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 in Hong Kong, Singapore, Dubai, Qatar, Oman and Jordan (collectively,
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.
(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
2
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 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
3
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 is such modification increases Bollore's
costs, the parties shall negotiate in good faith for 30 days for a mutually
agreed 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 payment 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.
4
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 [**]. From January 1, 1995 through December 31,
1998, the prices set forth on Schedule A shall be adjusted as of the first day
of each year by a percentage equal to the percentage increase in the United
States Consumer Price Index for the Northeast urban region over the previous
year.
(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 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
5
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 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
6
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 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
7
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.
(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 of 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
8
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.
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)(iv) and any other rights it may have,
to injunctive relief and specific performance in the event
9
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.
6. Term.
(a) The term of this Agreement shall commence on the Effective Date of this
Agreement and shall continue until the tenth anniversary date of this Agreement
(the "Initial Term"), unless such Initial Term is earlier terminated in
accordance with subparagraphs (b) or (c) below. Provided that the Distributor is
not in breach in any material respect of this Agreement, and provided further
that the Distributor has purchased at least [**] booklets for resale within the
Territory in each of the last three years of the Initial Term (the "Renewal
Requirement"), this Agreement shall automatically renew thereafter for an
additional term of ten years. If at the end of the Initial Term the Distributor
has not met the Renewal Requirement, Bollore shall have the option, exercisable
within 120 days after the end of the Initial Term, to terminate this Agreement
in its entirety or only as to certain portions of the Territory.
(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 is 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 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 (ii) shall
not be cured within 60 days after notice thereof; or
10
(iii) at the option of either party upon the termination of the U.S.
Agreement; provided, however, that in the event that either party has the
option to terminate under this subparagraph (iii), they shall have the
right to terminate this Agreement in its entirety or only as to certain
portions of the Territory; or
(iv) at the option of Bollore, immediately upon notice of 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
11
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 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
Distributor shall obtain, at its own cost and expense, general
12
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 Bollore 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 vent 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 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, 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
13
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 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 its 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 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
qualify 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
hereinafter defined) under Section 9(b), or the occurrence of a Disruption Event
(as hereinafter 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 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.
14
(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 case 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 "o" 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 that jurisdiction in which and 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 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 an 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 makes no express or implied
representations or warranties as to ownership of the of the Marks for use in the
Territory, except that Bollore has been granted the registrations or has made
applications for the registrations listed on Schedule E, or for use of the Marks
in connection with any goods or services 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 use of the Marks in contravention of the
license under this
15
Agreement of 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 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.
16
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 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);
17
(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.
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
18
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).
(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 events
such purchaser acquirer 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
19
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 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 or 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 x Xxxx xxxxxx
00000 Xxxxxxx Xxxxx, Xxxxxx
Attention: Xxxxxx Xxxxxxx, Esq.
Telefax: 011-311-46-96-40-15
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:
20
Xxxxxx X. Xxxxx, Esq.
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 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 Sections 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 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) Bolore'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
21
occurred on or before February 1, 1993. The Distributor shall have no liability
under the Bolore Documents for matters arising prior to the Effective Date of
this Agreement.
(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.
22
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
23
SCHEDULE A
PRODUCTS
--------
21 K/32 leaves
22K/32 leaves
225K/32 leaves
No. 147/32 leaves
No. 1 1/2/32 leaves
[**] ordered, delivered and paid for within that calendar year.
* Prices are based on shipments of 24 booklets per box; 25 boxes per
case; and prices apply only to full container loads.
SCHEDULE B
FIRST QUARTER ORDER
-------------------
The Distributor shall deliver its first quarter order no later than 10
days prior to the Closing under the Asset Purchase Agreement, which order shall
be no more than [**].
2
SCHEDULE C
TRADEMARKS
----------
CURRENT
XXXX REG. NO. CLASS DATE REG. RECORD OWNER
---- -------- ----- --------- ------------
ZIG-ZAG 1033 34 11/10/77 Bollore
(Hong Kong)
Design Only 1208 34 11/10/77 Bollore
(Hong Kong)
ZIG-ZAG 73603 34 11/09/77 Bollore
(Singapore)
Design Only 73604 34 11/09/77 Bollore
(Singapore)
3
SCHEDULE D
United States Tobacco Company has entered into two license agreements
with American Trading and Mercantile, Inc. with respect to the use of the
ZIG-ZAG marks as follows:
A. License Agreement, dated October 9, 1989 between United States
Tobacco Company and American Trading and Mercantile, Inc. (Caps, Baseball
Shirts, Jackets, Night Shirts, Shorts, Sweatshirts, T-Shirts, Towels).
B. License Agreement, dated February 1, 1982 between United States
Tobacco Company and American Trading and Mercantile, Inc. (Cigarette Rolling
Machine).
4
SCHEDULE E
1. Hong Kong
a. Registration No. 1033 for International Class 34
("ZIG-ZAG").
b. Registration No. 1208 for International Class 34
(Head Design).
2. Singapore
a. Registration No. 73603 for International Class 34
("ZIG-ZAG").
b. Xxxxxxxxxxxx Xx. 00000 for International Class 34
(Head Design).
5
