (e)(2) of Appendix A).

 

14.       Monthly Reporting – On a monthly basis, the Parties shall provide to one another a written report detailing the following Information and data regarding V2 Products:

 

a)         Intrepid to VMR

 

i.         Wholesale and retail distribution;

 

ii.        Sales of V2 Products;

 

iii.       A V2 Products Forecast; and

 

iv.       Inventory position for each SKU

 

b)        VMR to Intrepid

 

i.        The calculation of the Consumer Marketing Commitment for previous month’s Purchase Order deliveries;

 

ii.       A summary of all V2 Product Consumer Marketing Commitment expenditures and results;

 

iii.      Cumulative Consumer Marketing Commitment amount and expenditures against such amount, along with supporting documentation, if requested; and

 

iv.      Capacity for production for each month for the next twelve (12) months by SKU.

 

C.         TERM AND TERMINATION

  

1.         Term. The initial term of this Agreement shall be five (5) years, beginning on the Effective Date. Thereafter, absent earlier termination, this Agreement shall automatically renew for additional, consecutive two (2) year terms unless terminated pursuant to the terms of this Agreement or by the mutual Agreement of the Parties. For the avoidance of doubt, it is the intention of the Parties that for so long as the Parties remain in compliance with the terms of this Agreement and no other event of termination provided for in this Agreement has occurred, the Agreement shall continue in effect unless and until terminated by mutual consent.

 

Page 14

 

    

 

 

EXECUTION COPY

 

2.         VMR Rights to Terminate the Agreement.

 

a.       Grounds for Termination - VMR shall have the right to terminate this Agreement upon the occurrence of any of the following events:

  

i.        35,000 Retail Store Test. Intrepid (a) fails by June 24, 2014, to have V2 Products in distribution in at least 35,000 retail store locations or (b) thereafter fails to maintain distribution of V2 Products in at least 35,000 retail stores for two consecutive quarters, measured as of the end of the quarter as reflected in the reports delivered by Intrepid at Quarterly Meetings, for reasons under either clause (a) or clause (b) that are unrelated to the availability of V2 Products from VMR or government regulatory action that limits availability of locations at which the V2 Products can be sold. With respect to clause (a), above, VMR shall have the right to terminate this Agreement by delivery to Intrepid of a written notice of termination within thirty (30) Days after VMR’s receipt of the June 2014 quarterly report. With respect to clause (b), above, VMR shall have the right to terminate this Agreement by delivery of a written notice of termination within thirty (30) Days after VMR’s receipt of the Quarterly Meeting report showing failure to maintain distribution in at least 35,000 retail stores for the second consecutive quarter. Any such termination notice shall also clearly state which course of action VMR Intends to take under Section C.2.b.i., below, with respect to such termination. Failure to provide such a notice of termination within the applicable 30-Day period shall be deemed a waiver by VMR of the specific failure to meet the requirements of this subsection and shall constitute a termination of any further obligation on the part of Intrepid with respect to the applicable clause. For the avoidance of doubt, the number of retail store locations in which V2 Products are in distribution shall be as Indicated on and through the store locator on the V2CIGS Web Platform verified by Intrepid’s RW3 software, MSA or any other reliable source of such data including, without limitation, non-reporting jobbers and sub-jobbers.

 

ii..       Peak Share Test. Should Intrepid experience two consecutive Intrepid Unsatisfactory Quarters, VMR shall have the right to terminate this Agreement by delivery to Intrepid of a written notice of termination within thirty (30) Days of receipt of the MSA report indicating that the referenced event has occurred. Any such termination notice shall also clearly state which course of action VMR intends to take under Section C.2.b.i., below, with respect to such termination. Failure to provide such a notice of termination within said 30-Day period shall be deemed a waiver by VMR of its termination rights under this subsection, but for only that specific occurrence.

 

iii..      Minimum Order Requirements. Intrepid shall order at least $20,000,000 worth of V2 Products, based on VMR’s invoice price therefor for each calendar year during the term of this Agreement. If it fails to satisfy its obligation under this subsection, VMR shall have the right to terminate this Agreement by delivery to Intrepid of a written notice of termination no later than 30 days after the end of the calendar year in which such failure occurs. Any such termination notice shall also clearly state which course of action VMR intends to take under Section C.2.b.i., below, with respect to such termination. Failure to provide such a notice of termination by said date shall be deemed a waiver by VMR of the specific failure to meet the requirements of this subsection and shall constitute a termination of any further obligation on the part of Intrepid with respect to this subsection.

 

Page 15

 

   

 

 

EXECUTION COPY

 

iv. Material Breach, The following are Material Breaches under which VMR shall have the right to terminate this Agreement:

 

          A.      Intrepid’s Failure to Pay - Should Intrepid fail to make any payment to VMR for the V2 Products within seven (7) Days after the date on which payment is due, VMR shall within the next forty-five (45) Days provide written notice to Intrepid regarding such failure. Intrepid shall then have seven (7) Days from the date on which Intrepid receives any such notice in which to cure such payment default and if it fails to cure such payment default within such seven (7) Day period, VMR shall have the right to terminate this Agreement; provided, however, that if as of the date upon which Intrepid fails to pay in a timely fashion it has within the past 12-month period from that date failed three other times to make a payment to VMR in a timely fashion, the current such failure may not be cured and VMR shall have the right to immediately terminate this Agreement upon Intrepid’s failure to make the payment within seven (7) Days after the date on which payment is due. Upon delivery by VMR of any such written notice of failure to Intrepid, VMR may suspend its performance under this Agreement until such time as the failure is cured.

  

          B.      Bankruptcy of Intrepid - Should Intrepid have an involuntary proceeding in bankruptcy filed against it, which proceeding is not dismissed within sixty (60) Days of its filing, or seek protection by filing for bankruptcy, VMR shall have the right to terminate this Agreement.

 

          C.      Other Breaches - In the event of any other breach by Intrepid of its obligations under this Agreement, VMR shall within the next thirty (30) Days provide Intrepid written notice of such breach. Upon receipt of any such notice, Intrepid shall have forty-five (45) Days in which either to cure such breach or, if it cannot be cured within that period, to so notify VMR, provide VMR with a plan reasonably acceptable to VMR for curing such breach as expeditiously as reasonably possible, and proceed to effectuate such cure. Failure by Intrepid to effectuate such a cure shall cause the underlying breach to become a Material Breach and give VMR a right to terminate this Agreement immediately upon such failure to cure.

 

In order to terminate in the case of a Material Breach, VMR must provide written notice to Intrepid of its intent to terminate within thirty (30) Days of the date upon which the Material Breach termination right accrues. Any such termination notice shall also clearly state which course of action VMR intends to take under Section C.2.b.ii, below, with respect to such termination. Failure to provide such notice termination by the date required shall constitute a waiver by VMR of its termination rights hereunder with respect to that particular Material Breach.

 

b.        Effect of Termination

  

i.   Effect of Termination Pursuant to Sections C.2.a.i thru C.2.a.iii. Upon termination of this Agreement pursuant to any of sections C.2.a.i. (35,000 Retail Store Test), C.2.a.ii. (Peak Share Test), or C.2.a.iii (Minimum Order Requirements), VMR must elect to do one of the two options set forth below.

 

Page 16

 

   

 

 

 

EXECUTION COPY

 

A.            Purchase as of the effective date of termination all of Intrepid’s V2 Product inventory and open Purchase Orders for any and all V2 Products at the prices charged to Intrepid for those products. VMR shall pay Intrepid for its V2 Product inventory and open Purchase Orders, including any shipping costs, within thirty (30) Days after the date upon which Intrepid provides written notice to VMR of its inventory position, by SKU, as of the effective date of termination.

 

B.           Allow Intrepid to continue selling V2 Products from its V2 Product inventory for a period of 180 Days from the date of receipt of the notice of termination and then, at the end of said 180-Day period, VMR shall purchase any and all of Intrepid’s remaining V2 Product inventory and open Purchase Orders for V2 Products at the price charged to Intrepid for those products. VMR shall pay Intrepid for its V2 Product inventory and open Purchase Orders, including any shipping costs, within thirty (30) Days after the date upon which Intrepid provides written notice to VMR of its final inventory position, by SKU, as of that date which is 180 Days after the effective date of termination.

 

ii.         Effect of Termination Pursuant to Section C.2.a.iv. Upon terminating pursuant to Section C.2.a.iv (Material Breach), VMR must elect to do one of the two options set forth below.

 

1.           Purchase as of the effective date of termination all of Intrepid’s V2 Product inventory and open Purchase Orders for any and all V2 Products at the prices charged to Intrepid for those products. VMR shall pay Intrepid for its V2 Product inventory and open Purchase Orders, including any shipping costs, within thirty (30) Days after the date upon which Intrepid provides notice of its inventory position, by SKU, as of the effective date of termination.

 

2.          Allow Intrepid to continue selling V2 Products from its V2 Product inventory for a period of 180 Days from the date of receipt of the notice of termination. At the end of that 180-Day period, Intrepid shall return all remaining inventory to VMR at Intrepid’s cost.

 

3.        Intrepid Rights to Terminate the Agreement.

 

           a.      Grounds for Termination - Intrepid shall have the right to terminate this Agreement upon the occurrence of any of the following events:

 

 i.        Material Breach. The following are Material Breaches under which Intrepid shall have the right to terminate this Agreement:

 

          A.          VMR’s Failure to Deliver - Should VMR fail to make any delivery of V2 Products within thirty (30) Days after the Product Delivery Date on the corresponding open Purchase Order, Intrepid shall within the next thirty (30) Days provide written notice to VMR regarding such failure. If as of the date upon which VMR fails to deliver V2 Products within thirty (30) days after a Product Delivery Date it has had three other such timely delivery failures in the 12 months preceding that date, Intrepid shall have the right to terminate this Agreement; provided, however, that a delivery that was timely when first made shall not be considered to become untimely hereunder because of a quality default under subsection 3.a.i.B, below, that requires reshipment of products in order to cure. Upon delivery by Intrepid of a written notice of failure to VMR under this subsection 3.a.i.A., Intrepid may suspend its performance under this Agreement until such time as the failure is waived or cured, including without limitation its obligations under Section B.3.a. (Promotion & Sale), Section C.2.a.i. (35,000 Retail Store Test), Section C.2.a.ii. (Peak Share Test), and Section C.2.a.iii (Minimum Order Requirements). 

Page 17

 

 

	 

	 

 

 

EXECUTION COPY

 

B.        Quality Issues

 

          (1)          Non-Statistically Significant Default. Should VMR deliver any Non-Compliant Products (other than products that fail to comply with the Bulk Shipping Standards), Intrepid shall within the next thirty (30) Days provide written notice to VMR regarding such failure. If Intrepid provides such notice to VMR and if the number of Non-Compliant Products in such delivery was not Statistically Significant, VMR shall then have forty-five (45) Days from the date on which it receives any such notice in which either to replace the Non-Compliant Products or to reimburse Intrepid for any payments that it made to VMR for such products, whereupon VMR shall be deemed to have cured such Non-Statistically Significant Breach.

 

          (2)           Statistically Significant Default. Should VMR deliver any Non-Compliant Products (other than products that fail to comply with the Bulk Shipping Standards) and if the number of Non-Compliant Products in that particular delivery is Statistically Significant, Intrepid shall within the next thirty (30) Days provide written notice to VMR regarding such failure and VMR shall have forty-five (45) Days from the date on which it receives such notice to cure such default or, if the default cannot be cured within that period, to so notify Intrepid, provide Intrepid with a plan reasonably acceptable to Intrepid for curing such default as expeditiously as possible, and proceed to effectuate such cure. Failure by VMR to effectuate such a cure shall cause the quality default to become a Material Breach and give Intrepid the right to terminate this Agreement.

 

          (3)          Multiple Statistically Significant Defaults. If, as of any date upon which VMR delivers a Statistically Significant number of Non-Compliant Products, it has made three prior deliveries of Statistically Significant Non-Compliant Products in the 12-month period immediately’ preceding such date, the current quality default may not be cured and Intrepid shall have the right to terminate this Agreement.

 

Page 18 

 

 

	 

	 

 

 

EXECUTION COPY

 

          (4)           Suspension of Performance. Upon delivery by Intrepid of a written notice of failure to VMR with regard to a Statistically Significant default under subsection 3.a.1.B(2), above, Intrepid may suspend its performance under this Agreement until such time as the failure is waived or cured, including without limitation its obligations under Section B.3.a. (Promotion & Sale), Section C.2.a.i. (35,000 Retail Store Test), Section C.2.a.ii. (Peak Share Test), and Section C.2.a.iii (Minimum Order Requirements).

 

      C.           Bankruptcy of VMR – Should VMR have an involuntary proceeding in bankruptcy filed against it, which proceeding is not dismissed within sixty (60) Days of its filing, or seek protection by filing for bankruptcy, Intrepid shall have the right to terminate this Agreement.

 

D.           Other Breaches – In the event of any other breach by VMR of its obligations under this Agreement, Intrepid shall within the next thirty (30) Days provide VMR written notice of such breach. Upon receipt of any such notice, VMR shall have forty-five (45) Days in which either to cure such breach or, if it cannot be cured within that period, to so notify Intrepid, provide Intrepid with a plan reasonably acceptable to Intrepid for curing such breach as expeditiously as reasonably possible, and proceed to effectuate such cure. Failure by VMR to effectuate such a cure shall cause the underlying breach to become a Material Breach and give Intrepid a right to terminate this Agreement.

 

In order to terminate in the case of a Material Breach, Intrepid must provide written notice to VMR of its intent to terminate within thirty (30) Days of the date upon which the Material Breach termination right accrues. Any such termination notice shall also clearly state which course of action Intrepid intends to take under Section C.3.b.i., below, with respect to such termination. Failure to provide such notice termination by the date required shall constitute a waiver by Intrepid of its termination rights hereunder with respect to that particular Material Breach.

 

ii.           Non-Competitive Pricing. Should VMR’s pricing become Non-Competitive, Intrepid shall within the next thirty (30) Days provide written notice to VMR regarding such failure, which notice shall also provide the relevant Nielsen pricing data that evidences the Non-Competitive pricing. If Intrepid provides VMR with such a thirty (30) Day notice, VMR shall then have forty-five (45) Days from the date on which VMR receives any such notice in which to cure such default by adjusting VMR’s COGS to eliminate the Non-Competitive status; provided, however, that if VMR fails to cure said Non-Competitive status within forty-five (45) Days from the date of VMR’s receipt of said written notice of Non-Competitive pricing status, Intrepid shall have the right to terminate this Agreement by delivering written notice of termination to VMR within thirty (30) Days of VMR’s failure to cure said Non-Competitive pricing status.

 

b.         Effects of Termination

 

i.           Effect of Termination Pursuant to Section C.3.a.l. Upon terminating pursuant to Section C.3.a.i. (Material Breach), Intrepid shall continue to sell V2 Products from its Intrepid V2 Product inventory for a period of 180 Days from the date of VMR’s receipt of the notice of termination and then, at the end of said 180-Day period, VMR shall purchase any and all of Intrepid’s remaining V2 Product inventory and open Purchase Orders for V2 Products at the price charged to Intrepid for those products. VMR shall pay Intrepid for its V2 Product inventory and open Purchase Orders, including any shipping costs, within thirty (30) Days after the date upon which Intrepid provides written notice to VMR of its final inventory position, by SKU, as of that date which is 180 Days after the effective date of termination.

 

Page 19

 

	 

	 

  

 

EXECUTION COPY

 

ii.         Effect of Termination Pursuant to Section C.3.a.ii. Upon terminating pursuant to Section C.3.a.ii (Non-Competitive Pricing), Intrepid must elect to do one of the two options set forth below.

 

1.           Intrepid shall continue to sell V2 Products from its V2 Product inventory for a period of 180 Days from the date of VMR’s receipt of the notice of termination and then, at the end of said 180-Day period, VMR shall purchase any and all of Intrepid’s remaining V2 Product inventory and open Purchase Orders for V2 Products at the price charged to Intrepid for those products. VMR shall pay Intrepid for its V2 Product inventory and open Purchase orders, including any shipping costs, within thirty (30) Days after the date upon which Intrepid provides written notice to VMR of its final inventory position, by SKU, as of that date which is 180 Days after the effective date of termination.

 

2.           Intrepid shall continue selling V2 products from its V2 Product inventory for a period of 360 Days from the date of receipt of the termination notice by VMR. VMR shall have no obligation to purchase any remaining V2 Products from Intrepid’s V2 Product inventory after the end of the 360-Day period. At any time during the last 180 Days of such 360-Day period, VMR shall have the right upon 30-Days’ written notice to Intrepid to purchase any and all of Intrepid’s V2 Product inventory and open Purchase Orders for V2 Products remaining as of the end of that 30-Day period at the price charged to Intrepid for those products.

 

4.         No Obligation to Purchase Overaged Product. Notwithstanding the foregoing, VMR shall have no obligation under this Section C to purchase any V2 Products that have fewer than eight (8) months of shelf life remaining as of the effective date of termination under this section, based on such V2 Products’ “Best Before” dating.

 

5.          Termination for Force Majeure. Should an event of Force Majeure occur and continue for a period of greater than 60 consecutive days, the other party, at its sole option shall have the right to terminate this Agreement upon written notice to the Party claiming the Force Majeure event. In the event of a termination pursuant to this subsection on account of a Force Majeure event, the effect of the termination will be as follows:

 

a.          If the Party claiming Force Majeure is VMR, Intrepid may continue to sell V2 Products from its V2 Product inventory for a period of 180 Days from the date of VMR’s receipt of the notice of termination and then, at the end of said 180-Day period, VMR shall purchase any and all of Intrepid’s remaining V2 Product inventory and open Purchase Orders for V2 Products at the price charged to Intrepid for those products. VMR shall pay Intrepid for its V2 Product inventory and open Purchase Orders, including any shipping costs, within thirty (30) Days after the date upon which Intrepid provides written notice to VMR of its final inventory position, by SKU, as of that date which is 180 Days after the effective date of termination.

 

Page 20 

 

 

	 

	 

 

 

EXECUTION COPY

 

b.          If the Party claiming Force Majeure Is Intrepid, Intrepid may continue selling V2 Products from Its V2 Product inventory for a period of 180 Days from the date of receipt of the notice of termination. At the end of that 180-Day period, Intrepid shall return all remaining inventory to VMR at Intrepid’s cost.

 

D.        INTELLECTUAL PROPERTY AND MARKS

 

1.         VMR Intellectual Property, and Marks

 

a)          VMR Intellectual Property Warranty – VMR represents and warrants to Intrepid that it owns all rights in the U.S. to the V2CIGS Marks and the V2 Marks and that the marketing, sale and distribution of V2 Products as contemplated by this Agreement will not Infringe or violate any third party trademark, copyright, trade dress, trade secret, patent, or other intellectual property or contract right.

 

b)         V2 Products Intellectual Property – All Intellectual Property Rights in the V2 Products and all rights in the V2CIGS Marks and the V2 Marks shall be the sole and exclusive property of VMR, and Intrepid shall acquire no right, title or interest in or to such Intellectual Property Rights.

 

c)          Intrepid’s Use of V2CIGS Marks and V2 Marks – VMR grants to Intrepid a limited, non-exclusive, non-transferable, non-sublicensable license to use the V2CIGS Marks and V2 Marks for the sole and limited purpose of fulfilling its obligations under this Agreement. Intrepid shall use the V2CIGS Marks and the V2 Marks only in accordance with the VMR Trademark Usage Guidelines attached hereto as Appendix G, which may be amended by VMR from time to time subject to Intrepid’s consent which shall not be unreasonably withheld, conditioned, or delayed, and only in accordance the terms and conditions of this Agreement.

 

d)         Unauthorized Use – During the term of this Agreement, Intrepid shall promptly report to VMR any unauthorized use, duplication, copying or reproduction of the V2CIGS Marks or V2 Marks and any potential infringement or other violation of VMR’s Intellectual Property Rights of which it becomes aware.

 

e)          Exclusive Property of VMR - All present and future V2CIGS Marks and V2 Marks shall remain the sole and exclusive property of VMR and no rights to the V2CIGS Marks or V2 Marks shall vest in Intrepid because of this Agreement.

 

f)           Effect of Termination – Intrepid’s limited license to use the V2CIGS Marks or the V2 Marks shall expire upon the termination of this Agreement, except to the extent necessary to permit Intrepid to exercise any rights hereunder to continue selling V2 Products,

 

E.        CONFIDENTIALITY

 

1.        Duty of Confidentiality - Except as required by law, a Receiving Party shall not disclose Confidential Information of a Disclosing Party to any third party or person without the prior written consent of the Disclosing Party.

 

2.        Duty of Care - A Receiving Party shall use the same degree of care in protecting and using the Confidential Information as it would use in protecting its own Confidential information, but in no case shall a Receiving Party exercise a degree of care that is either less than a reasonable degree of care or inconsistent with generally accepted business practices.

 

3.        Time Limit Confidentiality – Each Party’s Review Material and Confidential Information shall be kept confidential by the other Party for a period of time not less than: (a) the longest term of this Agreement, plus (b) five (5) additional years. 

 

Page 21

 

 

	 

	 

 

 

 EXECUTION COPY

 

4.        Limitations on the Use of Information – The Parties agree with regard to each other’s Confidential Information and Review Material:

 

a)        Limitations on Use and Disclosure

 

i.          Not to use Review Material or Confidential Information other than for the purposes described in or otherwise intended by this Agreement;

 

ii.          To reveal Review Material and Confidential Information only (A) to those of its Representatives who have a need to know the same and who are bound by duties of confidentially equivalent to those in this Agreement, (B) to potential investors, strategic partners who have entered into confidentiality agreements with the Disclosing Party imposing on such recipients obligations of confidentiality with respect to such material or information equivalent to those in this Agreement, (C) to lenders subject to customary understandings as to maintaining the confidentiality thereof and (D) in connection with a public offering or private placement of securities as and to the extent required by securities laws, provided that, in connection with a private placement, the offering material shall contain customary restrictions on maintaining the confidentiality thereof; and

 

iii           To destroy or promptly return to the Disclosing Party any and all Confidential Information disclosed under this Agreement as directed by the Disclosing Party.

 

b)         Liability for Representatives - The Parties are responsible for any breach of confidentiality by their Representatives.

 

c)         Legally Ordered Disclosure

 

 i.          If either Party or anyone to whom they may transmit Confidential Information or Review Material is requested or required to disclose the same, or any other matter, disclosure of which is prohibited by this Agreement, by administrative or judicial action, including without limitation by deposition, interrogatory, request for Information in legal proceedings, subpoena, civil investigative demand, order, statute, rule, request or other requirement promulgated or imposed by a judicial, regulatory, self-regulatory, legislative body or governmental agency, that Party, if legally permitted, shall promptly after notice of such action notify the Disclosing Party to allow the Disclosing Party the opportunity to seek any legal remedies available to it for the purpose of maintaining the confidentiality.

 

ii.          If such legal remedy is not obtained, the Receiving Party shall furnish only that portion of Confidential Information, Review Material or other information that is required or requested, and the Receiving Party shall use commercially reasonable efforts, at the Disclosing Party’s sole cost and expense, to obtain reliable assurance that confidential treatment shall be accorded to all such documents, data, or information disclosed.

 

d)         Injunctive Relief – The Parties agree:

 

 i.         That upon the breach or threatened breach by one Party of its obligations of confidentiality under this Agreement, the non-breaching Party shall be entitled to injunctive relief to prevent or restrain any such breach because:

 

 a.          The rights and benefits of each of the Parties under the confidential provisions of this Agreement are unique;

 

 b.          No adequate remedy exists at law should one of the Parties breach any of its confidentiality obligations;

 

 c.          It would be difficult to determine the amount of damages resulting from such a breach; and

 

Page 22

 

 

	 

	 

 

 

EXECUTION COPY

 

d.          Such a breach would cause irreparable injury to the non-breaching Party;

 

ii.          That a Party seeking Injunctive relief in relation to Confidential Information may do so without the requirement of posting bond; and

 

iii.         That notwithstanding the foregoing provisions regarding injunctive relief, this Agreement shall not be construed as prohibiting a Party from pursuing any other remedy available to it as a result of a breach or threatened breach of the confidentiality provisions of this Agreement.

 

e)      Title to Confidential Information - All Confidential Information disclosed to, delivered to, or acquired by a Receiving Party shall be and remain the sole property of the Disclosing Party.

 

F.       CHANGE IN CONTROL

 

1.       Notice of Change in Control of VMR - Within thirty (30) Business Days after a Change in Control involving VMR, the Acquirer shall provide written notice to Intrepid advising it of the Change in Control transaction and confirming that it has been informed by VMR of the obligations undertaken by VMR under the Agreement, has reviewed a copy of this Agreement, and has assumed and will fulfill all such obligations. That portion of the purchase price paid to VMR or its members in connection with any such transaction that equals the amount that would be payable to Intrepid under Section F.2.d., below, in the event of a termination of this Agreement under Section F.2. shall be placed into escrow at the time such transaction is consummated and held there until the first to occur of the following: (a) one-hundred eighty (180) Days have passed from the effective date of the Change in Control without a written notice of termination being provided to Intrepid pursuant to Section F.2.a., below; or (b) the Acquirer of VMR has waived in writing its right to terminate this Agreement under Section F.2., below; or (c) a notice of termination has been provided to Intrepid pursuant to Section F.2.a., below. In the case of either (a) or (b), the amount placed in escrow may at that time be paid over to VMR. In the case of (c), that portion of the escrowed amount equal to the payment to be made to Intrepid pursuant to Section F.2.d., below, shall be paid over to Intrepid, after which the remainder of the amount in escrow may be paid over to VMR. 

 

2.        Termination of the Agreement Upon a Change In Control of VMR – If, upon a Change in Control of VMR, the Acquirer of VMR wishes to terminate this Agreement, then the Acquirer may do so only If all of the following conditions are satisfied:

 

a.        Within no more than one-hundred eighty (180) Days after the effective date of the Change In Control, the Acquirer provides to Intrepid a written notice of termination of this Agreement, to be effective 180 Days after the receipt by Intrepid of the notice.

 

b.        The Acquirer’s notice of termination shall also set forth the Acquirer’s election as to the following options regarding disposition of V2 Products that are located solely In Intrepid’s inventory or in transit, including any and all open Purchase Orders, on the effective date of termination.

 

i.           The Acquirer shall within thirty (30) Days after the effective date of notice of termination purchase V2 Products that are located solely in Intrepid’s inventory or in transit, including any and all open Purchase Orders, at the then current Intrepid List Price with payment to be made to Intrepid upon delivery of the V2 Products. Upon payment to Intrepid by Acquirer, this Agreement shall terminate immediately.

 

ii.          The Acquirer shall permit Intrepid to sell its remaining V2 Product inventory during the 180-Day notice of termination period and at the conclusion of which, or at any time during such period on 30 Days’ notice, the Acquirer shall purchase all then remaining inventory at current Intrepid List Price with payment to be made to Intrepid upon delivery of the V2 Products.

 

 Page 23

 

 

	 

	 

 

 

EXECUTION COPY

 

iii.        The Acquirer shall permit Intrepid to sell its remaining V2 Product inventory for an additional period of 180 Days beyond the 180-Day termination notice period (i.e., a total of 360 Days from the receipt of the termination notice), and thereafter, or at any time during the 180 Days subsequent to the end of the termination notice period, on 30 Days’ notice, Acquirer shall purchase, and Intrepid shall sell all V2 Products remaining in Intrepid’s inventory at Intrepid’s cost.

 

c.           During the term of this Agreement, through the effective date of any termination of the Agreement hereunder, and thereafter with regard to obligations that survive termination, the Acquirer fully performs the obligations undertaken by VMR; provided, however, that Acquirer and VMR shall not be required to fulfill purchase orders for V2 Products issued after the notice of termination.

 

d.           Payment is made to Intrepid on or prior to the effective date of a termination of the Agreement hereunder in an amount intended by the Parties to provide Intrepid with a fair share of the value created under this Agreement to the effective date of the Change in Control, as determined pursuant to this subsection. The payment shall be an amount equal to the Total Purchase Price Paid for VMR multiplied by a percentage equal to 50% times Intrepid Sales to Trade % of VMR Total Effective Net Sales, as calculated in accordance with the illustration attached to this Agreement as Appendix I, and the following provisions:

 

i. If upon the date of payment hereunder sales of Electronic Cigarettes in the US over the Internet or through the mail are not banned and there exist on that date no announcements, regulations or other indications of intent on the part of regulatory authorities In the US to promulgate such a ban, the payment to Intrepid will be calculated as set forth in Column B of Appendix 1.

 

ii. If upon the date of payment hereunder (A) sales of Electronic Cigarettes in the US over the internet or through the mail are banned, but that ban Is subject to pending litigation, or (B) there exist on that date announcements, regulations or other indications of intent on the part of regulatory authorities in the US to promulgate such a ban that are not yet finally effective, the payment to Intrepid will be calculated (X) as set forth in Column D of Appendix I if VMR US Eligible e-Nicotine internet Sales and VMR US Eligible Non-Nicotine Internet Net Sales are both included in such ban or proposed ban, or (Y) as set forth in Column F of Appendix I if such VMR US Eligible Non-Nicotine Internet Net Sales are not banned or proposed to be banned.

 

iii. If upon the date of payment hereunder sales of Electronic Cigarettes in the US over the internet or through the mail are banned and any litigation relating to that ban has been fully and finally resolved, the payment to Intrepid will be calculated as set forth in Column B of Appendix I, except that all VMR sales related to banned products will be eliminated from the calculation.

 

iv. For purposes of calculations under subsection ii, above, Assumed US Internet Duration represents the Parties’ recognition that where a potential ban on internet or mail sales of Electronic Cigarettes is pending but not final, the Acquirer of VMR is paying some portion of the purchase price for the remaining opportunity to sell on the internet and/or to leverage the VMR database for enhancing retail sales. The Parties have agreed to a maximum of three years for the Assumed US Internet Duration (which is the number used in the illustrations on Appendix I), but have also agreed that that number shall be reduced by whatever period of time has elapsed from the time a ban or intention to ban internet sales was first announced and the effective date of the Change in Control transaction. The reduction for periods of less than a full year will be calculated based on a 365-Day year, rounded to one decimal point.

 

Page 24

 

 

	 

	 

 

 

EXECUTION COPY

 

v. If a Change In Control transaction involving VMR shall occur within 30 months from the Effective Date of this Agreement, the payment to be made to Intrepid upon a termination of this Agreement hereunder shall be calculated as provided above except that the Intrepid Sales to Trade to be used In such calculation shall be the greater of the following numbers: (A) Intrepid Sales to Trade over the 12 months preceding the effective date of the Change in Control; or (B) Intrepid’s actual sales to the trade over the three months preceding the effective date of the Change in Control times 4.

 

3.          Trade Communication Regarding Termination – Neither Acquirer nor Intrepid shall notify or otherwise relay information regarding termination, which shall be deemed Confidential Information, to any third party, including their trading partners, until fifteen (15) Days prior to the last day on which Intrepid is permitted to sell V2 Products, unless agreed otherwise in writing.

 

4.          No Obligation to Purchase Overaged Product -- Notwithstanding the foregoing, Acquirer shall have no obligation under this Section F to purchase any V2 Products that have fewer than eight (8) months of shelf life remaining as of the effective date of termination under this section, based on such V2 Products’ “Best Before” dating.

 

G.         WARRANTIES; INDEMNIFICATION

 

1.          Warranties – VMR warrants that all V2 Products shall be of merchantable quality, fit for the particular purpose intended (which is known to VMR), and free of material defects in title, design, workmanship and material and comply to all applicable Product Specifications. VMR warrants that at the time of receipt of shipment by Intrepid, the V2 Products supplied by VMR to Intrepid hereunder (i) shall meet the Product Specifications, and (ii) shall not be Adulterated or Misbranded under applicable law, provided, however, that VMR shall not be liable for any noncompliance with the foregoing due to the handling or packaging of the V2 Products by Intrepid. All warranties shall survive inspection, acceptance and payment, and the expiration or earlier termination of this Agreement. EXCEPT AS IS EXPRESSLY PROVIDED IN THE WARRANTY APPLICABLE TO EACH PRODUCT AND AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT, VMR DISCLAIMS ANY REPRESENTATION OR WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY NON-INFRINGEMENT, OR AS TO THE CONDITION OF THE V2 PRODUCTS. IN ADDITION, TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, IN NO EVENT SHALL VMR BE LIABLE TO INTREPID FOR ANY CONSEQUENTIAL DAMAGES (INCLUDING BUT NOT LIMITED TO DAMAGES FOR LOSS OF PROFITS AND FOR BUSINESS INTERRUPTION), ARISING OUT OF OR IN ANY WAY RELATED TO THE DISTRIBUTION, SALE, USE, INABILITY TO USE, OR RESULTS OF USE OF THE V2 PRODUCTS.

 

2.           Indemnification

 

a)          Intrepid to VMR - Without prejudice to any other right available to VMR in law or under equity, Intrepid shall irrevocably and unconditionally indemnify, defend and hold harmless VMR Indemnified Persons from and against Indemnity Claims asserted against or incurred by any VMR Indemnified Person and relating to any act, event or omission of Intrepid in relation to Intrepid’s commitments under this Agreement, including without limitations those that arise out of, result from or may be payable by virtue of:

 

i.          The negligent, reckless or willful misconduct of or any alleged misrepresentation, tort or breach of contract by Intrepid, its employees or agents; 

 

Page 25

 

 

	 

	 

 

 

EXECUTION COPY

 

ii.          Intrepid’s failure to comply with its obligations, undertakings or covenants under this Agreement; or

 

iii.         Intrepid’s failure to comply with Applicable Laws.

 

b)          VMR to Intrepid – Subject to the specific intellectual property indemnification provision contained in subsection 2.c., below, and the specific Recall indemnification provision contained in Section B.9., above, and without prejudice to any other right available to Intrepid in law or under equity, VMR shall irrevocably and unconditionally indemnify, defend and hold harmless Intrepid Indemnified Persons from and against any and all Indemnity Claims asserted against or incurred by any Intrepid Indemnified Person and relating to any act, event or omission of VMR, including without limitations those that arise out of, result from or may be payable by virtue of:

 

i.           The negligent, reckless or willful misconduct of or any alleged misrepresentation, tort or breach of contract (including breach of warranty) by VMR, its employees or agents;

 

ii.          Allegations that the practice or development of the V2 Products Intellectual Property violates Applicable Laws, rules or regulations;

 

iii.         Any allegation of, or actual, defective V2 Products manufactured by, or sourced from, VMR;

 

iv.         VMR’s failure to comply with its obligations, undertakings or covenants under this Agreement; and

 

v.          VMR’s failure to comply with Applicable Laws.

 

c)          VMR agrees to indemnify, defend and hold Intrepid harmless from any Indemnity Claims as a result of any allegation, judgment or adjudication against Intrepid or final settlement, arising from any claim asserted by a third party unrelated to Intrepid, that VMR or Intrepid (through its actions pursuant to the terms of this Agreement) infringed any applicable U.S. patent, trademark, or copyright of any third party, or misappropriated any rights thereto, with respect to the practice or development of the V2 Products Intellectual Property all as contemplated herein; provided that Intrepid (i) provides VMR with prompt written notice of any such claim(s), (ii) promptly tenders to VMR sole control over the defense and settlement of such claim(s) at VMR’s expense and with VMR’s choice of counsel (provided that any such settlement shall not involve an admission of wrongdoing or fault on the part of Intrepid or any of its affiliates without Intrepid’s prior written consent, which consent shall not be unreasonably withheld, conditioned or delayed), and (iii) provides full information and assistance to VMR permitting it to defend and/or settle such claim(s). In the event that any portion of V2 Products Intellectual Property is held, or in VMR’s sole opinion, may be held to constitute an Infringement, VMR, at its expense may either (x) modify such intellectual property so that it becomes non-infringing, or (y) procure a license to use the infringing portion of the intellectual property, in lieu of all other claims by Intrepid except for the above stated indemnification. This Section states VMR’s entire liability and Intrepid’s sole and exclusive remedy for third party claims related to infringement or misappropriation of intellectual property.

 

d)          Rights of Indemnitee

 

i.           In the event of a tender by an indemnified Party to an indemnifying Party of the defense of a claim hereunder, the indemnified Party shall have the right to consent to the counsel selected to defend its interests, such consent not to be withheld unreasonably.

 

Page 26

 

 

	 

	 

 

 

EXECUTION COPY

 

ii.           All indemnity rights under this Agreement shall survive the term and termination of this Agreement, and are without prejudice to any other rights and remedies available to an Indemnitee.

 

e)          Third Party Beneficiary – The Parties acknowledge and agree that sales of V2 Products were made by VMR to NTC prior to the Effective Date, which sales were in anticipation of the execution of this Agreement. VMR specifically agrees that the provisions of this Agreement shall apply to all such V2 Products in the same manner and to the same extent as if those V2 Products had been sold hereunder to Intrepid and further agrees that NTC shall be a third party beneficiary under this Agreement with respect to those V2 Products.

 

f)          Limitation of Indemnity Rights – The rights of indemnification under this Section G shall be limited to third party claims.

 

H.          LEGAL AND REGULATORY COMPLIANCE

 

1.          Legal Compliance – The Parties shall comply with all Applicable Laws.

 

2.          Federal Excise Tax - Should Electronic Cigarettes become subject to federal excise tax, VMR shall agree to make all necessary payments and to otherwise remain compliant with the regulations of the TTB, which shall include but not be limited to legally compliant destruction of returned products and the generation and provision of tax affidavits to Intrepid.

 

3.          Good Manufacturing Practices – VMR shall perform all manufacturing activities contemplated under this Agreement in accordance with generally-recognized manufacturing, quality and safety standards, including relevant good manufacturing practices as are required under US law pertaining to the manufacture of Electronic Cigarettes.

 

4.          Regulatory Submissions & Compliance – VMR will comply with FDA and other applicable regulatory requirements, including but not limited to document submission and the adoption and Implementation of appropriate practices and procedures in relation thereto.

 

5.          Regulatory Inquiries, Disclosures & Filings – Subject to the confidentiality terms of this Agreement, VMR shall alert and provide to Intrepid the content of all legal and regulatory inquiries, submissions, disclosures and filings, as well as any actual or anticipated meetings with a regulatory body, legislator, trade association, or similar group which may relate to or bear upon V2 Products, any Electronic Cigarette sold by VMR, or the Electronic Cigarette category generally.

 

6.          Regulators, Preparation - Because the regulation of Electronic Cigarettes is in flux, each Party shall prepare for anticipated regulations, reasonably implementing changes in advance of prescribed effective dates and shall bear their own costs in preparation therefor.

 

I.          QUARTERLY MEETINGS

 

1.          The Parties shall have Quarterly Meetings, at which the Parties shall address the following agenda items, and prepare necessary Addenda as required, with minutes of the meetings to be kept by a recorder selected jointly by the Parties, whose minutes shall be distributed promptly after the meeting, and which such minutes will control unless disputed by a Party within 30 Days after its receipt of such minutes. The meetings will address the following information for the calendar quarter just ended, and any other information relevant to the operation of this Agreement.

 

Page 27

 

 

	 

	 

 

 

EXECUTION COPY

 

a)          With Regard to V2 Products

 

i.           Intrepid shall address and provide supporting documentation with respect to:

 

a.          The Intrepid Selling Expense in the previous quarter, Including Intrepid’s expenditures in relation to:

 

i.           Shipping;

 

ii.          Returns;

 

iii.         Discounts;

 

iv.         Allowances;

 

v.          Merchandising; and

 

vi.         Trade pricing incentives on Non-Pre-Priced Products.

 

b.          The status of the wholesale and retail distribution of V2 Products;

 

c.          The V2 Products Forecast;

 

d.          Market pricing of any V2 Products; and

 

e.          Intrepid’s V2 Work Plan including a summary of all expenditures, executions, results and outcomes;

 

ii.          VMR shall address and provide supporting documentation with respect to:

 

a.          The Consumer Marketing Commitment, including but not limited to past and upcoming expenditures for the prior and forthcoming three (3) months;

 

b.          Cumulative Consumer Marketing Commitment amount and expenditures against such amount;

 

c.          Monthly updated capacity projections by SKU for each of the upcoming twelve (12) months;

 

d.          Actual VMR COGS for the quarter compared to Model VMR COGS and VMR COGS as calculated for invoice preparation; and

 

e.           VMR’s logistics expenditures for the quarter compared to model VMR logistics costs and future expectations. If VMR’s logistics costs go over 15% in any quarter due to air freight costs, Intrepid shall reimburse VMR, pursuant to clause v, below, one-half of that portion of the excess related to air freight that caused VMR’s logistics costs to exceed 15%.

 

f.          VMR other V2 Product sales by SKU and quantity to Excluded Customers pursuant to Appendix D.

 

iii.         Jointly, the Parties will discuss and negotiate in good faith to attempt to reach agreement in writing with respect to any changes to the Cost/Profit Model, including V2 Product Prices, which shall be documented in an Agreement Addendum. Also, the Parties will prepare Cost/Profit Models for all new products being sold, and Appendix A shall be amended accordingly. The parties shall update Appendix E, if necessary per its terms.

 

iv.         Reconciliation of Pricing Discrepancies – At the Quarterly Meetings, the Parties shall in good faith reassess, adjust and reconcile pricing discrepancies for V2 Products based on the following principles:

 

a.          The Parties shall share equally in the Remaining Margin Pool;

 

b.          With the exception of the potential impact of returns above two percent (2%) or the reduction of the Intrepid List Price, the Parties shall maintain VMR’s Gross Margins, as reflected in the Cost/Profit Model, as its minimum margins for the V2 Products. Should Intrepid wish to reduce the Intrepid List Price with the effect of reducing VMR’s Gross Margin, Intrepid may do so only with VMR’s prior written approval, which consent is not to be unreasonably withheld, taking into account the competitiveness of V2 Products; and

 

Page 28

 

 

	 

	 

 

 

EXECUTION COPY

  

c.           The Parties’ actual costs shall be compared to those in the Cost/Profit Model, and the benefit or detriment of any costs savings or augmented expense shall be shared equally between the Parties, with the following exceptions:

 

i.          The Model Intrepid Selling Expense Percentage, with the exception of Intrepid Returns, shall be deemed a maximum; provided, however, that given the need for higher upfront selling expenses during the initial rollout of V2 Products to the Bricks & Mortar Distribution Channel, the Parties agree that for the first six quarters of distribution from the Intrepid V2 Product Inventory Date, the Model Intrepid Selling Expense Percentage will be calculated and applied based on the aggregate amount of such expenses during that six-quarter period (i.e., the amount of such spending will be reviewed each quarter but will not be reconciled until the expiration of the six-quarter period).

 

ii.         The Parties shall share equally, whether positively or negatively, in any fluctuations in the rate of Intrepid Returns above a return rate greater than two percent (2%); and

 

iii.        The Model VMR Delivered COGS shall be deemed a maximum.

 

v.          Payment will be made by the owing party with respect to a pricing reconciliation determination within thirty (30) days after distribution of the applicable meeting minutes unless such minutes are disputed. In the event there is a dispute, payment shall be made within thirty (30) days of the resolution of such dispute. Any undisputed amount shall be paid within the original thirty (30) day period.

 

b)           Regulatory & Legal Matters - Jointly the Parties will discuss all pending or anticipated regulatory and legal matters, including their impact on this Agreement, the sale of the V2 Products, the Cost/Profit Model, the payment of taxes and assessment and product pricing.

 

J.          FUTURE ZIG-ZAG VAPOR PRODUCTS

 

		1.	The Parties agree to enter into discussions immediately upon execution of this Agreement to negotiate and execute a separate agreement pursuant to which VMR will become the sole producer of Electronic Cigarettes for Intrepid and its Affiliates, including vapor products under the ZIG-ZAG brand, and will receive from Intrepid sales rights with regard to U.S. internet, U.S. mall kiosk and U.S. VMR flagship retail stores. Such agreement shall be contingent upon the Parties reaching mutual agreement on the material terms including, without limitation, the following terms by no later than December 1, 2013:

 

		a.	design, product specifications, and product performance characteristics which shall be substantially defined of the three device prototypes of ZIG-ZAG vapor products that were discussed by the Parties on October 9, 2013;

		 	 

		b.	maximum pricing and pricing methodologies for all three such prototype devices and for related e-liquids, gels and herbal products, and pricing methodologies for all future devices and related products;

		 	 

		c.	pricing agreements for products to be sold on the VMR websites and through Brick & Mortar Distribution which shall have consistent MSRP’s;

 

Page 29

 

 

	 

	 

 

 

EXECUTION COPY

 

		d.	sharing and joint ownership of Intellectual Property information and rights with regard to such devices (not in escrow);

		 	 

		e.	the dates by which each such device will launch;

		 	 

		f.	production of all such devices in VMR-dedicated facilities;

		 	 

		g.	no use worldwide of the technology, designs, or other Intellectual Property related to such devices for either party, without mutual written consent;

		 	 

		h.	either delivery to Intrepid of all Intellectual Property relating to the current ZIG-ZAG Electronic Cigarettes or delivery of such Intellectual Property into an agreed-upon escrow;

		 	 

		i.	upon execution of an agreement as contemplated in this Section J.1, VMR shall be permitted to open an aggregate of 20 VMR flagship stores without the approval of Intrepid;

		 	 

		J.	Intrepid shall have the right to distribute Vapor Couture at Bricks and Mortar in the US once Intrepid has reached distribution of V2 Products in 35,000 retail stores and the price methodologies shall parallel those of the V2 Products;

		 	 

		k.	Intrepid shall be permitted to continue regional distribution of pre-existing products which compete with the exclusivity of those contemplated in this Section J.1;

		 	 

		1.	VMR shall not sell any open system vapor products in the US except for those already existing or already designed by VMR.; and

		 	 

		m.	the Parties have agreed that Intrepid may source, from a non-VMR third party, the liquid nicotine for ZIG-ZAG products and would sell the nicotine to VMR for inclusion in the cartomizers and for subsequent sales on the web provided that Intrepid’s sale price to VMR is reasonably comparable to prices at which VMR is able to source such nicotine.

 

K.          GENERAL PROVISIONS

 

1.          Integration - This Agreement and the attached appendices constitute the entire and only agreement between the Parties with respect to the subject matter hereof and all other prior negotiations, representations, agreements, and understandings are hereby superseded, including that certain Letter of Intent executed on behalf of VMR on March 15, 2013, and on behalf of NTC on March 18, 2013, and the parties release each other, and NTC, from any obligations under such Letter of Intent and prior agreements. No agreements altering or supplementing the terms of this Agreement may be made except by a written document signed by both Parties.

 

2.          Authority – The Parties warrant that they have the right to enter into this Agreement, and that this Agreement, and compliance with the terms hereof do not violate any other agreements of the Party, or require any consent or approval not already obtained.

 

3.          Notice

 

a)          All notices, requests, claims, demands and other communications required by this Agreement shall be in writing and addressed as follows:

 

i.           If to Intrepid: ATTN: General Counsel, 5201 Interchange Way, Louisville, KY 40229

 

ii.          If to VMR: ATTN: General Counsel, 3050 Biscayne Boulevard, Miami, FL 33137

 

b)          Such notices may be given by:

 

i            Personal delivery;

 

ii.          Nationally recognized courier service, with signature confirmation of receipt;

 

iii.         US Mail, with signature confirmation of receipt; or

 

Page 30

 

 

	 

	 

 

 

EXECUTION COPY

 

iv.           Electronic mail, but only if the receiving Party has given written and explicit consent to this method of notification for each and every event requiring notice;

 

c)         Notice shall be deemed effective upon personal receipt or two days after the date such communication is sent if sent by courier service, US Mail or electronic mail.

 

4.          Assignment & Successors in Interest

 

a)         Neither Party shall assign its rights or obligations under this Agreement without the express written consent of the other, except for such assignments as are made to Affiliates or pursuant to a Change in Control, which are permitted without notice or consent (except as otherwise provided herein);

 

b)         Unless otherwise stated herein, this Agreement is binding on the Parties and their permitted successors and assigns.

 

5.         Insurance -

 

a)         VMR agrees to maintain, during the entire term of this Agreement and, notwithstanding any provision to the contrary in this Agreement, following the termination of this Agreement for such time as any of the products sold hereunder by VMR shall reasonably remain at the facilities of Intrepid (at least three years), commercial general liability insurance, Including, but not limited to, public liability, completed operations and product liability coverage, $1 Million each occurrence, $2 Million policy aggregate for all coverages other than product liability. Products Liability coverage shall be written with limits not less than $10 Million each occurrence and aggregate, with a deductible of no more than $25,000. Also, VMR agrees to name Intrepid as an additional insured/vendor with respect to their products liability coverage. The use of a commercial umbrella policy is permitted to satisfy any minimum required Insurance limits. Such coverage shall be written on an claims made form with an extended reporting period of 24 months.

 

b)         The Parties each agree to maintain a policy of workers’ compensation insurance as required by law, with statutory limits, in the state(s) In which any services, work, or labor are being performed by its employees relating to the production of V2 Products or the sale of V2 Products under this Agreement. In addition, each Party agrees that any such state shall be named in section 3.A of the workers’ compensation declarations page for such policy.

 

c)         The insurance coverage required herein shall be provided by an insurance company or companies reasonably acceptable to Intrepid. The insurance coverage shall be primary to any coverage Intrepid may have whether pursuant to or independent of this Agreement. The insurance coverage provided hereunder shall not in any way be endorsed, amended or otherwise restricted to limit the coverage provided under a simplified commercial general liability insurance policy promulgated by Insurance Services Office, Inc. or its successor organization.

 

d)         VMR agrees to furnish, together with its execution of this Agreement and thereafter in advance of any annual renewal of or any relevant and material change in VMR’s insurance coverage, a fully complying current certificate of insurance and a copy of the actual policies (with pricing redacted) for Intrepid’s approval, which certificate shall provide that Intrepid and its Affiliates and directors, managers, officers, representatives, employees and assigns are additional insureds/vendor. Notwithstanding the foregoing, Intrepid’s review or approval of such certificate shall not relieve VMR to any degree of its obligation to maintain the required coverage hereunder.

 

Page 31

 

 

	 

	 

 

 

EXECUTION COPY

 

e)         VMR shall notify Intrepid at least seven (7) Days in advance of any relevant and material changes In VMR’s insurance coverage. Each certificate shall indicate that the coverage represented thereby shall not be canceled, or modified until at least thirty (30) Days’ prior written notice has been given to Intrepid. The insurance requirements set forth herein are minimum coverage requirements and are not to be construed in any way as a limitation on VMR’s liability under this Agreement, including its indemnity obligations.

 

6.         Cost Savings – VMR shall order V2 products, and VMR Products, from the manufacturers in such a way as to maximize cost savings by obtaining discounts related to economies of scale whenever possible Including consolidating purchases, whenever possible, between V2 Internet and retail orders, but not to the detriment of delivery dates, and share such discounts with Intrepid.

 

7.         Media & Public Relations – If not specifically contemplated by and articulated in this Agreement or as required by Applicable Law, neither Party shall make any public statement relating to the other Party or any aspect of this Agreement unless the content of such statement has been previously discussed with and agreed upon by the other Party.

 

8.         Modification - No modification of this Agreement shall be effective unless in writing and signed by both Parties hereto.

 

9.         Relationship of the Parties - The relationship of the Parties is that of independent contractors, and neither party shall incur any debts or make any commitments for the other party. Nothing in this Agreement is intended to create or shall be alleged or construed as creating between the Parties the relationship of joint venturers, co-partners, employer and employee or principal and agent.

 

10.       Force Maieure – With prompt written notice to the other Party, the obligations of a Party shall be excused during such time as and to the extent that performance is prevented by any Force Majeure, until such Force Majeure is lifted by notice of the claiming party, or the right to Force Majeure terminates per the terms of this Agreement.

 

11.       Remedies – Nothing in this Agreement shall limit the remedies which may be provided to Intrepid or VMR at law or in equity in connection with the sale and purchase of products except as explicitly set forth herein. Except as explicitly set forth herein, all rights and remedies of the parties shall be cumulative and not alternative, in addition to and not exclusive of any other rights or remedies provided for herein which may be provided or permitted by law or equity in case of any breach, failure or default or threatened breach, failure or default of any term, covenant or condition of this Agreement. The rights and remedies afforded either party shall be continuing and not exhausted by any one or more uses thereof, and may be exercised at any time or from time to time; and any option or election to enforce any such right or remedy may be exercised or taken at any time and from time to time. The expiration or earlier termination of this Agreement, or the change In status of a party, shall not discharge or release any party from any liability or obligation then accrued or any liability or obligation continuing, or intended by its nature or terms to continue, beyond or arising out of the expiration or earlier termination of this Agreement, or such change in status, including, without limitation, any warranties of VMR.

 

12.       Governing Law & Dispute Resolution -

 

a)         This Agreement shall be governed by the laws of the State of Florida without regard to its conflicts of laws principles.

 

b)         in the event of any breach, dispute, claim, or disagreement arising from or relating to this Agreement, other than as explicitly set forth In Section E permitting injunctive relief, the Parties shall follow the following steps in order.

 

Page 32

 

 

	 

	 

 

 

EXECUTION COPY

 

i. The Parties shall use commercially reasonable efforts to settle the dispute, claim or disagreement; they shall consult and negotiate with one another in good faith and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to both Parties.

 

ii. If either Party determines that such negotiations are not resolving the dispute satisfactorily, such Party may by written notice to the other demand that the dispute be submitted to mediation. For purposes of clarity, any such mediation provided for hereunder shall be non-binding mediation. When such a demand is made, the Parties must, within 10 Days, jointly make arrangements for the mediation of the dispute with the American Arbitration Association, whose Commercial Arbitration Rules and Mediation Procedures in effect on the date of the written demand for mediation shall govern the mediation in all respects, except as modified by agreement of the Parties. The mediation shall be conducted in Atlanta, Georgia. The expenses of mediation, including reasonable compensation of the mediator, shall be borne equally by the Parties hereto, except that each Party shall bear the compensation and expenses of its own counsel, witnesses, and employees.

 

iii. If the dispute has not been resolved within 30 Days of any written demand for mediation, or within such longer time period as the Parties may agree, then, with notice by either Party to the other, the dispute, claim or disagreement shall be finally settled by arbitration (unless this Agreement specifically sets forth rights to pursue a remedy in litigation) in Atlanta, Georgia, and administered by the American Arbitration Association in accordance with the provisions of its Commercial Arbitration Rules except as modified herein. The arbitrator or arbitrators shall promptly hear and determine (after due notice of hearing and giving the parties a reasonable opportunity to be heard) the questions submitted, and shall render a decision within 60 Days after appointment. The arbitrator or arbitrators shall expeditiously resolve any discovery or e-discovery disputes and shall do so respecting the interests of the parties In an expedited, efficient and cost-saving process for resolving the controversy through arbitration. Moreover, unless the parties otherwise agree, no party shall request more than two depositions and no discovery shall be conducted within 10 days of the date set for the hearing by the arbitrator or arbitrators. The decision of the single arbitrator, or arbitrators if a board is utilized, or the majority thereof, made in writing shall be final, binding and non-appealable upon the Parties as to the questions submitted, and the parties to the arbitration will abide by and comply with such decision. The decision may be enforced in a court of competent jurisdiction. The expenses of arbitration, including reasonable compensation of the arbitrators, shall be borne equally by the Parties, except that each party shall bear the compensation and expenses of its own counsel, witnesses, and employees.

 

iv. If the only dispute between the Parties is the proper calculation methodology of an amount that must be determined per the terms of this Agreement, instead of AAA arbitration, the parties shall utilize Grant Thornton as an accounting arbitrator to determine which Parties’ calculation is correct. Each Party shall submit its calculation to the accounting arbitrator. No further submissions or discovery shall be permitted. Such accounting arbitrator shall only be permitted to choose one of the Parties’ calculations (each party will submit one calculation) as opposed to such arbitrator calculating a third value, and shall institute a schedule and deadline for such determination and fact finding intended to quickly resolve such dispute. The expenses of the accounting arbitration, including reasonable compensation of the arbitrators, shall be borne equally by the Parties.

 

13.        Waiver - No term or provision shall be deemed waived and no breach excused unless a Party waives a provision or consents to a breach in a signed document that expressly states that it is a “waiver” or “consent” and no waiver or consent shall act as a waiver or consent in any future instance where a waiver or consent would be required.

 

14.       Further Assurances - The Parties shall execute and deliver, from time to time at or after the Effective Date, for no additional consideration and at no additional cost to the requesting Party, such further documents, assurances or things as may be reasonably necessary to give full effect to this Agreement and the transactions contemplated hereby, and to allow each Party fully to enjoy and exercise the rights accorded and acquired by it under this Agreement and the transactions contemplated hereby.

 

Page 33

 

 

	 

	 

 

 

EXECUTION COPY

 

15.       Headings; Singular & Plural Terms; Interpretation - The descriptive headings of clauses are inserted solely for convenience of reference and are not intended as complete or accurate descriptions of content and shall not be used to interpret the provisions of this Agreement. The singular of any term shall Include the plural thereof and the plural of any term shall include the singular. Operative terms, conditions and covenants may be included in definitions or addenda, and will be given equal weight and effectiveness as binding covenants regardless of where located. The word “or” is not exclusive. A reference to a person includes its permitted successors and permitted assigns as permitted herein. The words “include,” “includes” and “including” are not limiting. References to any document, instrument or agreement (a) shall include all exhibits, schedules and other attachments thereto, (b) shall include all documents, instruments or agreements issued or executed in replacement thereof, and (c) shall mean such document, instrument or agreement, or replacement or predecessor thereto, as amended, modified and supplemented from time to time and in effect at any given time. The words “hereof,” “herein” and “hereunder” and words of similar import when used in any document shall refer to such document as a whole and not to any particular provision of such document. This Agreement is the result of negotiations among, and has been reviewed by the Parties. Accordingly, this Agreement shall be deemed to be the product of all parties hereto, and no ambiguity shall be construed in favor of or against any party.

 

16.       Severability; Survival - Any invalidity of any provision in this Agreement shall not affect the validity of any other of Its provisions. If any court or arbiter shall determine that any provision of this Agreement is In any way unenforceable, such provision shall be reduced only to the extent necessary to make such provision enforceable, and the remainder of the Agreement shall remain operative except for any obligation the performance of which is dependent upon the severed portion, in which case the dependent obligation also shall be severed. The provisions of any term or provision that by Its nature survives the expiration or termination of this Agreement, shall survive the expiration or termination of this Agreement and continue to be binding.

 

17.        Accounting Terms – Except as expressly provided in this Agreement, all accounting terms used herein but not otherwise defined shall have the meanings commonly given them in the accounting industry.

 

18.       Time is of the Essence - For purposes of this Agreement, and all deadlines and dates hereunder, time is of the essence.

 

19.       Counterparts - This Agreement may be executed in counterparts, each of which when so executed and delivered shall be an original; and, it shall not be necessary in making proof of this Agreement to produce or account for more than one counterpart. Any original executed Agreement or other related document may be photocopied and stored on computer storage medium (an “Imaged Agreement”). If an Imaged Agreement Is Introduced as evidence in any judicial, arbitration, mediation or administrative proceeding, it shall be considered as admissible evidence; provided that such Imaged Agreement bears the signature of the party against whom enforcement is sought; and further provided that there is no evidence that such Imaged Agreement has been manipulated or otherwise altered in any way. No party hereto shall object to the admissibility of the Imaged Agreement on the basis that such was not originated or maintained in documentary form under either the hearsay rule, the best evidence rule, or other rule of evidence.

 

[Remainder of page Intentionally left blank. Signature page below.]

 

Page 34

 

 

	 

	 

 

 

Intrepid/VMR DRAFT 10/15/13 v. 27

 

The signatures of the Parties’ officers below Indicate the Parties agreement, and intent, to be bound by this Agreement. 

	 	 	 
	Intrepid Brands, LLC	 	VMR Products, LLC
	 	 	 
	/s/ Larry Wexler	 	/s/
Jan Andries Verleur
	Larry Wexler, CEO	 	Jan Andries Verleur,
CEO
	 	 	 
	10/15/13	 	10/15/2013
	DATE	 	DATE

 

Page 35

 

 

	 

	 

 

 

EXECUTION COPY

 

List of Appendices

 

	 	 
	Appendix A	V2 Products & Pricing Cost/Profit Model
	Appendix B	Sample Non-Competitive Pricing Calculations
	Appendix C	V2 Product Order & Payment Process 
	Appendix D	VMR Distribution Appointment Exceptions
	Appendix E	VMR OEM Excluded Businesses
	Appendix F	Statistical Sampling
	Appendix G	VMR Trademark Usage Guidelines
	Appendix H	V2 Product Specifications
	Appendix I	Buyout Provisions and Calculation Illustrations

 

	Intrepid-VMR Agreement, Appendix A	i

 

 

	 

	 

 

 

EXECUTION COPY

 

Appendix A

V2 Products & Pricing

Cost/Profit Model 

	 	 	 	 	 	 
	 	 	V2 Products
	 	 	Express Kit	Cartridges

5-Pack	Disposable

E-Cig (M6)	 
	a	Suggested Retail Price ($/Unit)	12.99	9.99	5.99	 
	 	 	 	 	 	 
	b	Maximum VMR COGS Pre-Logistics ($)	3,75	1.75	1.60	 
	c	Maximum VMR Logistics Costs (%)	15	15	15	 
	d	VMR Delivered COGS Less Government

Levies ($)

[d = b + (bxc)]	4.31	2.01	1.84	 
	 	 	 	 	 	 
	e1	Government Levies	0.00*	0.00*	0.00*	 
	e2	Cumulative VMR Share of Intrepid Net

Margin Increases From List Price Increases	0.00*	0.00*	0.00*	 
	f	VMR Delivered COGS

[d + e1 + e2]	4.31	2.01	1.84	 
	 	 	 	 	 	 
	g	Intrepid Shipping (%)	0,49	0.64	1.07	 
	h	Intrepid Returns (%)	2.00	2.00	2.00	 
	i	Intrepid Discounts (%)	3.50	3.50	3.50	 
	J	Intrepid Allowances/Merchandising (%)	9.62	9.62	9.62	 
	k	Intrepid Selling Expense (%)

[k = g + h + l + j]	15.62	15.77	16.19	 
	 	 	 	 	 	 
	l	Intrepid List Price ($)	7.09	5.45	3.27	 
	m	Intrepid Selling Expense ($)

[l x k]	1.11	0.86	0.53	 
	n	Intrepid Margin ($)

[l - m]	5.98	4.59	2.74	 
	 	 	 	 	 	 
	o	Combined COGS ($)

[f + m]	5.42	2.87	2.37	 
	 	 	 	 	 	 
	p	Gross Margin Pool ($)

[l - o]	1.67	2.58	0.90	 
	q	Consumer Marketing Commitment ($)

[p x .10]	0.167	0.258	0.090	 
	r	Remaining Margin Pool ($)

[p - q]	1.50	2.32	0.81	 
	 	 	 	 	 	 
	s	VMR Net Margin Split (%)	50	50	50	 
	t	VMR Net Margin ($)

[r x s]	0.75	1.160	0.405	 
	 	 	 	 	 	 
	u	Intrepid Net Margin Split (%)	50	50	50	 
	 	 	 	 	 	 
	v	Intrepid Net Margin ($)

[r x u]	0.75	1.160	0.405	 
	 	 	 	 	 	 
	w	VMR Gross Margin ($)

[t + q]	0.917	1.418	0.495	 

  

	 	 

 

	Intrepid-VMR Agreement, Appendix A	ii

 

 

	 

	 

 

 

EXECUTION COPY 

	 	 	 	 	 	 
	 	 	V2 Products
	 	 	Express Kit	Cartridges

5-Pack	Disposable

E-Cig (M6)	 
	x	V2 Product Prices ($)

[w + f]	5.227	3.428	2.335	 

 

* $0.00 as of Effective Date. Any changes to e1 or e2 during the term of the Contract will be reflected appropriately with an updated Appendix prepared and initialed by both Parties.

 

Appendix A will be updated and initialed by both Parties when any additional SKUs are added to Appendix H.

 

	Intrepid-VMR Agreement, Appendix A	iii

 

 

	 

	 

 

 

EXECUTION COPY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

	 	 
	Intrepid-VMR Agreement, Appendix A	iv

 

 

	 

	 

 

 

EXECUTION COPY

 

APPENDIX B

 

Sample Non-Competitive Pricing Calculations

 

At any point in time, V2 Products may be Non-Competitive IF:

 

	Twelve week average VMR 

Delivered COGS per EQ unit 

@ X point in time	>	(Reference CIGS Compression Rate) X 

(Electronic Cigarette Average Retail Prices @ X 

point in time)	 	Then Non-Competitive

  

For example, using the reference numbers below for Disposables, if the then current twelve week average VMR Delivered COGS per EQ Unit is still $1.84, and the then current Electronic Cigarette Average Retail Price is $6.99 (drop of $1.93 from reference), then using the above formula, VMR would be Non-Competitive (1.84>(.258*6.99)). 

 

	 	 	V2 Disposable

E-Cig	V2 Cartridges (5-Pack)
	A	
Model Delivered COGS per EQ unit ($)

 

	1.84	.402
	B	
Reference Average Retail Price per EQ unit ($)

 

[per Nielsen, as of 12 weeks ending 07/06/13]

 

	8.92	3.23
	C	
Compressed Reference Average Retail Price per EQ unit ($)

 

[B X.80]

 

	7.14	2.58
	D	
Reference COGS Compression Rate

 

[A ÷ C]

 

	25.8%	15.6%

 

Appendix B will be updated and initialed by both Parties when any additional SKUs are added to Appendix H 

	 	 
	Intrepid-VMR Agreement, Appendix B	i

 

	 

	 

 

 

EXECUTION COPY

 

 Appendix C

Product Order & Payment Process

 

The Parties shall comply with this Product Order & Payment Process with regard to all Intrepid orders for Products.

 

1.         Preliminary Order Form

 

A.          Intrepid - Utilizing the Preliminary Order Form, or in a form substantially similar to that contained herein, as set forth below, Intrepid shall communicate to VMR the identity and quantity of each V2 Product it wishes to order by completing columns I and II and the Product Delivery Date.

 

B.          VMR - Within no more than five (5) Business Days after receiving a Preliminary Order Form, VMR shall complete and return such Preliminary Order Form to Intrepid, having identified in columns III through VI its current VMR Delivered COGS, Government Levies, VMR Gross Margin, and the V2 Product Price to Intrepid for each V2 Product.

 

	 	 	 	Preliminary Order Form
	Date:	 	 Date:
	Product

Delivery

Date:	 	 	 	 	 	 
	I

Product

Description	II 

Quantity	 	III 

VMR Delivered 

COGS	IV

Government

Levies	V 

VMR Gross

Margin	VI 

V2 Product 

Price
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 
	 	 	 	 	 	 	 

  

2.         Purchase Order – Upon receipt of a completed Preliminary Order Form, Intrepid shall Issue a Purchase Order which will include the Preliminary Order Form V2 Product Price, destination for delivery, and state a delivery date that is compliant with the minimum delivery window applicable under the Agreement (90 or 70 days, as applicable).

 

3.          Bill of Lading – VMR shall provide a bill of lading with every shipment. 

 

4.          Invoice – Upon receipt of Intrepid’s Purchase Order, VMR shall issue an Invoice showing the amount owed by Intrepid, and such amount less Government Levies.

 

5.          Advanced Deposit

 

A.          Year One – From the Intrepid V2 Product Inventory Date until August 1, 2014, within five (5) Business Days of issuing a Purchase Order, Intrepid shall pay to VMR via ACH payment an amount equal to twenty-five (25) percent of the current VMR Delivered COGS associated with the V2 Products ordered;

 

B.          Year Two – From August 2, 2014 through August 1, 2015, within five (5) Business Days of issuing a Purchase Order, Intrepid shall pay to VMR via ACH payment an amount equal to ten (10) percent of the current VMR Delivered COGS associated with the V2 Products ordered;

	 	 
	Intrepid-VMR Agreement, Appendix C	i

 

 

	 

	 

 

 

EXECUTION COPY

 

C.          Subsequent Years – From and after August 2, 2015, Intrepid shall not make an Advanced Payment.

 

If during Year 2 or thereafter either the reduction in the deposit amount from 25% to 10% or the elimination of the deposit requirement after Year 2 shall cause VMR cash flow issues that it anticipates may adversely affect its ability to order subcomponent inventories as necessary to meet the Product Delivery Dates in Purchase Orders, VMR shall notify Intrepid of that fact and Intrepid agrees to discuss with VMR options under which Intrepid may assist with such cash flow issues; provided, however, that nothing in this provision shall in any way obligate Intrepid to provide VMR with financing or other concessions.

 

6.          Payment – Within fifteen (15) Days after delivery of the V2 Products, Intrepid shall pay to VMR the balance of the Purchase Order Amount.

	 	 
	Intrepid-VMR Agreement, Appendix C	ii

  

 

	 

	 

 

 

Appendix D

VMR Distribution Appointment Exceptions

 

The following VMR customers, distribution channels and products are excepted from VMR’s grant to Intrepid of exclusive distribution rights of the V2 Products:

 

1.          Excluded Customers

 

To the extent that Bricks & Mortar Distributors that are not customers of Intrepid wish to order V2 Product inventory not carried by Intrepid from VMR, VMR may make such sales; provided, however, that VMR may not solicit such customers. VMR will provide information to Intrepid on any such sales at the Quarterly Meetings. Intrepid, at its option, may at any time elect to begin to carry such V2 Product inventory and assume any such customers and VMR at that time will cease to sell to such customer such V2 Products. The Parties will also discuss the option of Intrepid providing 50% of VMR’s average monthly raw Inventory carrying costs for V2 Product inventory not carried by Intrepid in return for a 50-50 split by the Parties of the profits on any VMR sales of such products to Brick & Mortar Distributors under this paragraph.

 

2.          Excluded Channels

 

 a.         Internet Sales (with the exception of (i) disposable Electronic Cigarettes, the consumer selling unit of which comprises less than five (5) individual Electronic Cigarettes, and (ii) Express Kits, neither of which shall be sold by VMR on the internet);

 

   b.         Mobile phone sales;

 

   c.         Direct response sales;

 

   d.         Retail “Kiosk” Business, both franchises and VMR-owned (limited to no more than 100 U.S. kiosks);

 

   e.         Hospitality Sales, e.g., hotels, cruise lines; 

 

    f.         International Sales and rights to all VMR Brands;

 

    g.         VMR’s vending machine franchise business; and

 

    h.         VMR flagship stores (limited to no more than 10 such stores).

 

With regard to kiosks and flagship stores, the caps established above are intended to limit the potential adverse impact of such outlets on retail store efforts of Intrepid under this Agreement. Any additional kiosk or flagship store placements above the caps set forth above must be agreed upon by the Parties in writing.

 

 3.        Excluded Products - Also excluded from the distribution rights granted intrepid under this Agreement are VMR’s other existing and future branded products that do not carry either the V2CIGS Marks or the V2 Marks, including, but not limited to, Vantage Vapor and Vapor Couture.

 

	 	 
	Intrepid-VMR Agreement, Appendix D	i

 

 

	 

	 

 

 

Appendix E 

VMR OEM Excluded Businesses

 

	Distributors
	McLane Company	HT Hackney	 	WAM Marketing Group
	Coremark 	Eby Brown	 Costco	Peer Marketing Associates, Inc.
	Retailers
	7-Eleven	CVS/Caremark	Racetrac	Delhaize
	Couche-Tard/Circle K	Casey’s General Stores	VPS (Village Pantry)	Dollar General
	Speedway	Rite Aid	Kum N Go	Super Valu
	Murphy Oil	Sheetz	Kwik Trip	Safeway
	Pantry	QuikTrip	Holiday	Publix
	Valero	WaWa	Hess	Ahold
	Walgreens 	Kroger	Sunoco	Meijer
	Walmart/Sams	Stripes 	Family Dollar	 
	Tobacco Manufacturers & Marketers
	Republic Tobacco/ Top Tobacco	Swisher International	Prime Time International	Imperial Tobacco/ Commonwealth/RBA
	Liggett	Swedish Match	Trendsettah	 
	JTI (Japan Tobacco)	New Image Global	Good Times	 

   

Notwithstanding anything to in this Agreement that may conflict with the following, VMR may continue to manufacture OEM or enter into new OEM agreements with those entities who are not listed above in this Appendix E, but if an entity not listed in Appendix E enters into a merger or acquisition transaction with an OEM Excluded Business, there are one of two outcomes:

 

(a) if VMR entered into an OEM agreement with an entity not listed above in Appendix E prior to the merger or acquisition transaction, the OEM Excluded Business shall no longer be categorized as an OEM Excluded Business; or

 

(b) if an OEM Excluded Business enters into a merger or acquisition transaction with an entity not listed in Appendix E and no agreement exists at such time between such OEM and VMR, that entity shall become an OEM Excluded Business.

 

Appendix E shall be amended as necessary in accordance with the foregoing terms at the first quarterly meeting after such Transaction.

	 	 
	Intrepid-VMR Agreement, Appendix D	ii

 

 

	 

	 

 

Appendix F

 

Statistical Sampling

 

The parties agree that ASTM Document E1994-09 (Reapproved 2013) will form the statistical basis for determining sample size required for the rejection of any given lot of product provided to NTC based on an Average Outgoing Quality Limit (AOQL) of 0.5% and a Lot Tolerance Percent Defective (LTPD) of 2%. The use of the sampling table A1.3 for single sampling at LTPD of 2.0% and an AOQL Process Average of 0.5% will define the required number of samples (n) based on the lot size. The lot size will be determined by the number of each unique consumer selling unit per individual delivery to NTC. This table also provides the acceptance number (c) for the particular characteristic in question. If the number of defective items exceeds the value for c and the total sample size equals or exceed n then NTC can reject the entire shipment. Any specification individually or any combination of specifications may be used to fulfill the requirements of rejection based on ASTM E1994.

 

The referenced table is given below for convenience.

 

 

	

	 

 

Appendix G

 

VMR Trademark Usage Guidelines

 

	

	 

 

 

	 	 	 
	 	October 15, 2013	 

 

	 

	 

 

	 

 

VISUAL IDENTITY GUIDELINES

 

TABLE

OF CONTENTS

 

	01	V2 Cigs Welcome	 
	 	 	 
	1.1	About these Guidelines	04
	 	 	 
	1.2	Identity Policy	05
	 	 	 
	02	Immediate Recognition	 
	 	 	 
	2.1	Brand Statement	07
	 	 	 
	2.2	Positioning Statement	07
	 	 	 
	2.3	Core Values	08
	 	 	 
	03	Basic Signature Standards	 
		 	 
	3.1	The V2 Cigs Logo	10
	 	 	 
	3.2	Identity Signature	11
	 	 	 
	3.3	Incorrect Signature Uses	12
	 	 	 
	3.4	Signature Colors	13
	 	 	 
	3.5	Signature Combination	14
	 	 	 
	3.6	Signature Positioning	15
	 	 	 
	3.7	Typography	17
	 	 	 
	04	Online Recognition	 
	 	 	 
	4.1	Website Design/Functionality	19-20
	 	 	 
	4.2	Sliders, Panels & Banner Advertisements	21
	 	 	 
	05	Brand Advertising	 
	 	 	 
	5.1	Brand Advertising	23

	 

	 

 

	 

 

	V2 CIGS WELCOME	01

 

3

	 

	 

 

	 

 

1.1 ABOUT THESE GUIDELINES

A Reliable Company

Relies on Its Image of Reliability.

 

The V2 Cigs logos, marks and graphics—collectively referred to as the V2 Cigs “Identity”—define the visual expression of the V2 Cigs brand. This guide is designed to define best practices for using the V2 Cigs Identity to help ensure the continuing success of the V2 Cigs brand.

 

These guidelines provide obligatory instructions for anyone working with the visual image of the V2 Cigs brand, including but not limited to staff, affiliates, partners, franchisees, third-party vendors and other companies or organizations that will produce materials utilizing the V2 Cigs Identity. These guidelines are intended to set fundamental guidelines that allow for creativity and individual expression while maintaining the integrity of the V2 Cigs Identity.

 

 

 

4           INTRODUCTION

 

	 

	 

 

	 

 

1.2 IDENTITY POLICY

Usage.

 

This manual will help ensure consistency by providing standards and specifications for the use of the V2 Cigs brand identity. This manual should be followed in all forms of communication that represent V2 Cigs including TV, social media, signage, print, online and outdoor. There are no limitations to where this brand can go. As the digital landscape continues to change, these guidelines will adapt and change to improve connectivity. Any modifications to these guidelines must be approved in advance by V2 Cigs.

 

 

Contact:

Adam Kustin

Vice President, Marketing

(e) adam@V2Cigs.com

(p) 877.378.2767 ext. 1843

 

INTRODUCTION    5

 

	 

	 

 

	 

 

	IMMEDIATE RECOGNITION	 02

 

6          IMMEDIATE RECOGNITION

 

	 

	 

 

	 

 

2.1 BRAND STATEMENT

V2 Cigs Is an Industry Leader. 

 

V2 Cigs has become a distinguished leader in the electronic cigarette category. Known for creating products with superior vapor production and great flavor, V2 Gigs strives to continually improve technology and production in an ongoing effort to become the most trusted name in the industry.

 

2.2 POSITIONING STATEMENT

Lead, Enrich & Transform the Industry. 

 

At V2 Cigs, we set the bar for quality, consistency and product performance. These are the cornerstones of the V2 Cigs philosophy. V2 Cigs is the brand that current and future customers can always trust for superior products in the electronic cigarette category.

 

IMMEDIATE RECOGNITION     7

 

	

	 

 

	 

 

2.3 CORE VALUES

Quality. Innovation. Transparency.

 

Quality 

 

V2 Cigs is committed to continuous improvement and superior quality. As one of the industry’s only vertically Integrated operations, V2 Cigs controls every element necessary to earn customer trust by offering better products and services.

 

Innovation

 

V2 Cigs has become a pioneer in a category that did not exist a mere decade ago. Creativity and innovation are in our DNA. V2 Cigs thrives as a leader in a constantly changing market.

 

Transparency

 

Setting the highest standards for transparency is how V2 Clgs leads by example. We put our engineering practices, batch testing, consumer guarantees and other quality assurances out there for the whole world to see. Our systems were created on the premise that their implementation will be synonymous with best practices in the emerging electronic cigarette industry.

 

8     IMMEDIATE RECOGNITION

 

	

	 

 

	 

 

	BASIC SIGNATURE

STANDARDS	03

 

BASIC SIGNATURE STANDARDS     9

 

	

	 

 

	 

 

3.1 THE V2 CIGS LOGO

Strength of Our Brand.

 

 

The V2 Cigs logo is the essential element of the V2 Cigs Identity. It may not be modified in any way nor used in any context not detailed in these guidelines.

 

10     BASIC SIGNATURE STANDARDS

 

	

	 

 

	 

 

3.2 IDENTITY SIGNATURE

Consistency Is Key.

 

There are four basic versions of the V2 Cigs logo that can be configured vertically or horizontally and with or without the corresponding “vapor” element to make up 16 acceptable versions or signatures of the V2 Cigs mark. Each signature should be used in its entirety and the relationship between the elements should never be adjusted or changed.

 

 

BASIC SIGNATURE STANDARDS     11

 

	

	 

 

3.3 INCORRECT SIGNATURE USES

Corporate Logo Consistency.

 

Correct and consistent use of the V2 Cigs Identity is critical to maintaining the integrity of the V2 Cigs brand. Under no circumstances can anyone change:

	 	 
	·	The shape or proportions of the logo
	·	The colors of the logo
	·	The angle of the logo

 

 

12     BASIC SIGNATURE STANDARDS

 

	

	 

 

	 

 

3.4 SIGNATURE COLORS

Corporate Color Consistency. 

 

The precise primary and secondary colors are delineated herein. Use the primary color for the logo and the secondary color to complement it. Under no circumstances is it ever acceptable to substitute different colors for the corporate colors.

	 	 	 
	The V2 Cigs logo is always to appear entirely in the primary color. Consult printers for the most accurate reproduction of the logo colors. 	 	 
	 	 	 
	 	 	 
	The secondary color is to be used to compliment the primary color. Examples include headlines and text, but not to be used interchangeably with the primary logo color.	 	 

 

BASIC SIGNATURE STANDARDS     13

 

	 

	 

 

	 

 

3.5 SIGNATURE COMBINATION

Primary Color Scheme.

	 	 	 
	
Reinforce

Color

 

These color palettes used  here
are to be used when designing any graphic element representing V2 Cigs. The use of these palettes will ensure color
consistency and visual harmony while granting creative flexibility.  

	 	 
	 	 	 

  

14     BASIC SIGNATURE STANDARDS

 

	 

	 

 

	 

 

3.6 SIGNATURE POSITIONING

Invisible Ground.

  

The Exclusion Zone, the space around the logo, is defined as the minimum distance from the signature to other elements. The Exclusion Zone is always an area equal to half the height of the logotype that is kept clear on all sides of the signature. The Exclusion Zone is proportional and changes depending on the size of the logotype. All surrounding elements (text, photos, graphics, etc.) should be placed outside the Exclusion Zone.

  

Horizontal Logo

 

 

  

BASIC SIGNATURE STANDARDS     15

 

	 

	 

 

	 

 

Vertical Logo

 

 

 

16     BASIC SIGNATURE STANDARDS

 

	 

	 

 

	 

 

3.7 TYPOGRAPHY

Approved Fonts.

 

The primary typefaces used In conjunction with the V2 Cigs Identity are Museo for headlines and medium-sized texts and Helvetica for body copy. While these are not the only acceptable fonts, consistent use of these two type families will contribute to a unified brand image.

  

Museo 300 

Museo 700

  

Designed in 2008, Museo is a semi-serif typeface with open forms and original details. Designed to be a display font, Museo is ideal for headlines and medium-sized texts. The fonts styles are numbered (100, 300, etc.) rather than identified by weight (bold, semi bold, etc.)

 

ABCDEFGHIJKLMNOPQRSTUVWXYZ

Abcdefghijklmnopqrstuvwxyz

0123456789

 

ABCDEFGHIJKLMNOPQRSTUVWXYZ

Abcdefghijklmnopqrstuvwxyz

0123456789

 

 

Helvetica 

Helvetica is one of the most widely used typefaces in the English-speaking world. It is favored for use in many corporate typefaces and by the U.S. government for its simple, classic style and easy readability.*

 

ABCDEFGHIJKLMNOPQRSTUVWXYZ 

Abcdefghijklmnopqrstuvwxyz

0123456789 

 

ABCDEFGHIJKLMNOPQRSTUVWXY 

Abcdefghijklmnopqrstuvwxyz

0123456789

 

' When Helvetica is unavailable, please substitute with the Arial font.

  

BASIC SIGNATURE STANDARDS     17

 

	 

	 

 

	 

 

	 	 
	ONLINE RECOGNITION	04

  

18     ONLINE RECOGNITION 

  

 

 

 

	 

 

 

	4.1  WEBSITE DESIGN/FUNCTIONALITY 
	Online Reliability.

 

V2 Cigs is America’s No. 1 online retailer of electronic cigarettes. V2Cigs.com is currently ranked in the top 2,000 websites in the nation, and receives more than six million monthly unique visitors, as tracked by online web-metrics provider Alexa.com. The following standards must be kept so that our presence online can continue to grow:

 

Website Buttons

 

 

 

V2 Cigs Email Signature

 

 

 

CONFIDENTIALITY NOTICE: The information in this e-mail including any attachments, is confidential, and privileged. This e-mail is intended to be reviewed by only the individual or organization named above. If you are not the intended recipient or an authorized representative of the intended recipient, you are hereby notified that any review, dissemination, or copying of this e-mail, and its attachments, if any, or the information contained herein is prohibited. If you have received this e-mail in error, please immediately notify the sender by return e-mail and delete this e-mail from your system.

 

ONLINE RECOGNITION      19

 

 

 

 

	 

 

Website Color & Gradient

 

 

 

 

 

20     ONLINE RECOGNITION 

 

 

 

 

	 

 

	4.2 SLIDER PANEL & BANNER ADVERTISMENTS
	Reliable Placement.

 

Here are samples of the V2 Cigs logo placed in online media. Please use this as a reference of what is acceptable when using the logo and product. 

 

 

 

 

 

ONLINE RECOGNITION      21

 

 

 

 

	 

 

 

 

 

 

	BRAND ADVERTISING	05

  

 

 

 

 

 

 

 

 

	22	BRAND ADVERTISING

 

	 

	 

  

	 

  

 

	 	5.1 BRAND ADVERTISING
		Our Core Commitment.

 

	 	 
	 	The electronic cigarette market is a crowded place with new competitors popping up every day. V2 Cigs is the brand consumers can trust. Our commitment to quality, transparency and innovation is how we continue to earn this trust. Our advertising has to communicate those values while still capturing attention with big ideas that break new ground. 
	 	 

  

 

	BRAND ADVERTISING	23

 

	 

	 

 

	 

 

 

 

 

	 	www.v2cigs.com

 

	 

	 

  

Appendix H

 

Product Specifications

 

The Parties mutually agree that by November 5, 2013, the V2 Product Specifications for the SKUs referenced on the attached shall be completed in substantially the form of the attached sheets and shall be initialed by both Parties. Furthermore, the Parties also agree that the protocols by which the Product Specifications are to be tested shall be mutually agreed upon by no later than December 31, 2013, with both Parties also initialing and attaching such protocols.

 

Also, V2 Product Specifications includes the requirement that no product be delivered at the FOB point with less than twenty (20) months’ shelf life remaining based on the V2 Product’s “Best Before” dating.

 

	 

	 

 

VMR PRODUCTS LLC

  

	e-Liquid Testing 

Specification Sheets

 

V2 Red and V2 Menthol 1.8%

 

Operations

 

10/1/2013

  

This document provides e-liquid specifications for testing, including units, minimum detection levels, and enforced limits as they apply to all VMR e-liquid batch testing policies.

   

	 

	 

 

 

                        V2 Red 1.8% 

 

                    1. Propylene Glycol 

		Test Item	Enforced Limits	MDL	Unit
	 	Propylene Glycol	77.5% ± 2.5%	0.1	% per 1,000mg

                    2. Nicotine

	 	Test Item	Enforced Limits	MDL	Unit
	 	Nicotine	1.75% - 1.8%	0.01	% per 1,000mg

                    3. Diethylene Glycol

	 	Test Item	Enforced Limits	MDL	Unit
	 	Diethylene Glycol	< 0.009	0.01	% per 1,000mg

                    4. Nitrosamines

	 	Test Item	Enforced Limits	MDL	Unit
	 	Nitrosamines	< 0.99	1.0	mg/kg

                    5. Phthalates (6 Items)

	 	Test Item	Enforced Limits	MDL	Unit
	 	Dibutyl phthalate (DBP)	< 0.99	1.0	mg/kg
	 	Benzyl butyl phthalate (BBP)	< 0.99	1.0	mg/kg
	 	Diethyl hexyl phthalate (DEHP)	< 0.99	1.0	mg/kg
	 	Di-n-ocytl phthalate (DnOP)	< 0.99	1.0	mg/kg
	 	Di-iso-nonyl phthalate (DiNP)	< 0.99	1.0	mg/kg
	 	Di-iso-decyl phthalate (DiDP)	< 0.99	1.0	mg/kg

                    6. Phthalates (17 Items)

	 	Test Item	Enforced Limits	MDL	Unit
	 	Dimethyl phthalate (DMP)	< 0.99	1.0	mg/kg
	 	Diethyl phthalate (DEP)	< 0.99	1.0	mg/kg
	 	Diisobutyl phthalate (DIBP)	< 0.99	1.0	mg/kg
	 	Dibutyl phthalate (DBP)	< 0.99	1.0	mg/kg
	 	Bis (2-methoxyethyl) phthalate (DMEP)	< 0.99	1,0	mg/kg
	 	Bis (4-methyl-2-pentyl) phthalate (BMPP)	< 0.99	1.0	mg/kg
	 	Bis (2-ethoxyethyl) phthalate (DEEP)	< 0.99	1.0	mg/kg
	 	Dipentyl phthalate (DPP)	< 0.99	1.0	mg/kg
	 	Dihexyl phthalate (DHXP)	< 0.99	1.0	mg/kg
	 	Benzyl butyl phthalate (BBP)	< 0.99	1.0	mg/kg
	 	Bis (2-n-butoxyethyl) phthalate (DBEP)	< 0.99	1.0	mg/kg
	 	Di-(2-ethylhexyl) phthalate (DEHP)	< 0.99	1.0	mg/kg
	 	Di-cyclohexyl-phthalate (DCHP)	< 0.99	1.0	mg/kg
	 	Di-n-octyl phthalate (DNOP)	< 0.99	1.0	mg/kg
	 	Dinonyl phthalate (DNP)	< 0.99	1.0	mg/kg
	 	Diphenyl phthalate	< 0.99	1.0	mg/kg
	 	Diisononyl phthalate (DINP)	< 0.99	1.0	mg/kg

 

VMR PRODUCTS, LLC

3050 BISCAYNE BLVD FLOOR 8, MIAMI, FL 33137* PH: 305-517-1159* FAX: 305-571-9383

  

	 

	 

 

2  |

 

7. Total Lead 

	Test Item	Enforced Limits	MDL	Unit
	Total Lead (Pb)	< 9.99	10	ppm

8. Heavy Elements

	Test Item	Enforced Limits	MDL	Unit
	Soluble Lead (Pb)	< 4.99	5.0	ppm
	Soluble Antimony (Sb)	< 4.99	5.0	ppm
	Soluble Arsenic (As)	< 2.49	2.5	ppm
	Soluble Barium (Ba)	<4.99	5.0	ppm
	Soluble Cadmium (Cd)	< 4.99	5.0	ppm
	Soluble Chromium (Cr)	< 4.99	5.0	ppm
	Soluble Mercury (Hg)	< 4.99	5.0	ppm
	Soluble Selenium (Se)	< 4.99	5.0	ppm

 

Remarks

(1) N.D.= not detected, less than MDL

(2) mg/kg = milligram per kilogram

(3) MDL = method detection limit

(4) ppm = parts per million

(5) %, w/w = percentage of weight by weight

 

Test Method

	Test Item	Test Method	Test 

Instrument
	Propylene Glycol	JY/T 021-1996	GC-FID
	Nicotine	JY/T 021-1996	GC-FID
	Diethylene Glycol	JY/T 003-1996	GC-MS
	Nitrosamines	JY/T 003-1996	GC-MS
	Phthalates (6 Items)	CPSC-CH-C1001-09.3	GC-MS
	Phthalates (17 Items)	GB/T 21911-2008	GC-MS
	Total Lead	CPSC-CH-E1003-09.1	ICP-OES
	Heavy Elements	US ASTM F963-11	ICP-OES

 

	 

	 

 

 

V2 Menthol 1.8%

 

1. Propylene Glycol

	Test Item	Enforced Limits	MDL	Unit
	Propylene Glycol	62% ± 2.5%	0.1	
% per 1,000mg

2. Nicotine

	Test Item	Enforced Limits	MDL	Unit
	Nicotine 	1.75% - 1.8%	0.01	% per 1,000mg

 3. Diethylene Glycol

	Test Item	Enforced Limits	MDL	Unit
	Diethylene Glycol	< 0.009	0.01	% per 1,000mg

  4. Nitrosamines

	Test Item	Enforced Limits	MDL	Unit
	Nitrosamines	< 0.99	0.01	mg/kg

5. Phthalates (6 Items)

	Test Item	Enforced Limits	MDL	Unit
	Dibutyl phthalate (DBP)	< 0.99	1.0	mg/kg
	Benzyl butyl phthalate (BBP)	< 0.99	1.0	mg/kg
	Diethyl hexyl phthalate (DEHP)	< 0.99	1.0	mg/kg
	Di-n-ocxtl Phthalate (DnOP)	< 0.99	1.0	mg/kg
	Di-iso-nonyl Phthalate (DiNP)	< 0.99	1.0	mg/kg
	Di-iso-decyl phthalate (DiDP)	< 0.99	1.0	mg/kg

6. Phthalates (17 Items)

	Test Item	Enforced Limits	MDL	Unit
	Dimethyl phthalate (DMP)	< 0.99	1.0	mg/kg
	Diethyl phthalate (DEP)	< 0.99	1.0	mg/kg
	Diisobutyl phthalate (DIBP)	< 0.99	1.0	mg/kg
	Dibutyl phthalate (DBP)	< 0.99	1.0	mg/kg
	Bis (2-methoxyethyl) phthalate (DMEP)	< 0.99	1.0	mg/kg
	Bis (4-methyl-2-pentyl) phthalate (BMPP)	< 0.99	1.0	mg/kg
	Bis (2-ethoxyethyl) phthalate (DEEP)	< 0.99	1.0	mg/kg
	Dipentyl phthalate (DPP)	< 0.99	1.0	mg/kg
	Dihexyl phthalate (DHXP)	< 0.99	1.0	mg/kg
	Benzyl butyl phthalate (BBP)	< 0.99	1.0	mg/kg
	Bis (2-n-butoxyethyl) phthalate (DBEP)	< 0.99	1.0	mg/kg
	Di-(2-ethylhexyl) phthalate (DEHP)	< 0.99	1.0	mg/kg
	Di-cyclohexyl-phthalate (DCHP)	< 0.99	1.0	mg/kg
	Di-n-octyl phthalate (DNOP)	< 0.99	1.0	mg/kg
	Dinonyl phthalate (DNP)	< 0.99	1.0	mg/kg
	Diphenyl phthalate	< 0.99	1.0	mg/kg
	Diisononyl phthalate ( DINP)	< 0.99	1.0	mg/kg

  

VMR PRODUCTS, LLC

3050 BISCAYNE BLVD FLOOR 8, MIAMI, FL 33137* PH: 305-517-1159* FAX: 305-571-9383

 

	 

	 

 

4 |

 

7. Total Lead

	Test Item	Enforced Limits	MDL	Unit
	Total Lead (Pb)	< 9.99	10	ppm

8. Heavy Elements

	Test Item	Enforced Limits 	MDL 	Unit 
	Soluble Lead (Pb) 	< 4.99 	5.0 	ppm 
	Soluble Antimony (Sb) 	< 4.99 	5.0 	ppm 
	Soluble Arsenic (As)	< 2.49 	2.5 	ppm 
	Soluble Barium (Ba) 	< 4.99 	5.0 	ppm 
	 Soluble Cadmium (Cd)	< 4.99 	5.0 	ppm 
	 Soluble Chromium (Cr)	< 4.99 	5.0 	ppm 
	Soluble Mercury (Hg) 	< 4.99 	5.0 	ppm 
	 Soluble Selenium (Se)	< 4.99 	5.0 	ppm 

 

	Remarks	 
	 	(1)	N.D.= not detected, less than MDL
	 	(2)	mg/kg = milligram per kilogram
	 	(3)	MDL = method detection limit
	 	(4)	ppm = parts per million
	 	(5)	%, w/w = percentage of weight by weight

  

Test Method

	Test Item	Test Method	Test 

Instrument
	Propylene Glycol	JY/T 021-1996	GC-FID
	Nicotine	JY/T 021-1996	GC-FID 
	Diethylene Glycol	JY/T 003-1996	GC-MS
	Nitrosamines	JY/T 003-1996 	GC-MS
	Phthalates(6 Items)	CPSC-CH-C1001-09.3	GC-MS
	Phtalates (17 Items)	GB/T 21911-2008	GC-MS
	Total Lead	CPSC-CH-E1003-09.1	ICP-OES
	Heavy Elements	US ASTM F963-11	ICP-OES

 

	 

	 

 

 

	 

	 

 

 

 

	 

	 

 

 

	 

	 

 

 

 

	 

	 

 

 

	 

	 

 

 

 

	 

	 

 

 

	 

	 

 

 

 

	 

	 

 

 

 

	 

	 

 

 

	 

	 

 

 

 

	 

	 

 

 

 

	 

	 

 

Appendix I

 

If a conflict arises between the definitions contained in this Agreement and the formulas in Appendix I, the formulas contained in Appendix I shall govern.

 

With respect to Appendix I, the following definitions apply:

 

“AUTO” means a numerical value which is automatically calculated by the formulas in Appendix I. No entry of a numerical value is necessary or required.

 

“ENTER” means a numerical value which is entered to represent those numerical variables subject to change.

 

“FIXED” means a fixed numerical value which is a constant value and not subject to change.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00252-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00252-of-00352.parquet"}]]