Portions of this exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions marked by [**] have been separately
filed with the Commission.
AMENDED AND RESTATED DISTRIBUTION AND LICENSE AGREEMENT
Dated as of November 30, 1992
The parties to this Agreement are Bollore Technologies, S.A., a corporation
organized under the laws of the Republic of France ("Bollore"), and North
Atlantic Trading Company, Inc., a Delaware corporation (the "Distributor").
PREAMBLE
WHEREAS, pursuant to a Consent Agreement, dated November 30, 1992, among
Bollore, the Distributor, United States Tobacco Company ("USTC") and certain of
USTC's affiliates (the "Consent Agreement"), Bollore has consented to the
transfer and assignment to the Distributor of USTC's rights and interests in, to
and under the Bollore Documents, other than the Manufacturing Rights (as those
terms are defined in the Consent Agreement) contingent upon the consummation of
the transactions contemplated by the Asset Purchase Agreement, dated November
25, 1992, among the Distributor, USTC and certain of USTC's affiliates (the
"Asset Purchase Agreement") and provided that the Bollore Documents are
immediately amended and restated pursuant to this Agreement; and
WHEREAS, the parties desire to restate, amend and supersede the Bollore
Documents in their entirety as herein provided;
NOW, THEREFORE, the parties hereby agree, for good and valuable
consideration, to restate, amend and supersede the Bollore Documents in their
entirety as follows:
1. Distribution Rights.
(a) On the terms and subject to the conditions of this Agreement, Bollore
hereby grants to the Distributor for the term of this Agreement (as defined in
Section 6) the exclusive right to purchase the cigarette paper booklets sold
under the trademark "ZIG-ZAG" listed on Schedule A (the "Products") from Bollore
for resale throughout the Dominion of Canada (the "Territory"). During the term
of this Agreement, Bollore shall not sell the Products to any person or company
in the territory other than the Distributor and, except as expressly otherwise
provided in this
Agreement, Bollore shall sell to the Distributor the quantities of the Products
required by the Distributor.
(b) The Distributor accepts the grant of such right and shall use its best
efforts throughout the term of this Agreement to promote and sell the Products
within and throughout the Territory. Except as expressly provided otherwise in
this Agreement, the Distributor shall purchase all of its requirements of
Products exclusively from Bollore.
The Distributor shall have the sole right to determine the prices at and
the terms upon which the Distributor shall sell the Products within the
Territory and to determine the wholesalers and subdistributors and other
customers to whom it sells the Products, provided, to the best of the
Distributor's knowledge, all such parties use or resell the Products solely
within the Territory.
During the term of this Agreement, the Distributor shall not sell the
Products outside the Territory (other than pursuant to, and in accordance with
the terms of, a written agreement with Bollore) and shall not knowingly sell the
Products to any party who, directly or indirectly, resells or distributes such
Products outside, or sells to a third party for resale or distribution outside,
the Territory, and shall immediately cease selling to any such party upon
becoming aware of such party's sales outside the Territory. Bollore may select
(a) other distributors for the Products in other territories, and (b) other
distributors for any products not using the Marks (as defined in Section 8) in
the Territory.
(c) The relationship between the parties is that of vendor and purchaser
(rather than principal and agent, employer and employee, partners or joint
venturers) and, accordingly, the Distributor is not empowered hereunder or
otherwise (i) to act for or to bind Bollore, (ii) to accept service of process
on behalf of Bollore in the Territory or (iii) to make any express or implied
representation or warranty on behalf of Bollore; provided, however, that the
Distributor may describe and represent itself as the exclusive distributor of
the Products in the Territory.
(d) The Distributor shall provide Bollore with information relating to unit
sales volume and inventory of the Products in the Territory on at least a
monthly basis consistent with past practices between Bollore and USTC and its
affiliates.
2
(e) The Distributor shall be solely responsible for securing all required
import licenses, governmental approvals, permits and authorizations necessary
for the importation and sale of the Products in the Territory; provided,
however, that Bollore shall use its reasonable best efforts (at the
Distributor's expense) to cooperate with the Distributor in securing such
licenses, approvals, permits and authorizations. Bollore shall, at its own
expense, supply any technical data and samples required in connection with
necessary governmental registration of Products in the Territory; provided,
however, that the Distributor shall use such technical data and any other
proprietary information obtained from Bollore solely for the purpose of
obtaining such registration. Bollore shall be solely responsible for securing
all required export licenses, governmental approvals, permits and authorizations
necessary for the exportation of the Products from the country of manufacture;
provided, however, that the Distributor shall use its reasonable best efforts
(at Bollore's expense) to cooperate with Bollore in securing such licenses,
approvals, permits and authorizations. The Distributor shall, at its own
expense, supply such information and data as may be required in connection with
obtaining any of the foregoing.
2. Warranties; Product Defects.
Bollore shall ship and deliver all Products in saleable condition, and
Bollore represents and warrants that all Products are merchantable, but makes no
other representation or warranty express or implied regarding the condition of
the Products. The Distributor is not authorized to extend or modify any warranty
or guaranty on behalf of Bollore. All Products received by the Distributor will
be inspected promptly upon receipt for damage, but in no event later than 15
days after receipt. If any Products are materially damaged, defective and not
usable or saleable in the ordinary course of the Distributor's business
("Defective Products"), then the Distributor's sole and exclusive remedy
(subject to the fourth paragraph of this Section 2) shall be rejection of the
Defective Products with a right to a refund of the payment for such Defective
Products if they have been paid for (as provided below) and without obligation
to pay for such rejected portion if they have not been paid for. Except as
provided below, if Bollore does not receive a written rejection from the
Distributor of a shipment, or part thereof, within 15 days after delivery of
such shipment, the Distributor shall be deemed irrevocably to have accepted such
shipment. If the Distributor timely notifies Bollore that it rejects all or part
of a shipment, Bollore, at its sole expense, shall have 30 days
3
after receipt of such notice (a) to cure any defect by providing substitute
Products or causing the Defective Products to meet its customary quality
standards, or (b) to provide a credit to the Distributor for the amount due
Bollore for such Defective Products or refund such amount if previously paid.
Bollore shall supply either a return authorization number and return shipping
instructions or instructions to destroy the Defective Products and shall ship
replacement merchandise as soon as possible.
Nothing herein shall prevent the Distributor from returning to Bollore for
refund of the purchase price paid therefor any Product found to be manufactured
defectively which is discovered by the Distributor subsequent to such inspection
for damage.
Notwithstanding the foregoing, if Bollore disputes the Distributor's claim
that any Product does not meet Bollore's customary quality standards or is
otherwise a Defective Product, the parties shall cooperate in good faith to
settle the dispute amicably. If they fail to agree, the parties shall submit
samples of the Product to a mutually agreed upon independent laboratory or
industry expert (which or who has no prior dealings and is unaffiliated with
either party) (an "Independent Evaluator") for testing and such Independent
Evaluator's determination shall be final and binding. If the parties fail to
agree upon an Independent Evaluator within 10 days, each party shall select an
Independent Evaluator and the two appointed Independent Evaluators shall agree
upon a third Independent Evaluator, whose determination shall be final and
binding. The losing party shall pay the costs of submitting the samples and
testing by the Independent Evaluator.
Except for the remedies set forth in this Section, Bollore shall not be
liable to the Distributor or any other party by reason of supplying defective or
otherwise non-conforming Product; except that nothing herein shall affect
Bollore's liability, if any, as a matter of law, to third parties for defective
product nor Bollore's liability to the Distributor arising from third party
claims relating to defective Product, but Bollore shall have no liability to the
Distributor for damages to Distributor arising from lost profits or lost
opportunities of the Distributor.
To the extent requested by the Distributor, Bollore shall modify the
Products to the extent reasonably necessary to comply with applicable laws in
the Territory; provided, however, that if such modification increases Bollore's
costs, the parties shall negotiate in good faith for 30 days for a mutually
agreed
4
upon purchase price adjustment to reflect such additional costs. If after such
30 day period the parties, acting in good faith, have been unable to agree, the
parties shall submit the dispute to binding arbitration in accordance with
Section 12(d); provided, however, that during such 30 day period and/or
arbitration, the previously established prices shall apply to all transactions
and corresponding patent schedules of Bollore and the Distributor.
Notwithstanding the proviso contained in the previous sentence, if after such 30
day period and/or arbitration a new price is established, such new price shall
apply retroactively to the parties and the Distributor shall pay, within 10
business days of the final determination of the new price, to Bollore, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
3. Terms of Sales.
(a) The Distributor shall pay Bollore in French Francs the full invoiced
price for purchases of the Product, without any set-offs, withholdings or
deductions of any kind (other than amounts payable with respect to a specific
invoice, the payment of which the Distributor disputes in good faith because of
Defective Products covered by such invoice or an error in such invoice), not
later than 45 days after the date of issuance of the xxxx of lading. Such
payments shall be made by wire transfer of immediately available funds to
Bollore's [**], or such other account as Bollore may designate from time to
time. The Distributor shall be responsible for paying [**]. Bollore shall be
responsible for [**].
(b) The prices to be charged by Bollore to the Distributor for the Products
shall initially be the prices set forth in Schedule A, which shall remain in
effect until December 31, 1993. From January 1, 1994 through December 31, 1994,
the prices shall increase by [**].
(c) Until December 31, 1998, the following adjustment shall be made to
Product prices to account for material currency fluctuations: if the average
rate of exchange (averaging the bid
5
and the asked rates), as quoted by the reference banks of Credit Lyonnais
(Paris), Chemical Bank (New York City) and Banque Nationale de Paris (Paris)
(the "Average Exchange Number") during the calendar month immediately preceding
the date of any invoice is less than [**], the price for such Products shall be
adjusted to be equal to the current Product price pursuant to this Agreement,
multiplied by a fraction, the numerator of which is the Average Exchange Number
and the denominator of which is [**].
(d) In order to assure each of the parties commercially reasonable profits
in light of inflationary trends and currency translation factors, 120 days prior
to December 31, 1998 and each fifth-year anniversary of that date, the parties
shall enter into good faith negotiations to agree on an index and a currency
adjustment formula to replace those set forth in subparagraphs (b) and (c) above
(the "Price Negotiation Period"). If after the Price Negotiation Period the
parties, acting in good faith, have been unable to agree, the parties agree to
submit the dispute to binding arbitration in accordance with Section 12(d);
provided, however, that during such Price Negotiation Period and/or arbitration,
the previously established and applicable indices and adjustment formulae shall
apply to all transactions and corresponding payment schedules of Bollore and the
Distributor. Notwithstanding the proviso contained in the previous sentence, if
after such Price Negotiation Period and/or arbitration a new price is
established, such new price shall apply retroactively to the parties and the
appropriate party shall pay, within 10 business days of the final determination
of the new price, to the party in whose favor a price adjustment is made, the
amount equal to the difference between the amount that would have been paid over
such period if the new price had been in effect and the amount that was actually
paid.
(e) All terms of sale shall be [**]. Ninety days prior to the beginning of
each calendar year, the Distributor shall deliver to Bollore a Product purchase
forecast on a quarter-by-quarter basis, anticipating its purchase requirements
for each Product during the next year (other than the forecast for the first
full
6
calendar year, which shall be delivered 15 days prior to the beginning of that
year). Purchases of Products shall be made by purchase orders on a quarterly
basis, with a firm purchase order to be delivered to Bollore at least 90 days
prior to the beginning of each calendar quarter. The Distributor's order for the
first quarter is as listed on Schedule B. Bollore shall not be required to
deliver to the Distributor more than [**], of the Distributor's
forecasted annual purchase requirements and Bollore shall in no event be
required to ship Products to the Distributor if such shipment is not fully
covered by the Letter of Credit referred to in Section 3(g) or if the
Distributor fails to make payment as provided in the second sentence of Section
6(c).
(f) Notwithstanding anything to the contrary in this Agreement, if at any
time the price received by Bollore under this Agreement for Products fails to
cover Bollore's costs (e.g., manufacturing, transportation, taxes, warehousing
and the like) for such Products, Bollore may give notice to the Distributor to
such effect, and thereby implement this Section (the "Adjustment Notice"), in
which event the parties shall promptly negotiate in good faith to determine if
they can agree on an adjustment to the price being charged under this Agreement
mutually acceptable to the parties. If the parties fail to reach an agreement
within 90 days of the delivery of the Adjustment Notice, the Distributor shall
have the right, subject to the conditions below, to contract with an alternate
supplier reasonably acceptable to Bollore ("Alternate Supplier") to manufacture
and supply the Products to the Distributor, in which event Bollore shall,
pursuant to Section 8(a), be deemed to have granted a royalty-free license to
the Distributor to permit such manufacture of the Products by the Alternate
Supplier for the sole account of the Distributor for such period as the
Distributor shall be entitled to purchase from such Alternate Supplier in
accordance with this Agreement.
During the 90-day period following the delivery of the Adjustment Notice,
and for up to an additional 6 months thereafter, if no agreement on a price
adjustment has been reached, Bollore shall continue to supply the Distributor
under this Agreement to enable the Distributor to retain an Alternate Supplier.
After such additional 6-month period, or at such earlier date as an Alternate
Supplier shall have commenced supplying Products to the Distributor, Bollore may
cease supplying the Distributor hereunder, with no further liability to the
Distributor to supply the Distributor with Products under this Agreement or to
pay a Price Differential Payment as referred to in Section 9(a) (unless Bollore
shall elect to continue
7
supplying the Distributor pursuant to the provisions of this Section as set
forth below).
The parties' rights under this Section shall be subject to the following:
(i) The Distributor shall give Bollore not less than 30 days prior
notice of the identity of, and the terms offered by, the Alternate
Supplier, and Bollore shall have the right, exercisable by notice given
within such 30-day period, to agree to supply the Distributor under this
Agreement for the same price terms offered by the Alternate Supplier, in
which event the Distributor shall not retain the Alternate Supplier, and
Bollore shall continue to exclusively supply the Distributor under this
Agreement, but on such price terms (the "Match Right") until the next Price
Negotiation Period;
(ii) Pursuant only to the terms of this Section 3(f), the Distributor
shall notify Bollore of any change in price terms (not the result of
changes due to the automatic operation of a specific price formula which
was part of the original price terms) by the Alternate Supplier within 5
business days of the Distributor being notified thereof, and Bollore shall
have a Match Right for 5 business days following receipt of such notice in
connection therewith;
(iii) If the Distributor is being supplied by an Alternate Supplier
pursuant to this Section, Bollore shall have the right, prior to or during
any subsequent Price Negotiation Period, to notify the Distributor that it
intends to commence shipping Product hereunder again (as of either (x) the
date such Price Negotiation Period commences or (y) the date final
agreement is reached or an arbitration award is issued with respect to
prices under Section 3(d)) and to exercise its right to negotiation and, if
necessary arbitrate a new price structure pursuant to Section 3(d) above,
in which event, thereafter Bollore shall supply, and the Distributor shall
purchase, Products in accordance with the prices in effect pursuant to the
terms of this Agreement, adjusted as may be required by such arbitration
award or agreement as provided in Section 3(d), subject to the right of
Bollore to give an Adjustment Notice under this Section again at a later
time; and
(iv) Any agreement between the Distributor and an Alternate Supplier
shall not contain provisions which prevent the Distributor from complying
with this Section.
8
(g) Pursuant to the Amended and Restated Distribution and License Agreement
of even date herewith between the parties hereto covering the United States
territory (the "U.S. Agreement"), the Distributor will establish and deliver to
Bollore the Letter of Credit (as defined in the U.S. Agreement). It is the
intent of the parties that the Letter of Credit will secure payments to be made
by the Distributor for shipments of Products pursuant to this Agreement as
provided in Section 6(c). Therefore, in the event that the Distributor does not
pay Bollore in accordance with Section 3(a) above within 15 days of the due date
thereof, Bollore may draw on the Letter of Credit to the extent of such unpaid
invoiced amount as provided in Section 6(c) below.
Notwithstanding anything to the contrary contained in this Agreement, and
notwithstanding any limitation in this Agreement on the amount of the Letter of
Credit Bollore may require Distributor to provide, in no event shall Bollore be
required to ship any Products ordered by the Distributor if the amount then
outstanding under the Letter of Credit is less than the aggregate of all unpaid
invoices then currently outstanding (including invoiced amounts that may be in
dispute) plus the invoice amount of the purchase order to be shipped, unless
Bollore waives in writing the requirement of a Letter of Credit, which Bollore
may do from time to time for specific shipments or specific time periods.
4. Advertising and Promotion.
(a) The Distributor shall submit to Bollore all written materials to be
used in advertising, promotional and marketing campaigns (all of which shall be
prepared in accordance with Section 8), for approval by Bollore, which approval
shall not be unreasonably withheld. If notice of disapproval shall not have been
given within 15 business days after receipt of such copy by Bollore, approval
shall be deemed granted. Notice of disapproval, if any, shall specify the
reasons for said disapproval.
(b) The Distributor shall comply in all material respects with all laws and
regulations of all jurisdictions, relative to its sales activities.
9
5. Exclusivity and Non-Competition.
(a) During the Term of this Agreement and for a period of five years after
termination of this Agreement, the Distributor shall not directly or indirectly,
manufacture, sell, distribute or otherwise deal in or be associated with
promotion in the Territory of cigarette paper or cigarette paper booklets
("Competitive Products") (including, but not limited to, owning an interest in
any company, partnership or other entity which directly or indirectly
manufactures, sells or distributes Competitive Products) except for (i) the
distribution and sale of such products produced by Bollore or by an Alternate
Supplier or by the Distributor as permitted by Sections 3(f), 9(a) and 9(b);
(ii) ownership of no more than 2% of the issued and outstanding stock of a
company whose securities are publicly traded on a national securities exchange
or an over-the-counter or similar public market; and (iii) the distribution and
sale of products manufactured by USTC with Bollore's consent pursuant to the
Consent Agreement. In addition, during the term of this Agreement and for a
period of five years after termination of this Agreement, the Distributor shall
cause its subsidiaries and affiliates (which for purposes of this Agreement
shall be deemed to include any Parent of the Distributor and the Original
Stockholders and Permitted Transferees (as such terms are defined in Section
10)) (collectively, the "Non-Compete Party") to comply with the provisions of
this Section.
(b) During the term of this Agreement, the Distributor shall not permit any
individual to serve as a director of the Distributor or its subsidiaries and
affiliates if such individual is an officer, director or employee of a
corporation, partnership or other entity which directly or indirectly
manufactures, sells, distributes or promotes Competitive Products.
(c) The Distributor acknowledges that there may be no adequate remedy at
law, and that money damages may not be an adequate remedy for a breach of this
Section. Therefore, the Distributor agrees that Bollore shall have the right, in
addition to its rights under Section 6(b)(v) and any other rights it may have,
to injunctive relief and specific performance in the event of the Distributor's
breach of this Section 5. This remedy shall be cumulative and shall in no way
limit any other remedy Bollore may have at law, in equity or under this
Agreement.
10
6. Term.
(a) The term of this Agreement shall commence on the Effective Date of this
Agreement and shall continue until the twentieth anniversary date of this
Agreement; whereupon this Agreement shall automatically renew thereafter for
successive twenty-year periods unless such initial term or renewal period is
earlier terminated in accordance with subparagraphs (b) or (c) below.
(b) Notwithstanding the foregoing, this Agreement shall terminate upon
written notice by the party indicated below as follows:
(i) (A) at the option of either party, if (x) there shall be filed by
the other party a petition under any reorganization, bankruptcy, insolvency
or similar statute, or if such party shall make an assignment for the
benefit of creditors, or if such party is being liquidated or dissolved,
(y) there shall be filed against the other party any petition specified in
clause (x) or such other party shall be adjudged a bankrupt or shall be
subject to an order of bankruptcy or if a receiver, trustee or custodian is
appointed, which results in the entry of an order of relief or if any or
substantially all of its assets are attached and any such petition,
adjudication, order or attachment remains undismissed, undischarged or
unbonded for a period of sixty days or (B) at the option of the Distributor
if the equivalent to the foregoing shall occur under the laws of any
foreign jurisdiction with respect to Bollore; or
(ii) at the option of Bollore, if the Distributor shall fail to
purchase and pay for in any calendar year a minimum of [**] booklets of the
Products for resale in the Territory, upon notice given within 120 days of
the end of such calendar year; or
(iii) at the option of Bollore, if there shall be a wilful material
breach by the Distributor of the terms of Section 4(a); Section 7; or
Sections 8(b), 8(c) or 8(d); and at the option of Bollore, if the
Distributor shall fail to comply in any material respect with the terms of
any final award granted by arbitrators pursuant to Section 12(d); in each
case where such breach or noncompliance under this Subsection (iii) shall
not be cured within 60 days after notice thereof; or
(iv) at the option of either party upon the termination of the U.S.
Agreement; or
11
(v) at the option of Bollore, immediately upon notice by Bollore if:
(A) either the Distributor or any Non-compete Party violates the terms of
Section 5(a) or 5(b); (B) any violation shall occur under Section 10(b);
(C) an assignment, delegation or sublicense by the Distributor shall occur
in violation of Section 12(a); or (D) the Distributor shall violate in any
material respect the second sentence of the first paragraph or the first
sentence of the third paragraph of Section 1(b); provided, however, that if
there shall have occurred, without the knowledge of Distributor, a
violation under (A) or (B) by a party other than Distributor, the
Distributor shall have a period of 10 days from the date it first has
knowledge of such violation to cure, or cause to be cured, such violation,
provided it shall promptly notify Bollore in writing that such violation
has occurred and the manner in which it has been cured.
(c) In the event the Distributor fails to make payment of any amount when
due under this Agreement, and such failure continues for more than 15 days from
the due date thereof, from and after such 15th day, (i) all amounts unpaid shall
bear interest from such 15th day to the date of payment at a rate equal to the
sum of (A) the "prime rate" as announced by Chemical Bank, N.A. (New York City)
from time to time as set forth in the Wall Street Journal which rate shall
change when and if such "prime rate" shall change, plus (B) 2%; and, (ii)
Bollore shall be entitled to draw upon the Letter of Credit, if any, in an
amount up to the lesser of the amount due or the principal amount remaining
under the Letter of Credit at any time by presenting a copy of a demand notice
to the issuer of the Letter of Credit (the "Draw Down"). If any amount
(including any interest payable hereunder) shall continue to remain outstanding
after the Draw Down on the Letter of Credit or, if there shall be no Letter of
Credit as contemplated by Section 3(g) or the U.S. Agreement, any amount shall
remain outstanding after 15 days from the due date thereof, Bollore may, by
written notice to the Distributor, terminate this Agreement effective on a date
specified in such notice, which date shall be not less than 120 days from the
original due date of the amount which has not been paid, unless payment of such
amount (together with accrued interest) is made prior to the close of business
on the business day immediately preceding the termination date specified in the
notice in which case such termination notice shall not be effective.
Notwithstanding the foregoing, in the event that the Distributor (i) in the case
of payment for Product, disputes in good faith any amounts due and owing for
product delivered as a result of a claim such product was defective or damaged
or there was invoice error or (ii) disputes in good faith any other amounts
claimed by Bollore to be due under this Agreement, Bollore shall not have
12
the right to terminate the Agreement as a result of non-payment of the disputed
amount unless the Distributor continues to fail to pay the amount due after the
dispute is resolved.
(d) After the end of the term of this Agreement, Bollore and any persons
designated by it shall be free to deal with all customers of the Distributor
within and throughout the Territory and may appoint, accept orders from, and
deliver Products to, one or more new distributors in the Territory, without
incurring any liability or obligation to the Distributor. Bollore shall have the
right by written notice to the Distributor within 30 days after the termination,
but not the obligation, to purchase from the Distributor all remaining undamaged
inventories of the Products then owned by the Distributor at the Distributor's
cost for such inventory. If Bollore elects not to purchase such inventory, the
Distributor shall have 90 days to sell any inventory in its possession, which
sale shall be consistent with the terms of this Agreement. Thereafter, the
Distributor shall not sell any Products or make any use of the Marks (as defined
in Section 8) without Bollore's prior written consent.
(e) All rights of termination under subparagraphs (b) and (c) shall be in
addition to all other rights and remedies available at law or under this
Agreement.
7. Insurance.
If the Distributor plans to distribute promotional products in addition to
the Products, the Distributor shall either (i) increase its insurance prior to
the distribution of such promotional products to cover any possible additional
liability related to the distribution of such new products or (ii) cause the
third party manufacturer of such promotional products to name Bollore as an
additional insured under its insurance policy.
If during the term of this Agreement the Distributor elects, pursuant to
Sections 3(f), 9(a) or 9(b), to select a substitute third-party manufacturer for
the Products, the Distributor agrees to cause such third-party manufacturer, at
its own cost and expense, (i) to obtain general and product liability insurance,
in commercially reasonable amounts, and (ii) to name Bollore as an additional
insured under such insurance policies. In the event the Distributor chooses to
manufacture the Products itself during the term hereof (in lieu of selecting a
third party manufacturer), prior to the commencement of such manufacture, the
13
Distributor shall obtain, at its own cost and expense, general and product
liability insurance in commercially reasonable amounts and shall name Bollore as
an additional insured under such insurance policies; provided, however, the
above shall not apply to any production prior to the Effective Date of this
Agreement by any third-party manufacturers for USTC of any ancillary or
promotional products. Pursuant to the terms of this Section 7, the Distributor
shall promptly provide Bollore with, and cause its third-party manufacturers to
provide promptly to Bollore, certificates evidencing the foregoing. Such
insurance shall provide that it may not be cancelled or modified without at
least 30 days' prior written notice to Bollore and that the issuer waives all
rights of subrogation against any insured party thereunder. All insurance under
this Section shall be in such commercially reasonable amounts and cover such
commercially reasonable risks as Bollere deems reasonably appropriate.
8. Trademark License.
(a) License. Subject to the terms and conditions hereinafter set forth,
Bollore hereby grants the Distributor an exclusive, royalty-free license to use
the marks "ZIG-ZAG" and the head design (as set forth on Schedule C) (the
"Marks") in the Territory in connection with the promotion of the Products for
the term of this Agreement. In the event that the Distributor is permitted to
use third party manufacturers for the Products or manufacture the Products
itself under the provisions of Sections 3(f), 9(a) or 9(b), then such license
shall automatically be deemed granted, as an exclusive, royalty-free license to
use the Marks in the Territory to manufacture or permit others to manufacture
the Products for the Distributor's account as provided in such sections and
subject at all times to the terms and restrictions set forth below (including,
without limitation, the quality control and notice provisions). Such license
shall automatically terminate when Bollore resumes supplying the Distributor
pursuant to Section 3(f) or 9(a), or if this Agreement shall terminate.
(b) Ownership and Use of Marks. The Distributor hereby acknowledges that,
as between the parties, Bollore is the sole owner of the Marks and all
variations thereof, for all uses (other than in connection with tobacco in
tubular or non-tubular form consisting of cigarettes, cigars, smoking tobacco,
chewing tobacco, roll-your-own cigarette tobacco and snuff (collectively,
"Tobacco Products")) and the good will pertaining thereto and that nothing
contained in this Agreement shall constitute an assignment of the Marks or grant
to the Distributor any right,
14
title or interest therein, except the right to use them as set forth in this
Agreement. The Distributor agrees that it will not contest Bollore's ownership
of and rights in the Marks or the validity of the registration of the Marks nor
take any action in derogation of Bollore's rights in the Marks and that all
goodwill and improved reputation generated by the Distributor's use of the Marks
shall inure to the benefit of Bollore. Bollore hereby acknowledges and approves
of the license agreements to be assigned to the Distributor by USTC pursuant to
the Asset Purchase Agreement listed on Schedule D hereto for ancillary and
promotional products and the Distributor hereby acknowledges that Bollore is the
sole and exclusive owner of the trademarks sub- licensed under such agreements
(with respect to all uses other than on Tobacco Products) and shall cooperate
with Bollore in obtaining registrations of the Marks in the categories referred
to in such license agreements. The Distributor shall at any time execute any
documents and provide specimens of use, at its own expense, as required by
Bollore to confirm Bollore's ownership of the Marks. Bollore shall, from time to
time, prosecute trademark applications as it deems necessary, the costs and
expenses of which shall be borne by Bollore. If at any time the Distributor
wishes to alter the Marks in any way or create new marks which are variations of
the Marks or are used in conjunction with the Marks, such alterations and new
marks (collectively, "New Marks") must be approved by Bollore prior to their
use. Bollore may withhold its approval for any reason. The New Marks, if
approved, shall be owned exclusively by Bollore and the Distributor shall assist
Bollore in obtaining any necessary registrations for such New Marks. In
addition, any reference in this Agreement to "Marks" shall be deemed to include
any New Marks approved by Bollore in the future.
(c) Quality Control. (i) The Distributor shall at all times maintain the
quality standards set forth by Bollore for all goods and services in connection
with which the Marks are used, except that if an Alternate Supplier or the
Distributor is permitted to manufacture Products under this Agreement, the
quality standards shall be determined in accordance with the next two sentences.
In the event that an Alternate Supplier or the Distributor is permitted to
manufacture under this Agreement, Bollore shall supply the Distributor with a
set of specifications for the manufacture of the Products within 8 business days
of Bollore's Adjustment Notice under Section 3(f) or Discontinuance Notice (as
hereafter defined) under Section 9(b), or the occurrence of a Disruption Event
(as hereafter defined) under Section 9(a), which specifications shall be the
same as those used by Bollore for the year immediately prior to the notice or
event. The Distributor shall submit to Bollore, for its written
15
approval, samples of any Product to be manufactured by an Alternate Supplier or
the Distributor and if Bollore and the Distributor are unable to agree whether
such samples meet the specifications within two business days, then the parties
shall submit the samples to an Independent Evaluator (selected in accordance
with the procedures set forth in Section 2) who shall determine whether or not
such samples meet the specifications within two business days and whose
determination shall be binding on the parties. The Distributor agrees to
cooperate with Bollore to ensure preservation of the goodwill associated with
the Marks and to comply in all material respects with all applicable laws and
regulations pertaining to the goods and services in connection with which the
Marks are used. All use of the Marks shall conform to the image and reputation
associated therewith.
(ii) The design and manufacture of all goods or promotional material
(an "Article") bearing the Xxxx shall be subject to the prior written
approval of Bollore. To this end, samples of each such Article shall be
submitted to Bollore, free of cost to Bollore, for written approval prior
to any distribution or other use by the Distributor. After such samples
have been approved by Bollore, the Distributor shall not modify or alter
the Article in any respect without Bollore's prior written consent. The
Distributor shall not use any other trademark or tradename (other than its
corporate name or other fictitious corporate name reasonably acceptable to
Bollore) in connection with the Products.
(iii) If at any time Bollore notifies the Distributor that an Article
(i) fails to be of substantially the same quality as that previously
approved by Bollore, the Distributor shall immediately cease the
production, sale, distribution and promotion of such non-conforming
Article, or (ii) fails to be of at least the same quality, but with defects
in quality that are not substantial, the Distributor shall cease production
of such Article, but shall not be required to cease distribution of such
Article for a period of 60 days, after which period no such Articles shall
be manufactured or distributed unless they conform to all quality standards
applicable thereto.
(d) Notices. The Distributor will cause the trademark notice "(R)" or
"(TM)", as requested by Bollore, and/or such other legend as reasonably
requested by Bollore in writing from time to time or as may be required by any
law or regulation in the jurisdiction in which any goods or services are
offered, to appear on labels, packaging, advertising and other promotional
materials, in such manner and location as requested by Bollore with respect to
the Marks. The Distributor shall not affix any
16
other trademark notice to any of the foregoing or to the Products without
Bollore's prior written approval. All cigarette paper booklets shall indicate
that the Distributor is the exclusive distributor of Bollore in the Territory
(provided that the Distributor may use up all inventory acquired from USTC which
indicates that USTC is the exclusive distributor of Bollore).
(e) Representation and Warranty. Bollore hereby represents and warrants to
the Distributor that it is the owner of the Canadian Registration Nos. UCA44319
for the xxxx "ZIG-ZAG" and 278058 for the head design for use in connection with
cigarette paper in Canada. Bollore makes no other express or implied
representations or warranties as to ownership of the Marks in Canada or for use
outside of the Territory or for use in connection with any goods or sen ices
other than cigarette paper and the Distributor assumes all risk with respect to
any such use thereof.
(f) Infringements. Each of Bollore and the Distributor shall promptly
notify the other, in writing, of any uses of the Marks in contravention of the
license under this Agreement or which otherwise may infringe on the Marks which
may come to such party's attention. Bollore shall have the option to send cease
and desist letters, commence and prosecute, at its own expense, such claims or
suits, and take such other action, as it in its sole discretion deems necessary
and the Distributor agrees to cooperate fully with Bollore in the prosecution of
any such claim. The Distributor shall have the option to commence and prosecute,
at its own expense, any such claim or suit (or take other enforcement action)
which Bollore determines not to commence or diligently pursue and Bollore agrees
to cooperate fully with the Distributor in the prosecution of any such claim.
All monetary recovery from any such claims or suits prosecuted shall be shared
equally between the parties, after reimbursement of the costs of prosecution.
9. Interruption in Supply; Permanent Discontinuance.
(a) If Bollore is unable to furnish some or all of the Distributor's
requirements for Products for any reason, other than (i) Bollore's inability to
furnish Products requested by the Distributor which exceed the quarterly or
monthly maximums set forth in the last sentence of Section 3(e), (ii) Bollore's
failure to ship Product as permitted by Section 3(g) or (iii) the application of
the second paragraph of Section 3(f) (a "Disruption Event"), then the
performance of the obligations of Bollore shall be suspended during the
continuance of any
17
Disruption Event and shall be resumed promptly upon the cessation of the
Disruption Event. During a Disruption Event, the Distributor shall be entitled
to substitute other cigarette paper of like quality to the extent its
requirements are not being filled by Bollore, subject to the provisions of
Section 8(c) above, with an Alternate Supplier, and Bollore may, at its option,
select the Alternate Supplier who shall be reasonably satisfactory to the
Distributor. In such event, Bollore shall reimburse the Distributor for the cost
of the substituted product from such alternate sources to the extent it exceeds
the current purchase price of the Product (the "Price Differential Payment").
(b) In the event that Bollore decides to discontinue its cigarette paper
manufacturing operations permanently without assigning its rights to the
"ZIG-ZAG" xxxx and this Agreement to a third party as described in the second
sentence of the second paragraph of Section 12(a), it shall provide the
Distributor with written notice of such decision ("Discontinuance Notice") at
least 90 days prior to the effective date of such discontinuance, and the
Distributor shall be permitted to manufacture or permit others to manufacture
the Products for the Distributor's account pursuant to Section 8 hereof, with an
Alternate Supplier. After such 90-day period, Bollore may discontinue its
operations with no further liability to ship the Products to the Distributor
hereunder or to pay the Price Differential Payment.
10. Changes in Control of the Distributor.
(a) For purposes of this Section, the following definitions shall apply:
"Change in Control" shall mean a failure of (i) the Original Stockholders
and their Permitted Transferees to own beneficially (and solely control the
voting of), in the aggregate, at least 51% of the issued and outstanding voting
capital stock of all classes of the Parent, and retain the ability to elect a
majority of the directors of the Parent; or (ii) the Parent to own and solely
control the voting of, in the aggregate, at least 51% of the issued and
outstanding voting capital stock of all classes of the Distributor and retain
the ability to elect a majority of the directors of the Distributor.
"Competitor" shall mean any person, corporation, partnership or other
entity that, directly or indirectly, manufactures, sells, markets, distributes
or promotes cigarette paper or cigarette paper booklets in the Territory, or
which
18
owns, directly or indirectly, more than 30% of any class of voting capital stock
of a Competitor.
"Original Stockholder" shall mean each of Xxxx Xxxxx, Xxxxx Xxxxxxx and
Xxxx Xxxxxx.
"Parent" shall mean any company which owns directly or indirectly 50% or
more of the voting capital stock of any class of the Distributor or another
Parent and/or has the ability to elect a majority of the directors of the
Distributor or another Parent.
"Permitted Transferee" shall mean any spouse or lineal descendent of an
Original Stockholder or any trust for the benefit of any spouse or lineal
descendent where the trustees consist of Original Stockholders or Permitted
Transferees or a bank, trust company or attorney-at-law, which is not a
Competitor.
(b) The following shall constitute violations of this Section:
(i) if at any time an Original Stockholder or any Permitted Transferee
or a Parent (as the case may be), transfers any shares of voting capital
stock of any class of the Distributor or of a Parent to a Competitor;
(ii) if at any time a Competitor acquires a total of at least 30% of
any class of voting capital stock of the Distributor or a Parent (whether
or not from an Original Stockholder or Permitted Transferee);
(iii) if at any time before the fifth anniversary of the Effective
Date of this Agreement, there is a Change in Control in either the
Distributor or a Parent without the consent of Bollore, which may be
withheld for any reason;
(iv) if at any time after the fifth anniversary of the Effective Date
of this Agreement, there is a Change in Control in either the Distributor
or a Parent without the consent of Bollore, which may not be unreasonably
withheld or delayed, it being understood that Bollore's refusal to consent
to a transfer to a Competitor shall not be deemed unreasonable.
19
11. Confidentiality.
(a) Bollore and the Distributor acknowledge that the information each party
has provided or will provide in connection with the negotiation of and during
the term of this Agreement, including, without limitation, this Agreement, are
and shall be confidential and proprietary to the parties supplying such
information (the "Confidential Information"). Each party agrees not to use or
disclose to any third party the Confidential Information of the other party
except as required for performance of its obligations under this Agreement.
Moreover, each party hereto agrees to restrict dissemination of particular
Confidential Information to only those persons in its respective organization
who must have access to such Confidential Information in order to perform its
obligations under this Agreement and will advise such persons of the
confidentiality obligations hereunder.
(b) The parties' obligations with regard to any Confidential Information
shall not apply in respect of such information that:
(i) was in the public domain at the time it was disclosed;
(ii) was disclosed with the written consent of the other party;
(iii) becomes known to the disclosing party from a third party without
breach of this Agreement; or
(iv) is required to be disclosed by any state or federal court or
agency, provided that, if permitted by law, the disclosing party shall
promptly inform the non-disclosing party of the request to disclose, and
as the non-disclosing party may reasonably request, the disclosing party
shall assist the non-disclosing party, at the expense of the non-disclosing
party, in any effort by such party to obtain a protective order with
respect to such Confidential Information.
(c) In the event this Agreement is terminated, each party in possession of
Confidential Information of the other party shall promptly return such
Confidential Information (and any copies, extracts and summaries thereof) to the
other party, or, with the other party's written consent, shall promptly destroy
such Confidential Information (and any copies, extracts and summaries thereof).
20
(d) The provisions of this Section 11 shall survive for a period of five
years after termination of this Agreement.
12. Additional Provisions.
(a) Except as otherwise expressly provided in this Agreement, the
Distributor may not assign, delegate or sublicense any of its rights or duties
hereunder, by operation of law or otherwise, to any other person or entity
without the prior written consent of Bollore before such assignment, delegation
or sublicense is made; provided, however, that the Distributor may, upon prior
written notice to Bollore, assign this Agreement to a wholly-owned subsidiary
provided that (i) such assignee shall agree in a writing reasonably acceptable
to Bollore, to be bound by the terms of this Agreement, and (ii) the Distributor
shall continue to be primarily liable hereunder on its own behalf and on behalf
of such assignee.
Bollore may assign, delegate or sublicense this Agreement, or any of its
rights or obligations hereunder, provided Bollore shall remain primarily liable
hereunder for itself and on behalf of any party to which such assignment,
delegation or sublicense is made. In addition, Bollore may assign this Agreement
(with prior written notice to the Distributor, but without its consent) to an
unaffiliated third party purchaser (by purchase, license or otherwise) of
Bollore's rights to the "ZIG-ZAG" trademark in the Territory, in which event
such purchaser shall be bound by this Agreement, and Bollore shall have no
further liability hereunder, except with regard to matters arising prior to such
assignment. In the event that Bollore assigns this Agreement to a third party as
contemplated by the immediately preceding sentence prior to the tenth
anniversary of the Effective Date of this Agreement (the "Transfer Price
Protection Period"), the price provisions under Sections 3(a), (b) and (c) shall
continue for the shorter of five years or the expiration of the Transfer Price
Protection Period, and such assignee shall not have the right to exercise any
right to renegotiate such price formula pursuant to Section 3(d) until 120 days
prior to the earlier of the expiration of five years after the date such
assignment becomes effective or the expiration of such Transfer Price Protection
Period.
(b) The parties hereto agree that with regard to the licenses granted to
the Distributor pursuant to Section 6 hereof, no assignment or transfer of the
goodwill to the Bollore Trademarks is or has been deemed to have taken effect,
and the Distributor and Bollore acknowledge and agree that all
21
proprietary interest in and to the Bollore Trademarks shall remain with Bollore.
(c) Any notice required under this Agreement shall be deemed duly given (i)
upon receipt by delivery in person or by courier or by telegram, telex,
telefacsimile which is confirmed by letter mailed certified or registered mail
or (ii) 5 days after being mailed by registered or certified mail, postage
prepaid return receipt requested, addressed as follows:
If to Bollore:
Bollore Technologies, S.A.
00/00 xxxx xx Xxxx Xxxxxx
00000 Xxxxxxx Xxxxx, Xxxxxx
Attention: Xxxxxx Xxxxxxx
Telefax: 011-331-46-96-40-15
and, in the case of any notice relating to a claimed
breach of this Agreement, with a copy to:
Xxxxxx X. Xxxxxxxxxxx, Esq.
Proskauer Xxxx Xxxxx & Xxxxxxxxxx
0000 Xxxxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telefax: 000-000-0000
If to the Distributor:
North Atlantic Trading Company, Inc.
x/x Xxxxx, Xxxxxxx & Xxxxxx
0000 Xxxxxx of the Xxxxxxxx, 0xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxx Xxxxxx
Telefax: 000-000-0000
and, in the case of any notice relating to a claimed
breach of this Agreement, with a copy to:
Xxxxxx X. Xxxxx, Esg.
Xxxxxx & Xxxxx
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telefax: 000-000-0000
Any party may change its address for the giving of notice by notice given in the
above manner. No other form of giving notice
22
is precluded, but notice given by any other means shall not be duly given unless
and until actually received by the addressee.
(d) Should any dispute arise in connection with this Agreement, including,
without limitation, the interpretation of this Agreement, or the performance or
breach of any provision herein, or a purchase price adjustment is required under
the last paragraph of Section 2 or under Section 3(d) and such dispute cannot be
settled by good faith negotiation between the parties in accordance with the
terms hereof, at the written request of either party, such dispute shall be
finally and conclusively settled by binding arbitration held and conducted in
the State of New York in accordance with the rules of the American Arbitration
Association; except that any dispute regarding whether any Product meets
Bollore's quality standards shall be submitted to an Independent Evaluator as
contemplated by Section 2 or 8(c). Such arbitration shall be conducted by a
panel of three arbitrators who are each an industry expert. Each party shall
appoint one arbitrator within 15 days who is unaffiliated with that party and
the two appointed arbitrators shall agree on a third unaffiliated arbitrator
within 15-days. Judgment upon the award rendered may be entered in any court
having jurisdiction or application may be made to such court for a judicial
acceptance of the award or an order for enforcement, as the case may be. The
foregoing, however, shall not preclude either party from bringing an action in
the courts for equitable relief pursuant to Section 5(c), or terminating this
Agreement pursuant to Section 6(b) or (c).
The submission of any dispute for resolution to arbitration or to the
courts, as aforesaid, shall not, in and of itself, operate to terminate this
Agreement. Each party shall bear its own costs incurred during the arbitration,
and shall equally share the filing or other fees required to institute the
arbitration.
(e) Notwithstanding anything to the contrary contained in this Agreement,
the effectiveness of this Agreement is contingent upon (i) the Closing under the
Asset Purchase Agreement and (ii) Bollore's receipt of the Closing Consent
Payment as defined in the Consent Agreement. For purposes of this Agreement, the
"Effective Date" of this Agreement shall be the date of such Closing. This
Agreement shall terminate and shall be of no further force and effect if the
Closing has not occurred on or before February 1, 1993. The Distributor shall
have no liability under the Bollore Documents for matters arising prior to the
Effective Date of this Agreement.
23
(f) This Agreement constitutes the entire Agreement between the parties
with respect to the subject matter hereof, supersedes the Bollore Documents in
their entirety and all prior agreements relating to the subject matter hereof,
and can be amended, changed or extended only by a writing duly signed by both of
the parties. No waiver of a breach hereunder shall be valid unless contained in
a writing duly signed by the waiving party and a waiver given on any one
occasion shall not be deemed to be a waiver of the same or any other breach on
any other occasion. This Agreement shall be governed by and construed under the
internal laws of the State of New York applicable to contracts made and to be
performed within the State of New York.
(g) This Agreement may be signed in counterparts, each of which shall be an
original and both of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have hereunto duly executed this Agreement
as of November 30, 1992.
BOLLORE TECHNOLOGIES, S.A.
By:/s/ Xxxxxx Xxxx
---------------------------
Name: Xxxxxx Xxxx
Title: Financial Manager
NORTH ATLANTIC TRADING COMPANY, INC.
By:/s/ Xxxxxxxxxxx Xxxxxxx
---------------------------
Name: Xxxxxxxxxxx Xxxxxxx
Title: Vice Chairman
24
