EXHIBIT 10.5
CONTRACT MANUFACTURING AGREEMENT
EXECUTION COPY
This Contract Manufacturing Agreement (the "Agreement") is made and
entered into as of this 30th day of July, 2004 (the "Effective Date"), by and
between R. J. REYNOLDS TOBACCO COMPANY, a North Carolina corporation
(hereinafter, "RJRTC"), and B.A.T (U.K. & EXPORT) LIMITED, a corporation formed
under the laws of England and Wales (hereinafter, "BATUKE"). RJRTC and BATUKE
shall be referred to herein individually as a "Party" and collectively as the
"Parties."
RECITALS
WHEREAS, BATUKE or its Affiliates have the right to distribute, market
and sell certain Cigarettes (as defined below) and other tobacco products in the
Territory (as defined below);
WHEREAS, prior to the Effective Date, certain American-blend Cigarettes
sold by BATUKE or its Affiliates were manufactured in the United States by Brown
& Williamson Tobacco Corporation ("B&W"). B&W and BATUKE are both indirect
wholly owned subsidiaries of B.A.T. (as defined below);
WHEREAS, on October 27, 2003, B&W and RJRTC's Affiliate, R.J. Reynolds
Tobacco Holdings, Inc., entered into a Business Combination Agreement (the
"BCA"), which requires in the pertinent part that an agreement for the contract
manufacturing of certain American-blend Cigarettes be entered between RJRTC and
BATUKE;
WHEREAS, BATUKE and its Affiliates desire to continue to have
American-blend Cigarettes sold in the Territory manufactured in the United
States and wish to engage RJRTC to manufacture those products in the United
States pursuant to this Agreement;
WHEREAS, RJRTC has facilities for, and expertise relating to, the
manufacture of American-blend Cigarettes and other tobacco products; and,
WHEREAS, RJRTC is willing to manufacture American-blend Cigarettes for
BATUKE and its Affiliates in the United States pursuant to the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the mutuality,
receipt and sufficiency of which are hereby acknowledged, RJRTC and BATUKE agree
as follows:
SECTION 1
DEFINITIONS
For purposes of this Agreement, the following terms shall mean:
1.1 "AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.
1.2 "AGREEMENT" has the meaning set forth in the Preamble above and shall
also include any and all Schedules attached hereto, as may be amended from time
to time by mutual agreement of the Parties.
1.3 "ANTIBOYCOTT LAWS" means laws and regulations of the U.S.A. that
prohibit participation or cooperation with, agreements to cooperate with and, in
some cases, the provision of information in support of, any international
boycott not sanctioned by the U.S.A., such as the Arab League boycott of Israel,
and including but not limited to Section 999 of the U.S.A. Internal Revenue Code
of 1986, and guidelines issued thereunder, and the U.S.A. Export Administration
Regulations, 15 C.F.R. Part 760.
1.4 B.A.T. means British American Tobacco p.l.c., BATUKE's indirect parent
corporation.
1.5 "B.A.T. CUSTOMER" means BATUKE and/or any present or future Affiliate
of B.A.T. which chooses to have American-blend Cigarettes manufactured in the
United States for sale or distribution in the Territory. The definition of
"B.A.T. Customer" shall not include B.A.T.'s Affiliates BATUS Japan, Inc. or
Rothmans Far East, B.V., which will order the manufacture of Cigarettes from
RJRTC under a separate agreement.
1.6 "B.A.T. CUSTOMER INDEMNIFIED PARTY" has the meaning set forth in
Sub-Section 6.9.
1.7 "CARTON" means a container that contains Cigarette Packages and
associated materials including, but not limited to, inserts and onserts (e.g.,
ten (10) packages of twenty (20) Cigarettes each).
1.8 "CASE" means a shipping container that contains Cartons (e.g., a
container which contains fifty (50) cartons).
1.9 "CIGARETTE" means: (a) any roll of tobacco wrapped in paper or in any
substance not containing tobacco, or (b) any roll of tobacco wrapped in any
substance containing tobacco which, because of its appearance, the type of
tobacco used in the filler, or its packaging or labeling, is likely to be
offered to, or purchased by consumers, as a cigarette described in the foregoing
clause (a).
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1.10 "CIGARETTE PACKAGE" means the smallest container for Cigarettes that,
when filled with Cigarettes and sealed, is intended for distribution and sale
(e.g., packs of twenty (20) Cigarettes).
1.11 "CONFIDENTIAL INFORMATION" means; (a) information or data (whether of a
technical or business nature), including, but not limited to, that relating to
research, development, know-how, inventions, Trade Secrets, engineering,
manufacturing, proposals and business plans, marketing plans and matters,
financial matters and arrangements, personnel matters, sales, suppliers or
customers; or (b) proprietary information or data of either Party hereto or of a
third Person with whom such Party has an obligation of confidence (including all
such information owned by any Affiliate of either Party and/or any B.A.T.
Customer), whether created by a Party individually or through the efforts
contemplated by this Agreement; or (c) any other information or data, not
publicly known, of either Party hereto or of a third Person with whom such Party
has an obligation of confidence (including all such information owned by any
Affiliate of either Party and/or any B.A.T. Customer); whether any of the
foregoing set forth in clauses (a)-(c) above is observed or in oral, written,
graphic or electronic form, and whether or not marked or otherwise identified as
"confidential."
1.12 "CONTRACT YEAR" means each successive period during the Term of this
Agreement running from January 1st through December 31st.
1.13 "DAMAGES" has the meaning set forth in Sub-Section 6.8.
1.14 "DELIVERY GRACE PERIOD" has the meaning set forth in Sub-Section
2.17(c).
1.15 "EFFECTIVE DATE" is the date set forth in the Preamble above.
1.16 "EXPORT LICENSE" means any license, permit, or other authorization
issued by a Governmental Authority, including but not limited to OFAC (as
defined below), permitting the manufacture, export and/or sale of the Products
hereunder.
1.17 "FOREIGN CORRUPT PRACTICES ACT" means 15 U.S.C. Sections 78dd-l, et
seq. and any and all amendments thereto.
1.18 "GOVERNMENTAL AUTHORITY" means any of the following: (a) the government
of the U.S.A. or any other foreign country; (b) the government of any state,
province, county, municipality, city, town, or district of the U.S.A. or any
foreign country, and any multi-country district; and (c) any ministry, agency,
department, authority, commission, administration, court, magistrate, tribunal,
arbitrator, instrumentality, or political subdivision of, or within the
geographical jurisdiction of, any government described in the foregoing clauses
(a) and (b).
1.19 "INCOTERMS" means the terms for the international transportation of
goods published by the International Chamber of Commerce, as in effect from time
to time during the Term of this Agreement.
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1.20 "INTELLECTUAL PROPERTY" means information, concepts, ideas,
discoveries, inventions (whether conceived or reduced to practice, and whether
or not patentable), Specifications, requirements, samples of prototypical
Cigarettes and Cigarette components, data, codes and programs, graphics,
designs, prints, sketches, drawings and photographs, developments, processes and
methods, know-how, Trades Secrets, patent applications, patents, other
intellectual property of any type (including copyrights, trademarks, and service
marks), and enhancements, derivatives, and improvements thereof.
1.21 "NON-TOBACCO COMPONENT" means a material that is used in combination
with any Tobacco Material for the manufacture of Cigarettes, including tobacco
rod wrapping materials, filter materials and components, plug wrapping
materials, tipping materials, inks, flavor and casing components, and Packaging.
1.22 "OFAC" means the United States Department of the Treasury, Office of
Foreign Assets Control, or any successor agency, department or unit of the
federal government of the U.S.A. with regulatory authority over export/re-export
transactions subject to U.S.A. jurisdiction.
1.23 "ON TIME/IN FULL" is the performance metric used in certain
circumstances to measure RJRTC's performance under this Agreement. On Time/In
Full delivery performance is measured at the Purchase Order SKU order line
level. To be credited for On Time/In Full delivery of a specific Purchase Order
SKU order line, RJRTC must: (a) deliver one hundred percent (100%) of the SKU
volume ordered; (b) on the firm delivery date established pursuant to the
mechanisms provided in Sub-Section 2.16 of this Agreement for the particular
Purchase Order SKU order line; (c) "across the ship's rail," port of export or,
if air freight delivery is required by the applicable Purchase Order, at the
fuselage of the aircraft; and (d) with all export and shipping documentation
fully and properly completed. For purposes of Sub-Sections 1.23(b) and (c)
above, should RJRTC cause a specific Purchase Order SKU order line volume to
arrive in the country in the Territory where the Products are to be sold at
retail not later than the date on which such SKU volume would have arrived in
such country if delivered "across the ship's rail," port of export by RJRTC on
the firm delivery date established pursuant to the mechanisms provided in
Sub-Section 2.16, then such Purchase Order SKU order line volume shall be deemed
delivered on time.
1.24 "ON TIME/IN FULL DELIVERY PERCENTAGE" means the percentage of RJRTC's
On Time/In Full deliveries over the time period stated in Sub-Section 2.17(d)
measured as follows: [(total number of Purchase Order SKU order lines issued
during the measurement period by all B.A.T. Customers and accepted by RJRTC)
minus (number of total Purchase Order SKU order lines not delivered by RJRTC On
Time/In Full)] divided by (total number of Purchase Order SKU order lines issued
during the measurement period by all B.A.T. Customers and accepted by RJRTC)
times one hundred (100). Stated formulaically:
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Number of Total Purchase Order SKU order lines issued during the measurement
period by all B.A.T. Customers and accepted by RJRTC (-) Number of Total
Purchase Order SKU order lines not delivered On Time/In Full
_____________________________________________ x 100 = On Time/In Full Delivery
Percentage
Total Purchase Order SKU order lines issued
during the measurement period by all B.A.T. Customers
and accepted by RJRTC
By way of illustration, if over the applicable measurement period orders for
1,500 total Purchase Order SKU order lines were issued by B.A.T. Customers and
accepted by RJRTC, and RJRTC has On Time/In Full delivery of 1,450 of such total
Purchase Order SKU order lines, RJRTC's On Time/In Full Delivery Percentage for
the measurement period would be as follows:
1,500 (-)50
_____________ x 100-96.6%
1,500
1.25 "OUTSIDE THE JURISDICTION OF THE U.S.A." means all places other than
the fifty (50) States of the U.S.A., including offshore areas within their
jurisdiction pursuant to Section 3 of the Submerged Lands Act (43
U.S.C. Section 1311), the District of Columbia, Puerto Rico, and all
territories, dependencies, and possessions of the U.S.A., including foreign
trade zones established pursuant to 19 U.S.C. Sections 81A-81U, and also
including the outer continental shelf, as defined in Section 2(a) of the Outer
Continental Shelf Lands Act (43 U.S.C. Section 1331 (a)).
1.26 "PACKAGING" means materials that are used to contain Cigarettes (or
containers enclosing Cigarettes) for the purpose of distribution and sale to
customers, including component materials referred to as foil, innerframes,
closures, Cigarette boxes, labels, films, tear tapes, optional pack inserts and
onserts, cartons and cases, including all graphics, holographics and printed
matter on such materials.
1.27 "PERSON" means any firm, corporation, partnership, limited liability
company, joint venture, trust, unincorporated association or organization,
business, enterprise or other entity, any individual and any Governmental
Authority.
1.28 "PPI" means the Producer Price Index for Stage of Processing - Finished
Goods, as compiled by the United States Bureau of Labor Statistics (1982 = 100).
If the Bureau of Labor Statistics substantially revises the manner in which the
PPI is determined, an adjustment shall be made in the revised index that will
produce results equivalent, as nearly as possible, to those that would be
obtained if the PPI had not been so revised. If the 1982 average is no longer
used as an index of one hundred (100), or if the PPI is no
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longer available, then the Parties shall substitute a mutually acceptable
comparable index, based on changes in the cost of production measured at the
finished goods level published by an agency of the federal government of the
U.S.A.
1.29 "PRINCIPAL PARTY IN INTEREST" means the Person in the U.S.A. listed as
such on Shipper's Export Declarations or Automated Export System records (and as
defined in the U.S.A. Export Administration Regulations (15 C.F.R. Part 730 et
seq.) and the U.S.A. Foreign Trade Statistics Regulations (15 C.F.R. Part 30))
as the Person that receives the primary benefit, monetary or otherwise, of the
transaction associated with such export shipment.
1.30 "PRODUCT" OR "PRODUCTS" means American-blend Cigarettes manufactured
for B.A.T. Customers pursuant to this Agreement which are intended to be
distributed or sold in the Territory.
1.31 "PRODUCT BASE PRICES" means the prices for each Product chargeable by
RJRTC for Products subject to Purchase Orders issued by B.A.T. Customers between
the Effective Date and the end of Contract Year 2004. The Product Base Prices
are listed on the attached Schedule "A." The Product Base Prices are calculated
by adding (or subtracting) all of the costing elements identified on Schedule
"A." Schedule "A" includes the International Order Policies & Customer
Responsibilities included therewith.
1.32 "PROHIBITED COUNTRIES" means countries subject to Trade Restrictions
(as defined below) and for which no Governmental Authority licenses or
authorizations permitting manufacture or export of Products are obtained. For
the purposes of this Agreement, Prohibited Countries shall not include
Restricted Countries.
1.33 "PURCHASE ORDER" means a purchase order issued by BATUKE or another
B.A.T. Customer to RJRTC containing the following information about an order for
Products pursuant to this Agreement: (a) identity of Products by SKU, with each
SKU ordered entered on a separate order line; (b) quantity of Products by SKU;
(c) delivery instructions and required delivery date(s) for the Products "across
the ship's rail," port of export or, if air freight delivery is required by the
applicable Purchase Order, at the fuselage of the aircraft (with each Purchase
Order possibly providing for multiple deliveries of Product by SKU at scheduled
intervals); (d) shipping instructions; (e) consignee identification; (f) contact
personnel; (g) Case mark requirements; (h) matters including "bill to" and "sold
to" (which will be the B.A.T. Customer which placed the Purchase Order); and (i)
such other requirements as the applicable B.A.T. Customer may specify or RJRTC
may reasonably require.
1.34 "RAI" means Reynolds American Inc., RJRTC's parent corporation.
1.35 "RECEIVING PARTY" has the meaning set forth in Sub-Section 5.1.
1.36 "RESTRICTED COUNTRIES" means those countries in the Territory that from
time to time are subject to Trade Restrictions and for which Products are
manufactured for export
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under this Agreement by RJRTC pursuant to licenses or other authorizations duly
issued and in effect by the applicable Governmental Authority whether within or
outside the U.S.A, including but not limited to OFAC, and to which the
additional provisions of Schedule "C" shall apply. These additional provisions
shall prevail only to the extent that they are inconsistent with the other
provisions of this Agreement.
1.37 "RESTRICTED COUNTRIES RENEWAL TERM" has the meaning set forth in
Schedule.
1.38 "RESTRICTED PARTIES" means Persons who have been denied export
privileges or who are otherwise restricted under the U.S.A. Export
Administration Regulations or with respect to whom transactions, including but
not limited to export and financial transactions, are restricted, pursuant to
applicable Trade Restrictions (as defined below) in force from time to time.
1.39 "RJRTC INDEMNIFIED PARTY" has the meaning set forth in Sub-Section 6.8.
1.40 "SKU" means a stock keeping unit designation referring to a particular
Cigarette brand style.
1.41 "SPECIFICATIONS" means specifications and standards set by the B.A.T.
Customers for their respective Products and Packaging on the Effective Date, and
which are consistent with the specifications and manufacturing standards met by
B&W immediately prior to the Effective Date, as set forth in the Specifications
manuals. Unless changed pursuant to the procedures set forth in this Agreement
with respect to the Products and their Packaging, the Parties agree and
acknowledge that, once secondary production is moved to RJRTC's North Carolina
facilities, Specifications relating to the process of manufacture will be
reoriented to reflect different processes in manufacturing and/or quality
systems at RJRTC's North Carolina facilities, provided that such new process
specifications or specified materials do not alter the Product or Packaging
performance or characteristics of the Product or its Packaging discernable to
consumers when they interact with the Product or its Packaging, or marketing
claims made for the Product prior to the time of reorientation. The Parties
acknowledge that, prior to the Effective Date, the Specifications manuals have
been provided to and reviewed by RJRTC and that both Parties have a copy of the
Specification manuals initialed by the other Party.
1.42 "TERM" means the period in which this Agreement is in effect as defined
in Section 4 and, where applicable, each Restricted Countries Renewal Term.
1.43 "TERRITORY" means all countries in the World where any B.A.T. Customers
distribute and sell Products, excluding Japan and the U.S.A., as stated on the
attached Schedule "B."
1.44 "TOBACCO MATERIAL" means any type or form of tobacco, including tobacco
in whole leaf, strip, stem or blended cut filler form, reconstituted tobacco,
and including
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tobacco by-products, and tobacco in any type of processed form, whether or not
in blended form.
1.45 "TRADEMARK" means any trademark: (a) that at any time is used on or in
connection with a Product or (b) that is owned, licensed or controlled by any
B.A.T. Customer.
1.46 "TRADE RESTRICTIONS" mean restrictions on trade and dealings with
certain countries, Persons or entities, including but not limited to
restrictions on exports, imports, sales, and supplies of products,
transshipments, and financial transactions imposed pursuant to export controls,
trade sanctions and other trade and investment regulations of the U.S.A. and/or
any other Governmental Authority outside the U.S.A. in force from time to time.
1.47 "TRADE SECRET" means information and data, including, without
limitation, Specifications, that: (a) derive independent economic value, actual
or potential, from not being generally known to the public or other Persons who
can obtain economic value from their disclosure and use and (b) are the subject
of efforts that are reasonable under the circumstances to maintain their
secrecy.
1.48 "TSRA" means the U.S.A. Trade Sanctions Reform and Export Enhancement
Act of 2000 (Title IX of Pub. L. 106-387).
1.49 "TTB" means The Alcohol & Tobacco Tax and Trade Bureau, an agency of
the United States Department of the Treasury.
1.50 "U.S.A." means the District of Columbia, the fifty (50) states of the
United States of America, its territories and possessions (including Puerto
Rico), and its military facilities and installations wherever located.
1.51 OTHER DEFINED TERMS. Other terms shall have the defined meanings stated
elsewhere in this Agreement.
SECTION 2
RESPONSIBILITIES OF THE PARTIES
2.1 APPOINTMENT OF RJRTC FOR MANUFACTURE. Commencing on the Effective Date,
and, unless this Agreement is sooner terminated pursuant to its terms and
conditions, continuing through Contract Year 2014, RJRTC is hereby appointed as
the exclusive U.S. manufacturer of all American-blend Cigarettes which any
B.A.T. Customer chooses to have manufactured in the U.S.A. The Parties recognize
that each B.A.T. Customer will take into consideration end-market demand,
marketing and pricing considerations, and applicable Trade Restrictions with
respect to the countries in the Territory in which they distribute and sell
Cigarettes in their determination of whether to have (or continue to have) such
American-blend Cigarettes manufactured in the U.S.A. For the avoidance of doubt,
any B.A.T. Customer may choose to have American-blend Cigarettes
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manufactured by any third Person outside the U.S.A. at any time and at such
B.A.T. Customer's discretion.
If, after Contract Year 2014, a B.A.T. Customer wishes to have American-blend
Cigarettes manufactured in the U.S.A. by any entity other than RJRTC, RJRTC
shall enjoy the right of first refusal as stated in Sub-Section 4.4 below. For
the further avoidance of doubt, the Parties agree and affirm that this Agreement
shall only apply with respect to Products intended for distribution and sale in
Restricted Countries to the extent that the activities provided hereunder are
contemplated under TSRA and are authorized, to the extent necessary, under
general or specific licenses issued by the applicable Governmental Authorities.
Without limitation to the foregoing, RJRTC's performance of its obligations
under this Agreement specifically pertaining to exports to Restricted Countries
and other transactions incidental thereto shall at all time be contingent upon
the obtaining of Export Licenses, to the extent required.
2.2 RJRTC'S MANUFACTURE OF PRODUCT. Commencing on the Effective Date, RJRTC
shall provide Products to the B.A.T. Customers subject to and in accordance with
the terms and conditions of this Agreement, including in particular obtaining
Export Licenses, as required. RJRTC shall initially manufacture Products in the
U.S.A. at its facility in Macon, Georgia. Upon satisfactory consumer testing of
Cigarettes manufactured in North Carolina for BATUS Japan, Inc. under a separate
contract, RJRTC will move the manufacture of Products under this Agreement to
North Carolina. RJRTC agrees to use the same care and to follow the same
procedures in transferring the production of Products, commissioning of
secondary manufacturing equipment, and internal testing of blended cut filler
Tobacco Materials for the movement of production of Products under this
Agreement as RJRTC will use for moving manufacturing of Cigarettes for BATUS
Japan, Inc; provided, however, the Parties agree that the B.A.T. Customers'
consent to the movement of such manufacturing is not required. RJRTC agrees,
upon request by any B.A.T. Customer, to supply sample Products manufactured in
North Carolina for consumer testing in the Territory at such B.A.T. Customer's
expense. Other than the costs and expenses relating to consumer acceptability
testing of Products in the Territory as described above, RJRTC shall bear all
other costs and expenses (including capital expenditures) incurred in moving
manufacturing operations for Products subject to this Agreement from Macon to
North Carolina.
2.3 SPECIFICATIONS.
(a) ORIGINAL.
(i) The B.A.T. Customers have furnished RJRTC with the
Specifications for all Products which may be produced by RJRTC for the B.A.T.
Customers pursuant to this Agreement.
(ii) Promptly after the Effective Date of this Agreement,
the Parties shall meet to discuss matters relating to, but not limited to,
mutually acceptable manners by which: (1) costs might be controlled and (2)
Products might be manufactured using
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processes, process conditions and equipment configurations that have been
adopted by RJRTC, subject to the applicable B.A.T. Customer's determination of
consumer acceptability.
(b) CHANGES PROPOSED BY B.A.T. CUSTOMERS.
(i) In accordance with the procedures stated below in
clauses (ii) through (iv), RJRTC shall comply with any B.A.T. Customer's
reasonable instructions in meeting any new Specifications (the costs of
evaluating and implementing any such changes shall be borne by the applicable
B.A.T. Customer, subject to such B.A.T. Customer's prior written approval of the
budget for expenditure of such costs which approval shall not be unreasonably
withheld). If such budgets include capital expenditures which RJRTC requests the
applicable B.A.T. Customer to fund, a separate mutually acceptable agreement
will be negotiated between RJRTC and the applicable B.A.T. Customer relating to
the ownership and/or transfer of such capital improvements.
(ii) The Parties shall conduct trials, as appropriate, in
order to evaluate the effect of changes in Specifications upon Products, Product
pricing and RJRTC's manufacturing environments (the costs of evaluating and
implementing any such changes shall be borne by the applicable B.A.T. Customer,
subject to such B.A.T. Customer's prior written approval of the budget for
expenditure of such costs which approval shall not be unreasonably withheld).
(iii) The applicable B.A.T. Customer shall provide written
approval for changed Specifications of all Products upon completion of
activities, including those set forth in the foregoing clauses (i) and (ii). The
applicable B.A.T. Customer shall not be responsible for accepting any quantity
of Products for which such B.A.T. Customer has not provided such final approval,
unless such B.A.T. Customer has otherwise agreed in writing.
(iv) RJRTC shall accept and acknowledge all changed
Specifications for which the applicable B.A.T. Customer has provided final
approval and provided to RJRTC, provided that RJRTC has determined that it can
meet those Specifications.
(v) Should mutually agreed changes to Specifications
require Product pricing changes, RJRTC and the applicable B.A.T. Customer shall
negotiate the applicable pricing changes (both increases and decreases) based on
the associated effects of the Specification changes on RJRTC's costs.
(c) CHANGES PROPOSED BY RJRTC.
(i) RJRTC shall inform all effected B.A.T. Customers of
changes in RJRTC's manufacturing operations proposed at any time during the Term
which are anticipated to have an effect upon or require modifications to
Specifications or upon RJRTC's ability to produce the projected volumes of
Products anticipated to be ordered by such B.A.T. Customers (the costs of
evaluating and implementing any such changes
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shall be borne by RJRTC, subject to RJRTC's prior written approval of the budget
for expenditure of such costs which approval shall not be unreasonably
withheld). RJRTC shall provide sufficient advance notice of such proposed
changes in manufacturing operations so as to allow all effected B.A.T. Customers
commercially reasonable time to evaluate and test the effects of the associated
Specification changes on the Products and the Products' consumer acceptability
in the Territory.
(ii) RJRTC and the B.A.T. Customers shall conduct trials,
as appropriate, in order to evaluate the effect of the foregoing changes in
Specifications upon Products, Product pricing and RJRTC's manufacturing
environments and the Products' consumer acceptability in the Territory (the
costs associated with such trials shall be borne by RJRTC, including the costs
of sampling and consumer testing as determined necessary by the B.A.T. Customers
in the Territory, subject to RJRTC's prior written approval of the budget for
expenditure of such costs which approval shall not be unreasonably withheld).
The trial, sampling and consumer testing methodology will be determined by
mutual agreement of the Parties in accordance with the standard Consumer Product
Testing Protocols attached hereto as Schedule "D."
(iii) Each applicable B.A.T. Customer shall provide written
approval for changed Specifications of all Products upon completion of
activities, including those set forth in the foregoing clauses (i) and (ii).
B.A.T. Customers shall not be responsible for accepting any quantity of Products
for which such B.A.T. Customers have not provided such final approval, unless
such B.A.T. Customers have otherwise agreed in writing.
(iv) RJRTC shall accept and acknowledge all changed
Specifications for which B.A.T. Customers have provided final approval and
provided to RJRTC.
(v) Should mutually agreed changes to Specifications
require Product pricing changes, RJRTC and the applicable B.A.T. Customers shall
negotiate the applicable pricing changes (both increases and decreases) based on
the associated effects of the Specification changes on RJRTC's costs.
2.4 CONTACT PERSONNEL. Promptly after the Effective Date, both RJRTC and
each B.A.T. Customer shall designate primary contact individuals for purposes of
this Agreement. Those individuals shall have responsibility for communicating
and receiving information regarding all matters that are relevant pursuant to
the relationship between RJRTC and the B.A.T. Customers in accordance with this
Agreement. RJRTC and each B.A.T. Customer shall promptly notify the other upon
the occurrence of a change in the identity of any contact individual of that
entity.
2.5 CONFERENCES. Representatives of RJRTC and the B.A.T. Customers shall
conduct such conferences (video; telephonic; in person) as they deem necessary
to discuss with one another the Products, quality control procedures, and any
other matters relating to the activities involving the supply of Products to
B.A.T. Customers by RJRTC. All issues
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identified during such conferences shall be immediately evaluated, addressed and
remedied as soon as commercially reasonable.
2.6 VISIT AT FACILITIES AND INSPECTION. Representatives of any B.A.T.
Customer may, upon reasonable notice and at times reasonably acceptable to
RJRTC, visit RJRTC's facilities at which the Products are manufactured. Each
B.A.T. Customer shall bear its own expenses with regard to any such visits,
unless otherwise agreed upon in writing. If requested by a B.A.T. Customer,
RJRTC shall cause appropriate individuals working on the activities relating to
this Agreement to be available for meetings at the location of the facilities
where such individuals are employed at times reasonably convenient to RJRTC and
the B.A.T. Customer. B.A.T. Customers' inspection rights shall include the
inspection of the inventory of Products maintained by RJRTC, RJRTC's
manufacturing facilities and processes relating to the Products, RJRTC's quality
control procedures relating to the Products, and all materials used in the
manufacturing and packaging of the Products.
Each B.A.T. Customer shall be responsible for ensuring that its representatives
abide by all of RJRTC's rules and regulations with regard to safety, security,
personnel matters, computer use and computer network use while at RJRTC's
facilities. Each B.A.T. Customer shall inform its representatives that have
access to RJRTC's premises of their obligations under this Agreement and shall
require its representatives to enter into a confidentiality agreement with RJRTC
in a form to be mutually agreed by the Parties. Each B.A.T. Customer shall be
responsible for ensuring that all of its visitors to RJRTC's facilities are
received and logged through RJRTC's reception area, in accordance with RJRTC's
usual practice. Each B.A.T. Customer shall also be responsible for ensuring that
its representatives and visitors refrain from actions and conduct that
materially interfere with RJRTC's business and operations and shall instruct its
representatives and visitors not to conduct unauthorized activities on RJRTC's
facilities.
2.7 INITIAL FORECAST. Promptly after the Effective Date of this Agreement,
each B.A.T. Customer shall provide RJRTC with a forecast (by SKU) that provides
a projection for volumes for the various Products that the B.A.T. Customer may
require RJRTC to manufacture and supply during the period immediately following
the Effective Date through the end of Contract Year 2005.
2.8 SUBSEQUENT ANNUAL FORECASTS. [Intentionally Left Blank.]
2.9 PERIODIC FORECASTS. Promptly after providing its initial forecast in
accordance with Sub-Section 2.7, each B.A.T. Customer shall begin providing
RJRTC on a monthly basis with rolling eighteen (18) month forecasts (by SKU)
that provide projections for volumes of the various Products for which the
B.A.T. Customer expects to place Purchase Orders during the period covered by
such monthly forecasts. Any and all forecasts supplied are non-binding and will
be supplied for purposes of general planning of capacities, inventories, etc.
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2.10 PURCHASE OF MATERIALS. RJRTC shall use raw materials (including, but
not limited to, Tobacco Materials, Non-Tobacco Components, and Packaging
materials) that are obtained from sources and suppliers selected by RJRTC, which
sources and suppliers must be approved by the B.A.T. Customers, such approval
not to be withheld, conditioned or delayed unless the B.A.T. Customers can
reasonably demonstrate that RJRTC's selected source(s) or supplier(s) do not at
the time of selection meet the applicable Specifications. Notwithstanding the
foregoing, the Parties agree that if any particular source or supplier selected
by RJRTC has been approved by BATUS Japan, Inc. under separate contract, such
source or supplier shall be deemed approved by the B.A.T. Customers for purposes
of this Agreement. Unless otherwise agreed upon in writing, RJRTC shall be
solely responsible for ordering, receiving, storing, maintaining, using, paying
for (including the payment of all import duties, fees and internal revenue
taxes, if applicable) and disposing of all raw materials.
2.11 INVENTORY. RJRTC and the B.A.T. Customers may agree in writing to the
levels of inventory for all required raw materials that RJRTC will be
responsible for having on hand to fulfill forecasted Purchase Orders.
2.12 SHARING OF INFORMATION. RJRTC and the B.A.T. Customers shall cooperate
with one another (and relevant third Persons) in order to ensure that each is
provided with relevant information regarding the physical and chemical
properties (including toxicological information) of raw materials, equipment,
process conditions, processes or treatment conditions that RJRTC may employ when
producing Products for the B.A.T. Customers. If requested by a B.A.T. Customer,
RJRTC shall provide samples of raw materials, at the times and in the amounts
requested, to the B.A.T. Customer or an Affiliate designee for testing and
evaluation. Any change to raw material, type of equipment (routine/preventive
maintenance and ordinary wear and tear excepted), processes, process conditions,
or treatment conditions that RJRTC may employ when producing Products for a
B.A.T. Customer must be approved by the B.A.T. Customer prior to implementation
of the change by RJRTC.
2.13 CIGARETTE PACKAGING, CARTON AND CASE MARKINGS.
(a) MARKINGS. Every Cigarette Package, Carton and Case produced by
RJRTC for the B.A.T. Customers shall bear such markings as required by: (i) the
applicable laws and regulations of the U.S.A. for exported Products; (ii) the
applicable laws and regulations of the jurisdiction in the Territory in which
the Products are to be sold at retail; and (iii) the Specifications.
(b) LIMITATIONS. Except as set forth in Sub-Section 2.13(a) or
otherwise mutually agreed in writing, RJRTC shall not be obligated to produce
(and the B.A.T. Customers shall not be obligated to accept as conforming)
Products with markings on the Packaging, Carton or Case identifying RJRTC or an
Affiliate of RJRTC as the corporate source of the Products.
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2.14 REVENUE STAMPS. Each B.A.T. Customer shall be responsible for obtaining
any and all revenue and non-revenue closures, stamps or other similar devices
required by any jurisdiction through which Products are to be transhipped, or in
which Products are distributed and sold at retail. Such closures or stamps
shall, where relevant, be delivered to RJRTC or any other Person nominated by
RJRTC, together with directions describing the placement and orientation of the
closures or stamps on the Cigarette Packaging, and if appropriate, the Cartons,
in a timely manner so as not to delay or interfere with the production and
packaging of Products by RJRTC. RJRTC shall ensure that the closures or stamps
are prepared and affixed to the Cigarette Packaging, and if appropriate, the
Cartons, in accordance with the directions provided by the applicable B.A.T.
Customer describing the placement and orientation of the closures or stamps.
Promptly after the Effective Date of this Agreement, RJRTC and the B.A.T.
Customers shall agree and adhere to a written policy to supply sufficient
quantities of the closures or stamps in a timely manner and to maximize the
efficient utilization of the closures or stamps once supplied. The policy shall
include, but not be limited to, appropriate waste targets, reconciliation and
reclaim procedures, and reconciliation payments, taking into account the revenue
and non-revenue nature of the closures or stamps and the requirements of the
jurisdiction in which such Products are to be transhipped, or in which Products
are distributed and sold at retail. For the avoidance of doubt, the policy once
agreed and signed by RJRTC and the B.A.T. Customers shall be incorporated as a
material term of this Agreement.
2.15 PURCHASE ORDERS AND PRODUCTION SCHEDULES. The B.A.T. Customers shall
place with RJRTC from time to time such Purchase Orders for Products that each
such B.A.T. Customer desires to order. The applicable B.A.T. Customer shall
provide (or reference) to RJRTC the Specifications for each of the Products
ordered pursuant to a Purchase Order. RJRTC shall schedule production of
Products based on forecasts provided by the B.A.T. Customer and Purchase Orders
placed by the B.A.T. Customer. Each Purchase Order which requires normal ocean
freight shipment shall contain instructions for each delivery that specify mode
of transport to the Territory and a requested delivery date of the Products
"across the ship's rail," port of export (or if air freight delivery is required
in the applicable Purchase Order, at the fuselage of the aircraft) that shall
not be less than forty-two (42) calendar days from RJRTC's receipt of the
Purchase Order.
2.16 PRODUCTION ACTIVITIES. RJRTC shall acknowledge receipt of each Purchase
Order within three (3) business days of RJRTC's receipt of such Purchase Order.
RJRTC shall promptly inform the applicable B.A.T. Customer of RJRTC's schedule
for production and delivery of ordered Products "across the ship's rail," port
of export or, if air freight delivery is required by the B.A.T. Customer in the
applicable Purchase Order, at the fuselage of the aircraft. If RJRTC determines
that it cannot fill any portion of the Purchase Order by the requested delivery
date(s), the applicable B.A.T. Customer shall be notified in writing within
three (3) business days of RJRTC's receipt of the Purchase Order. RJRTC's notice
shall include a proposed alternative delivery date(s) for the Products (or any
portion thereof) subject to the Purchase Order. In such cases, RJRTC and the
B.A.T. Customer will negotiate a revised delivery date(s) agreeable to both
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entities and shall confirm such final agreed delivery date(s) in writing. If an
alternative delivery date(s) acceptable to the applicable B.A.T. Customer cannot
be agreed using normal transport as defined in Sub-Section 2.17(a), RJRTC will
be obligated to fill the Purchase Order (or the applicable portion of the
Purchase Order) on a date that is acceptable to the B.A.T. Customer pursuant to
the air freight remedy specified in Sub-Section 2.17(c). If no notice is given
by RJRTC in accordance with this Sub-Section 2.16, the original delivery date(s)
stated in the Purchase Order shall become a firm delivery date(s) by which RJRTC
must deliver the Products subject to the Purchase Order "across the ship's
rail," port of export or, if air freight delivery is required by the B.A.T.
Customer in the applicable Purchase Order, at the fuselage of the aircraft.
RJRTC shall produce and deliver to the applicable B.A.T. Customer the amount of
ordered Products within the time period set forth in the applicable Purchase
Order (unless modified as stated above), and such Products shall meet the B.A.T.
Customer's Specifications.
From time to time, Letters of Credit must be secured by a B.A.T. Customer from
its customer(s) prior to shipment of Product. RJRTC will be notified in such
circumstances if a delay in shipment may be caused by the credit approval
process. If such a delay occurs, the firm delivery date(s) will be extended to
accommodate for such delay and a revised firm delivery date(s) shall be agreed
and confirmed in writing between RJRTC and the B.A.T. Customer. Subject to the
applicable storage charges set forth in the International Order Policies &
Customer Responsibilities (included in Exhibit "A"), RJRTC will store the
applicable Products and ship such Products after the credit approval process is
completed.
Notwithstanding the foregoing of this Sub-Section 2.16, RJRTC shall have the
right to accept or reject, in whole or in part, any Purchase Order placed by a
B.A.T. Customer, in the event that: (a) the Purchase Order would require RJRTC
to possess materials in inventory for production of Products in excess of the
inventory levels agree to pursuant to Sub-Section 2.11 and RJRTC does not
otherwise possess inventory levels sufficient to fulfill the Purchase Order
(RJRTC's right of rejection shall apply only to the extent that such inventory
levels are unavailable and the remainder of the Purchase Order shall be filled);
(b) RJRTC is not prepared to manufacture Product due to a change in
Specifications by the applicable B.A.T. Customer, if such changes have not been
previously agreed to by RJRTC and the B.A.T. Customer, (c) the production of
Product would be, in RJRTC's good faith belief based on credible evidence, in
violation of the law of a relevant Governmental Authority, or (d) a Force
Majeure event has occurred.
2.17 DELIVERY AND SHIPMENT; REMEDIES FOR FAILURE TO DELIVER BY AGREED
DELIVERY DATES.
(a) SHIPPING INSTRUCTIONS. Following the manufacture of Products,
and subject to obtaining all required Export Licenses in accordance with
Schedule "C" (if any), RJRTC shall effect delivery of all Products "across the
ship's rail," port of export or, if air freight delivery is required by the
applicable B.A.T. Customer in the Purchase Order, at the fuselage of the
aircraft, by the delivery date(s) required in the governing Purchase Orders or
the agreed firm delivery date(s) (if modified pursuant to Sub-Section
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2.16). RJRTC shall ship Products on a first in/first out basis as determined
by the date of manufacture and shall ship and deliver Products in the manner
prescribed in any instructions that the B.A.T. Customer famishes; provided, that
all Products must be shipped using shipping terms that require RJRTC to control
the Products until delivered to a location Outside the Jurisdiction of the
U.S.A.; and for avoidance of doubt, risk of loss to Products shall pass to the
applicable B.A.T. Customer once the Products pass Outside the Jurisdiction of
the U.S.A. With respect to all shipping, export and other documents prepared by
or for third Persons, INCOTERMS 2000 shipping terms may be used to the extent
required (e.g., FOB named vessel at U.S.A. port of shipment). As between RJRTC
and the applicable B.A.T. Customer, use of such INCOTERMS 2000 shipping terms
shall not alter the express provisions of this Agreement. Products shall be
shipped by reputable commercial common carriers selected and contracted by the
applicable B.A.T. Customer for shipping the Products Outside the Jurisdiction of
the U.S.A. RJRTC shall arrange for shipment and delivery through its freight
forwarder and prepare all necessary shipping documentation relating to the
Products, contact the applicable B.A.T. Customer for routing instructions, and
be responsible for arranging loading. Such shipping documentation shall comply
with all U.S.A. legal requirements, as well as the legal requirements of the
country of destination (inspections, certificates of origin, etc.). RJRTC shall
be listed as shipper of the Products on corresponding export bills of lading, as
well as the Principal Party in Interest for export declaration reporting
purposes. The applicable B.A.T. Customer will assist RJRTC in obtaining copies
of all documents evidencing proof of export of Products within sixty (60)
calendar days of the passage of risk of loss. If the B.A.T. Customer is unable
to provide such proof of export, that B.A.T. Customer will reimburse RJRTC for
any excise taxes assessed by a Governmental Authority and paid by RJRTC as a
result of such transactions. RJRTC will provide documentary evidence of such
payment and will assist the B.A.T. Customer in any effort made to contest the
assessment of such excise taxes.
(b) TRANSPORT. RJRTC shall be responsible for proper packing of
the Products for shipment in accordance with the applicable B.A.T. Customer's
directions. Such packing shall be adequate for normal transport conditions for
export so as to prevent damage and/or deterioration of Products prior to
reaching their ultimate destination. The applicable B.A.T. Customer shall pay
all costs (including insurance costs) relating to the ocean shipment or air
freight shipment (if requested by the B.A.T. Customer in the applicable Purchase
Order) of the Products. Further, the Product invoice prices payable by the
B.A.T. Customer shall include overland shipping charges and associated insurance
costs to the port of export in accordance with Schedule "A." Ocean freight or
air freight shipping charges and associated insurance costs shall be paid by the
applicable B.A.T. Customer.
(c) AIR FREIGHT REMEDY FOR FAILURE TO DELIVER PRODUCTS MEETING THE
APPLICABLE SPECIFICATIONS WITHIN THE DELIVERY GRACE PERIOD. In accordance with
the procedures stated in Sub-Section 2.16, final agreed firm delivery dates for
Products "across the ship's rail," port of export (or, if air freight delivery
is required by the applicable B.A.T. Customer in the Purchase Order, at the
fuselage of the aircraft) shall be established for Products supplied under each
Purchase Order issued by a B.A.T.
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Customer. Absent delays caused by the applicable B.A.T. Customer's failure to
fulfill its obligations under this Agreement or an intervening Force Majeure
event as defined in Sub-Section 7.4, RJRTC shall be responsible for delivery of
Products meeting the applicable Specifications by the final agreed firm delivery
dates. Should RJRTC be unable to deliver some or all of the Products by any such
firm delivery date, RJRTC must remedy its delay so as to deliver those Products
at the port of export within seven (7) calendar days of such firm delivery date
(the "Delivery Grace Period"). If RJRTC cannot meet its delivery requirements
within the Delivery Grace Period, RJRTC shall be required to arrange for air
freight shipment of those Products to the applicable B.A.T. Customer in the
country in the Territory where the Products are to be sold at retail. In such
circumstances, the B.A.T. Customer shall be responsible for payment of only such
shipping and insurance costs as would have been incurred had RJRTC been able to
deliver the Products by the agreed firm delivery date using normal ocean freight
shipment. RJRTC shall be responsible for payment of the difference between those
costs and the air freight shipping and insurance costs actually incurred.
(d) MATERIAL BREACH OF CONTRACT FOR FAILURE TO MEET REQUIRED ON
TIME/IN FULL DELIVERY PERCENTAGE. RJRTC must maintain at least an eighty percent
(80%) On Time/In Full Delivery Percentage based on a rolling twelve (12) month
assessment period for all Products ordered by all B.A.T. Customers under this
Agreement. RJRTC's failure to maintain an eighty percent (80%) On Time/In Full
Delivery Percentage based on a rolling twelve (12) month assessment period shall
constitute material breach of contract by RJRTC, entitling (but not requiring)
the B.A.T. Customers to terminate the entire Agreement for cause without
allowing the cure period provided for other material breaches of contract as
provided in Sub-Section 4.2(c)(iv). The B.A.T. Customers must invoke their
termination rights by written notice to RJRTC within ninety (90) calendar days
of the accrual of such right or such right of termination shall be waived with
respect to the applicable material breach. Further, after notice of termination
is given, the termination of the Agreement shall become effective one (1) year
from the date of the B.A.T. Customers' notice. During such one (1) year period,
RJRTC shall continue to manufacture Products pursuant to Purchase Orders placed
by B.A.T. Customers, if any.
2.18 CONTINGENCY MANUFACTURING PLANS; ALTERNATIVE SOURCE OF SUPPLY.
Immediately after the Effective Date of this Agreement, or as soon thereafter as
practical, RJRTC shall disclose to the B.A.T. Customers any contingency
manufacturing plans which have been prepared or entered by RJRTC to ensure that
Products can be manufactured and supplied to the B.A.T. Customers in accordance
with this Agreement should RJRTC suffer a loss or damage to its manufacturing
facilities or any other interruption to, or interference with, RJRTC's ability
to manufacture Products. Further, in the event that during the Term of this
Agreement, RJRTC becomes unable to provide Product to the B.A.T. Customers in
accordance with the terms and conditions of this Agreement and in accordance
with the volumes placed by such B.A.T. Customers through their Purchase Orders,
then RJRTC shall cooperate with the B.A.T. Customers towards arranging an
alternative supply of Product as quickly as possible and always in compliance
with applicable Trade Restrictions.
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2.19 TITLE AND RISK. In accordance with Sub-Section 2.17(a), risk of loss to
Products shall pass to the applicable B.A.T. Customer once the Products pass
Outside the Jurisdiction of the U.S.A. Title to Products shall likewise transfer
to the applicable B.A.T. Customer once the Products pass Outside the
Jurisdiction of the U.S.A. and the B.A.T. Customer shall own the Products free
and clear of any liens, claims, security interest or other encumbrances of any
nature.
2.20 ADDITIONAL SERVICES. Upon written request by a B.A.T. Customer, RJRTC
may, at RJRTC's sole discretion, provide certain additional services subject
always to compliance with applicable laws, including but not limited to Trade
Restrictions. RJRTC and the applicable B.A.T. Customer shall negotiate in good
faith towards arriving at a separate agreement setting forth terms and
conditions by which RJRTC shall provide such services for the applicable B.A.T.
Customer, and by which such B.A.T. Customer shall pay RJRTC for such services.
SECTION 3
COMMERCIAL TERMS
3.1 PRICING.
(a) PRODUCT BASE PRICING THROUGH CONTRACT YEAR 2004. For Products
manufactured pursuant to Purchase Orders issued by a B.A.T. Customer between the
Effective Date and the end of Contract Year 2004, RJRTC shall charge and the
applicable B.A.T. Customer shall pay the Product Base Prices established in
Schedule "A." The additional ancillary expenses and charges identified in the
International Order Policies & Customer Responsibilities included in Exhibit "A"
shall also be chargeable by RJRTC. In addition, RJRTC shall be allowed to
recover and the B.A.T. Customers shall pay the actual costs incurred by RJRTC
resulting from any new fees, duties, taxes, and/or levies that are not in
existence or imposed as of the Effective Date of this Agreement by any
Governmental Authority applicable to RJRTC's manufacture in the U.S.A. and/or
export of Product to the Territory.
(b) PRODUCT PRICING INCREASES AND DECREASES FOR CONTRACT YEAR 2005
THROUGH CONTRACT YEAR 2009. For Contract Year 2005 through Contract Year 2009,
the prices chargeable for Products manufactured under this Agreement shall
increase or decrease, as the case may be, over or under the prices chargeable in
the immediately preceding Contract Year by the percentage change in: (i) the PPI
in effect for September of the immediately preceding Contract Year over (ii) the
PPI in effect for September of the Contract Year prior to the immediately
preceding Contract Year. Notwithstanding the foregoing, and regardless of the
actual change in PPI over the applicable period, Product price increases or
decreases shall be capped at six percent (6.0%) from those charged in the
immediately preceding Contract Year. By way of example only, and subject to the
six percent (6.0%) cap stated above, the Product prices chargeable for Contract
Year 2006 shall increase or decrease from the prices in effect for Contract Year
2005 by the percentage increase or decrease in PPI between September 2004 and
September 2005.
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In addition to the foregoing, RJRTC shall be allowed to recover and the B.A.T.
Customers shall pay the actual costs incurred by RJRTC resulting from any new
fees, duties, taxes, and/or levies that are not in existence or imposed as of
the Effective Date of this Agreement by any Governmental Authority applicable to
RJRTC's manufacture in the U.S.A. and/or export of Product to the Territory.
Once Product pricing is established for a Contract Year, RJRTC shall prepare and
RJRTC and the B.A.T. Customers shall execute a revised Schedule "A" governing
the Product pricing for the Contract Year in question which shall automatically
be incorporated into this Agreement without further action by RJRTC or the
B.A.T. Customers.
(c) PRODUCT PRICING FOR EACH CONTRACT YEAR DURING THE REMAINDER OF
THE TERM. Product pricing applicable for Contract Year 2010 and for each
Contract Year thereafter shall be equal to RJRTC's costs of manufacturing the
Products subject to this Agreement in the immediately preceding Contract Year,
plus a profit margin of ten percent (10%). Product manufacturing costs shall be
calculated for each Product SKU which may be ordered by a B.A.T. Customer and
shall be based on the manufacturing costing methodology which is attached hereto
as Schedule "E."
Discussions regarding Product pricing shall commence no later than September 1st
of the Contract Year immediately preceding the Contract Year at issue. At that
time, the B.A.T. Customers shall be provided with RJRTC's calculation and
analysis of Product manufacturing costs for the immediately preceding Contract
Year and the B.A.T. Customers shall be provided access to all data, records, and
information upon which RJRTC's calculation of Product costs are based. Subject
to the standard manufacturing costing methodology, RJRTC and the B.A.T.
Customers shall act in good faith to agree upon Product pricing for the next
Contract Year. If Product pricing cannot be agreed upon prior to the
commencement of the Contract Year at issue, the prices applicable during the
immediately preceding Contract Year shall remain in place until agreement on
modified pricing can be finalized. Notwithstanding the foregoing, if revised
Product pricing cannot be agreed on prior to March 1st of the Contract Year at
issue, if not already invoked, the issue shall be submitted to the dispute
resolution procedures provided in Sub-Section 7.7.
Once Product pricing is established for a Contract Year, RJRTC shall prepare and
RJRTC and the B.A.T. Customers shall execute a revised Schedule "A" governing
the Product pricing for the Contract Year in question which shall automatically
be incorporated into this Agreement without further action by RJRTC or the
B.A.T. Customers. Unless otherwise mutually agreed, such revised Product pricing
will be retroactive to all Products manufactured pursuant to Purchase Orders
issued since January 1st of the Contract Year at issue. RJRTC and the applicable
B.A.T. Customers shall reconcile all payments made for Purchase Orders issued
between January 1st of the Contract Year in question and the date of execution
of the revised Schedule "A" and any required payment will be made by the paying
entity to the other within thirty (30) calendar days of the completion of such
reconciliation.
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3.2 INVOICES. RJRTC shall invoice each B.A.T. Customer upon shipment of
Products from RJRTC's manufacturing facilities. The applicable B.A.T. Customer's
obligation to make payment shall accrue once title and risk of loss to the
Products pass to such B.A.T. Customer. Such invoices shall be due and payable by
the applicable B.A.T. Customer within thirty (30) calendar days from the date of
RJRTC's invoice.
3.3 PAYMENTS. All payments by B.A.T. Customers to RJRTC shall be by wire
transfer of funds to RJRTC's bank account (or accounts) as clearly designated
from time to time in RJRTC's invoice, or as otherwise specified by RJRTC and
agreed upon by the Parties. RJRTC's current payment instructions are set forth
in Schedule "F" of this Agreement. All payments made by a B.A.T. Customer to
RJRTC shall be in U.S.A. Dollars. Payments by a B.A.T. Customer to RJRTC in
accordance with Sub-Section 3.2 are without prejudice to any rights the B.A.T.
Customer may have for any reason whatsoever, and any liability of RJRTC for
breach of this Agreement shall not be terminated or reduced by reason of such
payment.
3.4 REJECTED PRODUCTS. RJRTC shall ensure that the Products it manufactures
for each B.A.T. Customer comply with the Specifications of such B.A.T. Customer
as have been confirmed between RJRTC and the B.A.T. Customer and with all
Packaging, Carton and Case marking requirements as provided hereunder. A B.A.T.
Customer may reject any Product that, as of the time the Product passes "across
the ship's rail," does not comply with the applicable Specifications and/or
Packaging, Carton or Case marking requirements as are current upon manufacture
within one hundred and twenty (120) calendar days after arrival of the Products
in the country in the Territory in which the Products are to be sold at retail.
In such case, the B.A.T. Customer's written notice of rejection to RJRTC shall
state in commercially reasonable detail the Products which the B.A.T. Customer
deems non-compliant, the Purchase Order pursuant to which those Products were
manufactured and the Specification defects and/or Packaging, Carton or Case
marking requirements which the B.A.T. Customer believes were not fulfilled. The
B.A.T. Customer shall bear the burden to demonstrate Product non-compliance as
of the time the Product passes "across the ship's rail." Within ten (10)
business days of receipt of a notice of rejection, RJRTC may contest such
rejection and provide documentation and other evidence relating to the quality
assurance measures taken with respect to the rejected Products and any other
matters relating to the compliance of the Products at issue. Thereafter, RJRTC
and the applicable B.A.T. Customer shall confer in good faith to resolve the
controversy.
If any Product is finally deemed to be non-compliant, such non-compliant Product
will be, at RJRTC's option and expense, either returned to RJRTC or destroyed.
If returned to RJRTC in the U.S.A., the applicable B.A.T. Customer shall provide
necessary reference information to allow RJRTC to receive such returned Product
without being required to incur the expense of applicable U.S.A. customs duties
or U.S.A. excise taxes.
In the event of any such rejection, RJRTC shall replace such non-complying
Products with complying Products as soon as possible at no additional charge to
the applicable B.A.T Customer, and subject to and in compliance with the terms
of any applicable Export Licenses. RJRTC shall bear all reasonable costs
incurred by the applicable
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B.A.T. Customer in inspecting and disposing of or returning the non-complying
Products, as well as the full costs of shipping complying Products to the
country in the Territory where to Products are to be sold via air freight
shipment, including applicable insurance. If non-complying Product returned to
RJRTC is destroyed by RJRTC, RJRTC will provide documentary evidence of such
destruction to the applicable B.A.T. Customer.
3.5 AUDIT RIGHTS OF THE B.A.T. CUSTOMERS. RJRTC shall maintain accurate and
complete records including, but not limited to, correspondence, instructions,
receipts, quality assurances records, Specifications, Purchase Orders,
Non-Tobacco Component and Tobacco Material procurement records, warehousing
records and cost data, export records, transportation records and cost data,
other manufacturing cost records and data, and similar documents and data
relating to the B.A.T. Customers' order and receipt of Products from RJRTC and
RJRTC's production and delivery of Products for the B.A.T. Customers. RJRTC
shall keep such records in sufficient detail to enable the B.A.T. Customers to
determine or verify raw materials inventories, process conditions and quality
controls for Products supplied pursuant to each Purchase Order. The B.A.T.
Customers shall likewise have the right to review and audit RJRTC's records
relating to projected and actual Product costing increases or decreases derived
from changes in Specifications made pursuant to the procedures set forth above
in Sub-Section 2.3. Further, commencing with Contract Year 2009, the B.A.T.
Customers shall have the right to review and audit such records so as to analyze
and verify all manufacturing costing calculations generated by RJRTC with
respect to the determination of Product pricing for Contract Year 2010 and for
each Contract Year thereafter.
RJRTC shall keep such records for a period of time as determined by its normal
document retention policies, but in any event not less than eighteen (18) months
after the date of the transaction to which those records relate, or longer if
required by law. RJRTC shall permit BATUKE and the other B.A.T. Customers to
examine RJRTC's records and its facilities from time to time (during regular
business hours and upon not less than five (5) business days written notice) to
the extent necessary for the B.A.T. Customers to make the foregoing
determinations and verifications, and such examination shall be made at the
expense of the B.A.T. Customers either by their employees (or those of their
Affiliates) or by an independent auditor appointed by the B.A.T. Customers who
shall report to the B.A.T. Customers those matters associated with such
examination.
3.6 AUDIT RIGHTS OF RJRTC. Each B.A.T. Customer shall maintain (or cause to
be maintained) accurate and complete records including, but not limited to,
those relating to the ordering, exportation, transport, handling, importation,
receipt, inspection, storage and distribution of Products manufactured under
this Agreement. Each B.A.T. Customer shall keep such records in sufficient
detail to enable RJRTC to evaluate, determine or verify any claim by a B.A.T.
Customer that Products do not meet Specifications or are not delivered On
Time/In Full. Each B.A.T. Customer shall keep such records for a period of time
as determined by its normal document retention policies, but in any event not
less than eighteen (18) months after the date of the transaction to which those
records relate, or longer if required by law. Each B.A.T. Customer shall permit
RJRTC to examine the B.A.T. Customer's records from time to time (during regular
business hours
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and upon not less than five (5) business days written notice) to the extent
necessary for RJRTC to make the foregoing evaluations, determinations and
verifications, and such examination shall be made at the expense of RJRTC either
by its employees (or those of its Affiliates) or by an independent auditor
appointed by RJRTC who shall report to RJRTC those matters associated with such
examination.
3.7 INSURANCE AND TRANSPORTATION COSTS. Costs of insurance and transport
shall be paid in accordance with Sub-Section 2.17. Further, each B.A.T. Customer
shall be responsible for all customs duties, excise taxes, and like fees and
expenses due as a result of import of Products to the appropriate jurisdiction
within the Territory.
SECTION 4
TERM, GENERAL TERMINATION, RIGHT OF FIRST REFUSAL
4.1 TERM OF THE AGREEMENT. This Agreement shall be effective upon the
Effective Date and, unless sooner terminated by either Party pursuant to its
terms and conditions, shall remain in effect until December 31, 2014.
Thereafter, the Agreement will automatically extend for successive Contract
Years until terminated by either Party pursuant to its terms and conditions.
With not less than twelve (12) months' prior written notice, RJRTC or the B.A.T.
Customers may terminate this Agreement without cause and at their discretion as
of December 31, 2014, or upon any December 31st thereafter. Notwithstanding the
foregoing, the Term of this Agreement with regard to Products manufactured for
distribution in Restricted Countries shall be subject to the additional
provisions stated in Schedule "C" and the definition of "Restricted Countries
Renewal Term" provided therein.
4.2 GENERAL TERMINATION.
(a) MUTUAL. The Parties may mutually agree in writing at any time
to terminate this Agreement.
(b) BY BATUKE. The B.A.T. Customers shall have those rights of
termination for cause as provided in Sub-Section 2.17(d).
(c) BY EITHER PARTY. Either Party may terminate this Agreement at
any time upon written notice to the other if:
(i) Voluntary bankruptcy or a petition for involuntary
bankruptcy of the other Party is not dismissed within a period of sixty (60)
calendar days of its filing, in which case the termination shall become
effective immediately upon the non-terminating Party's receipt of notice of
termination from the terminating Party or at such later date as specified in the
termination notice;
(ii) The other Party ceases to pay its debts as they
mature in the ordinary course of business, or makes an assignment for the
benefit of its creditors, in which case the termination shall become effective
immediately upon the non-terminating
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Party's receipt of notice of termination from the terminating Party or at such
later date as specified in the termination notice;
(iii) A receiver is appointed for the other Party or its
property, in which case the termination shall become effective immediately upon
the non-terminating Party's receipt of notice of termination from the
terminating Party or at such later date as specified in the termination notice;
or
(iv) The other Party is in material breach of any material
term of this Agreement and the breaching Party fails to cure such breach within
thirty (30) calendar days of receipt of notice of breach from the other Party,
or if such breach is not reasonably capable of cure within such thirty (30)
calendar day period, such breaching Party fails to cure the breach within ninety
(90) calendar days of receipt of notice of breach from the other Party. The
terminating Party must invoke its rights of termination under this Sub-Section
4.2(c)(iv) by written notice to the breaching Party within thirty (30) calendar
days of the accrual of such right or such right of termination shall be waived
with respect to the applicable material breach. Further, after notice of
termination is given, the termination of the Agreement shall become effective
one (1) year from the date of the termination notice. During such one (1) year
period, RJRTC shall continue to manufacture Products pursuant to Purchase Orders
placed by B.A.T. Customers, if any, and subject to the terms and conditions of
this Agreement.
4.3 EFFECT OF TERMINATION.
(a) ACTIONS BY RJRTC. Upon termination of this Agreement, RJRTC
shall:
(i) Deliver to the B.A.T. Customers or their designees
all raw materials, finished Products, and/or specialized manufacturing equipment
that have been, or must be, paid for by each such B.A.T. Customer in accordance
with this Agreement;
(ii) Execute all documents and take all actions reasonably
necessary to enable each B.A.T. Customer to carry out its obligations to
customers, and make commercially reasonable efforts to cooperate with each
B.A.T. Customer in making the necessary transition;
(iii) Make commercially reasonable efforts to cooperate
with each B.A.T. Customer in the preparation of a final accounting; and
(iv) Stop producing Product, except as RJRTC and the
B.A.T. Customers may agree at the time in writing.
(b) ACTIONS BY THE B.A.T. CUSTOMERS. Upon the effective date of
termination of this Agreement, each B.A.T. Customer shall promptly pay RJRTC for
such Products in accordance with Sub-Section 3.1, together with any other
amounts that are due and owing by each such B.A.T. Customer to RJRTC. Each
B.A.T. Customer also shall promptly pay RJRTC for such unique raw materials that
RJRTC has purchased to
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produce Products for such B.A.T. Customer and such raw materials shall be
shipped to the applicable B.A.T. Customer or its designee at the B.A.T.
Customer's expense. If a written agreement for reimbursement of identified
capital costs exists between RJRTC and any B.A.T. Customer, the applicable
B.A.T. Customer also shall promptly pay RJRTC for such identified capital
expenditures and commitments that RJRTC has made on behalf of such B.A.T.
Customer and for which RJRTC has not been paid as of the effective date of
termination. Upon such payment, title to any equipment which has been paid for
by the B.A.T. Customer shall transfer to the B.A.T. Customer and shall be
shipped to such B.A.T. Customer or its designee at such B.A.T. Customer's
expense.
(c) WIND-UP PAYMENTS BY THE B.A.T. CUSTOMERS. Upon the effective
date of any termination of this Agreement by the B.A.T. Customers, then RJRTC
shall be reimbursed by each B.A.T. Customer for all reasonable costs incurred
and non-cancelable commitments made in the performance of this Agreement for
which such B.A.T. Customers have expressly agreed in writing to be responsible.
In such an event, RJRTC shall take steps to minimize any amount for which any
B.A.T. Customer may be responsible.
4.4 RIGHT OF FIRST REFUSAL.
(a) GRANT OF RIGHT OF FIRST REFUSAL. Commencing January 1, 2015,
and for so long as B.A.T. or any of its present or future Affiliates maintains
at least a twenty-five percent (25%) ownership interest in RAI or any entity
which owns RAI, should any B.A.T. Customer wish to have American-blend
Cigarettes manufactured in the U.S.A., RJRTC shall have a right of first refusal
to manufacture the requested American-blend Cigarettes in the U.S.A. pursuant to
the procedures provided in Sub-Section 4.4(b) below.
(b) PROCEDURES GOVERNING RIGHT OF FIRST REFUSAL. During the period
that RJRTC's right of first refusal remains in effect, should any B.A.T.
Customer wish to have American-blend Cigarettes manufactured in the U.S.A.:
(i) The applicable B.A.T. Customer first shall offer
RJRTC the opportunity to manufacture the American-blend Cigarettes by providing
RJRTC with a written proposal setting forth, at a minimum: (1) the
Specifications for the American-blend Cigarettes and Packaging; (2) the
anticipated quantities of the American-blend Cigarettes to be ordered during the
then-present calendar year and the next calendar year; and (3) the anticipated
dates on which Purchase Orders would be placed for such American-blend
Cigarettes during the first six (6) months of manufacture and the anticipated
quantities for each such Purchase Order.
(ii) Within fifteen (15) calendar days of RJRTC's receipt
of the B.A.T. Customer's written proposal, RJRTC shall indicate whether its
wishes to enter negotiations regarding such manufacture of the American-blend
Cigarettes at issue. If RJRTC declines to enter negotiations for the manufacture
of such American-blend Cigarettes, the B.A.T. Customer may have the
American-blend Cigarettes manufactured by any third Person, free from RJRTC's
right of first refusal. If RJRTC indicates a desire
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to negotiate, RJRTC and the B.A.T. Customer shall enter an exclusive negotiation
period of sixty (60) calendar days from the first negotiation session regarding
the manufacture of the American-blend Cigarettes. Such exclusive period of
negotiations may be extended by mutual written agreement of RJRTC and the
applicable B.A.T. Customer. RJRTC and the B.A.T. Customer shall negotiate in
good faith at reasonable times and with reasonable frequency in Winston-Salem,
North Carolina or in another mutually agreeable location.
(iii) If RJRTC and the B.A.T. Customer cannot reach
agreement during the exclusive negotiation period, the B.A.T. Customer shall be
free to negotiate with any third Person regarding manufacture of such
American-blend Cigarettes.
(iv) If the B.A.T. Customer reaches a tentative agreement
with such third Person, before entering a binding agreement, the B.A.T. Customer
shall provide a copy of the tentative agreement to RJRTC and, if the terms
referred to in Sub-Section 4.4(b)(i)-(ii) above shall not have changed, RJRTC
shall have fifteen (15) calendar days from its receipt of the tentative
agreement to indicate whether it is willing to enter into an agreement identical
in all material respects to the tentative agreement, or, if the terms referred
to in Sub-Section 4.4(b)(i)-(ii) above have changed, RJRTC shall have thirty
(30) calendar days from its receipt of the tentative agreement to indicate
whether it is willing enter into an agreement identical in all material respects
to the tentative agreement.
(v) If RJRTC chooses not to enter an agreement for the
manufacture of the American-blend Cigarettes at issue as stated in Sub-Section
4.4(b)(iv), the applicable B.A.T. Customer may enter the binding agreement with
the third Person. If such B.A.T. Customer enters into a binding agreement with
such third Person, the B.A.T. Customer shall not agree to any material amendment
of that agreement for a period of two (2) years from the effective date of the
agreement, other than the termination of the binding agreement for the purpose
of moving the manufacture of the applicable American-blend Cigarettes outside
the U.S.A.
(vi) Upon the expiration or termination of any binding
agreement entered with a third Person pursuant to the procedures stated above,
the applicable B.A.T. Customer shall be free to enter subsequent agreements for
the manufacture of the American-blend Cigarettes at issue with that third Person
free from RJRTC's rights of first refusal granted under this Sub-Section 4.4.
However, upon such expiration or termination, should the B.A.T. Customer wish to
seek an alternative third Person to manufacture the American-blend Cigarettes in
the U.S.A., RJRTC's right of first refusal shall again be initiated and the
procedures set forth above will again be followed.
4.5 OTHER AGREEMENTS. Non-renewal or termination of this Agreement for any
reason shall have no legal effect upon other projects, activities,
collaborations, commercial arrangements or service arrangements that RJRTC and
any B.A.T. Customer may have with one another.
4.6 EFFECT OF NON-RENEWAL OR TERMINATION. Subject to the provisions of Sub-
Section 4.7 and Schedule "C," if either the B.A.T. Customers or RJRTC choose not
to
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renew or terminate this Agreement as provided in this Section 4, this Agreement
will be of no further force and effect, and except as set forth in Sub-Sections
4.3 and 4.4, there will be no liability or obligation on the part of either
Party to the other. Non-renewal or termination of this Agreement does not impair
or extinguish any accrued right, obligation or liability that a Party hereto may
have under this Agreement at the time it terminated.
4.7 SURVIVAL. The provisions of Sections and Sub-Sections 3.5, 3.6, 4.3,
4.4, 5, 6.2, 6.3, 6.4, 6.5, 6.6, 6.8, 6.9, 7.5, 7.7 and 7.11 will continue in
effect after expiration or termination of this Agreement.
SECTION 5
CONFIDENTIALITY
5.1 CONFIDENTIALITY OBLIGATION. During the Term of this Agreement and for a
period of five (5) years thereafter, RJRTC and each B.A.T. Customer receiving
Confidential Information as a "Receiving Party" shall maintain in confidence all
Confidential Information disclosed to it by the other Party, as a "Disclosing
Party." Notwithstanding the foregoing, subject to Sub-Section 5.2, RJRTC's and
each B.A.T. Customer's respective obligations of confidentiality with respect to
the other Party's Trade Secrets, including the B.A.T. Customer's Specifications,
shall be perpetual. Neither RJRTC nor any B.A.T. Customer will use, disclose or
grant the use of such Confidential Information except as expressly authorized by
this Agreement. To the extent that disclosure is authorized by this Agreement,
the Receiving Party shall obtain prior agreement from its employees,
representatives and contracting parties to whom disclosure is to be made to hold
in confidence and not make use of such information for any purpose other than
those purposes permitted by this Agreement. RJRTC and each B.A.T. Customer, as a
Receiving Party, will use at least the same standard of care (but not less than
a reasonable standard of care) as it uses to protect its own proprietary and
Trade Secret information to ensure that such employees, representatives and
contracting parties do not disclose or make any unauthorized use of such
Confidential Information. RJRTC and each B.A.T. Customer, as a Receiving Party,
will promptly notify the other upon discovery of any unauthorized use or
disclosure of Confidential Information. The Receiving Party shall be responsible
to the Disclosing Party for any loss of Confidential Information of the
Disclosing Party or breach of the provisions of this Sub-Section 5.1 by any
employee, representative or contracting party of the Receiving Party.
5.2 EXCEPTIONS. The obligations of confidentiality contained in Sub-Section
5.1 will not apply to the extent that it can be established by the Receiving
Party by competent proof that such Confidential Information:
(a) Was already known to the Receiving Party, other than under an
obligation of confidentiality, at the time of receipt from the Disclosing Party;
(b) Was generally available to the public or otherwise part of the
public domain at the time of its receipt from the Disclosing Party;
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(c) Becomes generally available to the public or otherwise part of
the public domain after its disclosure and other than through any act or
omission of the Receiving Party in breach of this Agreement;
(d) Was received by the Receiving Party, other than under an
obligation of confidentiality, by a third Person lawfully in possession of the
information; or
(e) Was independently developed by the Receiving Party, without
reference or access to any Confidential Information of the Disclosing Party.
5.3 AUTHORIZED DISCLOSURE. RJRTC and each B.A.T. Customer (and third
Persons as applicable) may disclose Confidential Information to the extent such
disclosure is reasonably necessary in filing or prosecuting patent applications,
prosecuting or defending litigation, complying with court orders, or complying
with applicable governmental regulations, provided that if RJRTC or any B.A.T.
Customer is required to make any such disclosure of Confidential Information it
will to the extent practicable give reasonable advance notice to the Disclosing
Party of such disclosure requirement and, except to the extent inappropriate in
the case of patent applications, will use its best efforts to secure
confidential treatment of such information required to be disclosed.
SECTION 6
WARRANTIES, REPRESENTATIONS, COVENANTS AND INDEMNITY
6.1 WARRANTIES AND DISCLAIMER OF WARRANTIES. RJRTC WARRANTS THAT PRODUCTS
MANUFACTURED AND PACKAGED PURSUANT TO THIS AGREEMENT SHALL BE FREE FROM DEFECTS
IN MATERIALS AND WORKMANSHIP, AND SUCH PRODUCTS SHALL BE MANUFACTURED, PACKAGED
AND SHIPPED IN CONFORMITY WITH THE APPLICABLE SPECIFICATIONS AND THE PACKAGING
AND SHIPPING REQUIREMENTS OF THIS AGREEMENT. ANY MEASURES TAKEN TO REMEDY NON-
CONFORMANCE WITH THIS WARRANTY WILL BE AT RJRTC'S SOLE COST AND EXPENSE. SUBJECT
TO THE FOREGOING, PRODUCTS SUPPLIED BY RJRTC ARE PROVIDED "AS IS" AND WITHOUT
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE.
6.2 LIMITATION OF REMEDIES, LIABILITY AND DAMAGES. RJRTC'S AND EACH B.A.T.
CUSTOMER'S LIABILITY FOR DAMAGES FOR BREACH OF ITS RESPECTIVE OBLIGATIONS UNDER
THIS AGREEMENT SHALL BE LIMITED TO DIRECT ACTUAL DAMAGES ONLY; SUCH DIRECT
ACTUAL DAMAGES SHALL BE THE SOLE AND EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR
DAMAGES AT LAW ARE WAIVED. NEITHER RJRTC NOR ANY B.A.T. CUSTOMER SHALL BE LIABLE
FOR CONSEQUENTIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR INDIRECT DAMAGES, LOST
PROFITS OR OTHER
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BUSINESS INTERRUPTION DAMAGES ARISING FROM THIS AGREEMENT, BY STATUTE, IN TORT
OR BY CONTRACT.
6.3 U.S.A. STATUTES AND REGULATIONS. RJRTC and each B.A.T. Customer
represents and warrants that it is aware of: (a) U.S. Trade Restrictions
controlling exports from the U.S.A. and re-exports from third countries of U.S.
origin goods, software and technology, including foreign made goods, software
and technology with more than de minimus U.S. content, to Prohibited and
Restricted Countries and to Restricted Parties, as well as the restrictions and
prohibitions under U.S. trade sanctions on dealings by U.S. persons with such
countries and persons, and is further aware that the lists of Prohibited
Countries, Restricted Countries, and Restricted Parties may change from time to
time; (b) Antiboycott Laws; and (c) the Foreign Corrupt Practices Act.
6.4 COMPLIANCE WITH LAWS. In performance of their respective obligations
under this Agreement, RJRTC and each B.A.T. Customer shall comply with, and
shall ensure that their respective employees and Affiliates shall comply with,
all laws, regulations, agreements, licenses and consents applicable to or
otherwise relating to the subject matter of this Agreement, including those
referenced in Sub-Section 6.3. Without limitation to the foregoing, RJRTC and
each B.A.T. Customer represents and warrants that they shall not transfer,
provide, resell, export, re-export, distribute, or dispose of any Product or
component thereof or any related technology or technical data, directly or
indirectly, without first obtaining all necessary written consents, permits and
authorizations and completing such formalities as may be required by any
applicable laws, rules and regulations. No B.A.T. Customer shall sell or
otherwise provide Products to any Person that such B.A.T. Customer knows,
believes or has reason to believe will take any action which, if done by such
B.A.T. Customer, would constitute a violation of any of the terms and conditions
of this Agreement.
6.5 PRODUCT FOR EXPORT ONLY. Except for limited quantities of Product
manufactured for testing purposes only, RJRTC and each B.A.T. Customer
represents and warrants that Products produced by RJRTC for any B.A.T. Customer
in accordance with this Agreement are intended to be manufactured in the U.S.A.
solely for lawful export from the U.S.A., and for sale only within the Territory
in accordance with the laws of the Governmental Authority within each relevant
country within the Territory. RJRTC will not provide Product manufactured for
any B.A.T. Customer to any third Person, without the applicable B.A.T.
Customer's prior written consent. No B.A.T. Customer will in any way transport,
or cause to be transported, Products to any country outside of the Territory for
use, distribution or sale.
6.6 EXPORT LAWS. No equipment, computer software, technology or information
obtained pursuant to this Agreement, and no Product or component thereof, will
be made available or re-exported, directly or indirectly, except in compliance
with all applicable export laws and regulations.
6.7 THE B.A.T. CUSTOMERS' DUTY TO INSPECT. Each B.A.T. Customer or its
designees shall be solely responsible for inspecting all Specifications of
Products to be
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produced by RJRTC for such B.A.T. Customer in order to ensure that each such
Product is in compliance with all applicable laws of the relevant Governmental
Authority of the country in the Territory into which the Product is intended to
be shipped or sold. Each B.A.T. Customer or its designees shall be solely
responsible for giving RJRTC full and complete instructions to ensure that all
Packaging, Cartons and Cases are appropriately marked with relevant health
warnings (if applicable) and other relevant markings mandated by relevant
Governmental Authorities, whether within the U.S.A., the Territory or elsewhere.
6.8 B.A.T. CUSTOMER'S INDEMNITY OBLIGATIONS.
(a) IN GENERAL. Each applicable B.A.T. Customer, severally, will
indemnify, defend and hold harmless RJRTC, its Affiliates and their respective
current and former officers, directors, employees, representatives and agents
(each an "RJRTC Indemnified Party") from and against any and all losses,
damages, claims, liabilities, demands, assessments, judgments, settlements,
compromises and related costs and expenses (including without limitation
reasonable attorneys' fees and costs) (collectively, "Damages") resulting from
demands, actions, suits or proceedings initiated by any third Person (including
any Governmental Authority) and arising out of:
(i) A material breach by such B.A.T. Customer of its
respective obligations under this Agreement; or
(ii) The marketing, advertising, distribution or sale by
such B.A.T. Customer of any Products manufactured under this Agreement for such
B.A.T. Customer, including any Damages which relate to any claimed adverse
health effects or health risks relating to the use of such Products.
(b) EXCEPTIONS. Notwithstanding Sub-Section 6.8(a), the B.A.T.
Customers shall not be required to indemnify any RJRTC Indemnified Party for any
portion of Damages to which such RJRTC Indemnified Party may become subject to
the extent (but only to the extent) they relate to, result from or arise out of:
(i) The failure of RJRTC to comply with its obligations
under this Agreement;
(ii) The negligence or willful misconduct or willful
failure to act of RJRTC; or
(iii) RJRTC's failure to produce Products meeting the
required Specifications and/or to comply with the Packaging and Shipment
requirements of this Agreement.
(c) NOTICE. RJRTC shall give the applicable B.A.T. Customer prompt
written notice of any claim or suit that may be brought directly against RJRTC
or any other RJRTC Indemnified Party by a third Person, and the applicable
B.A.T. Customer shall
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thereafter be entitled to employ counsel, control the defense of, and settle or
compromise, such claim or suit.
6.9 RJRTC'S INDEMNITY OBLIGATIONS.
(a) IN GENERAL. Subject to Sub-Section 6.1, RJRTC will indemnify,
defend and hold harmless each B.A.T. Customer, and their respective current and
former officers, directors, employees, representatives and agents (each a
"B.A.T. Customer Indemnified Party") from and against all Damages resulting from
demands, actions, suits, or proceedings initiated by any third Person (including
any Governmental Authority) and arising out of material breach of the
obligations of RJRTC under this Agreement including, but not limited to, RJRTC's
failure to produce Products meeting the required Specifications and/or to comply
with the Packaging and Shipment requirements of this Agreement.
(b) EXCEPTIONS. Notwithstanding Sub-Section 6.9(a), RJRTC shall
not be required to indemnify any B.A.T. Customer Indemnified Party for any
portion of Damages to which such B.A.T. Customer Indemnified Party may become
subject, to the extent (but only to the extent) they relate to, result from or
arise out of:
(i) The failure of the applicable B.A.T. Customer to
comply with their respective obligations under this Agreement; or
(ii) The negligence or willful misconduct or willful
failure to act of the applicable B.A.T. Customer.
(c) Notice. The B.A.T. Customer Indemnified Party shall give RJRTC
prompt written notice of any such claim or suit that may be brought directly
against such B.A.T. Customer Indemnified Party by a third Person, and RJRTC
shall thereafter be entitled to employ counsel, control the defense of, and
settle or compromise, such claim or suit.
6.10 THE B.A.T. CUSTOMER'S SUPPLIER FOR PRODUCT. Each B.A.T. Customer
represents and warrants that as of the Effective Date, it has not entered into
any agreement with any third Person that obligates such B.A.T. Customer to
purchase any Product subject to this Agreement from any third Person, which
Product is subject to such B.A.T. Customer's obligations to RJRTC regarding the
manufacture of American-blend Cigarettes sourced from the U.S.A. pursuant to
the terms and conditions of this Agreement.
6.11 THE B.A.T. CUSTOMERS' RIGHTS TO INTELLECTUAL PROPERTY. Each B.A.T.
Customer represents and warrants that it (or its Affiliates) has the right to
use all Intellectual Property associated with the Products manufactured for it
under this Agreement, including Trademarks, in the relevant countries in the
Territory. RJRTC shall obtain no rights with respect to Intellectual Property
owned by any B.A.T. Customer or its Affiliates as a result of this Agreement.
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ARTICLE 7
MISCELLANEOUS
7.1 FURTHER ASSURANCES. Each Party agrees to enter into or execute, or
procure the entering into or execution, of such agreements, assignments or
further assurances, or do such other acts as the other Party may reasonably
request to carry out the terms and conditions of this Agreement. Further,
Purchase Orders issued by B.A.T. Customers under this Agreement shall provide
that such Purchase Orders are issued pursuant to, and governed by, the terms and
conditions of this Agreement.
7.2 WAIVER. No waiver by either RJRTC or any B.A.T Customer of any of the
provisions of this Agreement will be effective unless explicitly set forth in
writing and executed by that entity. Any waiver by either RJRTC or any B.A.T.
Customer of a breach of this Agreement will not operate or be construed as a
waiver of any subsequent breach.
7.3 RELATIONSHIP OF RJRTC AND THE B.A.T. CUSTOMERS. RJRTC and each B.A.T.
Customer shall be and shall remain independent contractors as to each other, and
this Agreement shall not be construed as establishing a general agency,
employment, partnership, or joint venture relationship between them. Neither
RJRTC nor any B.A.T. Customer shall have the authority to make any statements,
representations or commitments of any kind (whether express or implied), or to
take any action, which shall be binding on the other or create any liability or
obligation on behalf of the other, without the prior written authorization of
the entity to be bound.
7.4 FORCE MAJEURE. Notwithstanding anything to the contrary herein, neither
RJRTC nor any B.A.T. Customer shall be liable for loss, injury, delay, damage or
other casualty suffered by such other entity due to any inability to perform any
obligation hereunder, and neither RJRTC nor any B.A.T. Customer shall be deemed
to have defaulted under or breached this Agreement for failure or delay in
fulfilling or performing any term or provision of this Agreement (other than
payment of monies due), when such failure or delay is caused by or results from
causes beyond the control of the affected entity including, but not limited to,
acts of God, fire, flood, storm, earthquake, explosion, epidemic, embargo, war,
acts of war (whether war be declared or not), acts of terrorism, insurrection,
riot, civil commotion, labor disputes and strikes suffered by third-party
suppliers, sub-contractors, or services providers not working in or on RJRTC's
facilities, or acts, omissions or delays in acting by any Governmental Authority
(including legislative, administrative, judicial, police or any other official
government acts). Notwithstanding the foregoing, nothing set forth in this
Sub-Section 7.4 shall relieve RJRTC of its obligation to initiate its
contingency manufacturing plans as identified pursuant to Sub-Section 2.18.
7.5 GOVERNING LAW. The validity, construction and performance of this
Agreement shall be governed and interpreted in accordance with the substantive
laws of the State of New York, without giving effect to principles of conflicts
of laws thereof.
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7.6 JURISDICTION. [Intentionally Left Blank]
7.7 DISPUTE RESOLUTION. Any dispute arising out of or relating to this
Agreement shall be resolved in accordance with the procedures specified in this
Sub-Section 7.7, which shall be the sole and exclusive procedures for the
resolution of any such disputes:
(a) ESCALATION TO RJRTC'S AND THE APPLICABLE B.A.T. CUSTOMER'S
EXECUTIVES. To the extent that controversies arising from this Agreement cannot
be resolved by the respective personnel of RJRTC and the applicable B.A.T.
Customer responsible for the administration of this Agreement, RJRTC and the
applicable B.A.T. Customer shall attempt in good faith to resolve any such
dispute by negotiation between their respective senior executive officers who
have authority to settle the controversy and who are at a higher level of
management than those employees who administer this Agreement on a day to day
basis. RJRTC or the applicable B.A.T. Customer may give the other entity written
notice of any dispute which has not been resolved in the ordinary course of
business. Within ten (10) calendar days of receipt of such notice, the receiving
entity shall submit a written response to such notice. The notice and response
shall include: (i) a detailed description of the dispute; (ii) a statement of
the entity's position which respect to such dispute; and (iii) the name and
title of the senior executive officer who will negotiate on behalf of such
entity. Within thirty (30) calendar days of delivery of the initial notice, or
within a time mutually agreed by RJRTC and the applicable B.A.T. Customer, the
designated senior executive officers will meet or otherwise confer in an attempt
to resolve the dispute. Such negotiations shall continue either until the
controversy is resolved or until one of the entities initiates the mediation
procedure set forth below in Sub-Section 7.7(b). During the negotiation process,
all reasonable requests for information and documents from one entity to the
other shall be honored.
(b) MEDIATION. If a dispute cannot be resolved pursuant to the
negotiation procedures set forth above in Sub-Section 7.7(a), then the
controversy shall be submitted to non-binding mediation. Neither RJRTC nor the
applicable B.A.T. Customer may initiate mediation until at least sixty (60)
calendar days after the initial notice of dispute is submitted by one entity to
the other as provided in Sub-Section 7.7(a). If either RJRTC or the applicable
B.A.T. Customer wishes to initiate mediation, notice of demand for mediation
shall be submitted to the other entity in writing. Such mediation shall be
conducted in accordance with the Centre for Effective Dispute Resolution's
("CEDR") then-current Model Mediation Procedures and will be conducted by a
single mediator. Unless otherwise agreed between the entities, the mediator will
be nominated by CEDR and the mediation shall be conducted on London, England.
Each entity shall bear its own costs and expenses of mediation. Further, all
mediation expenses, including the filing fees and fees and costs of the
mediator, will be equally shared between the entities. Such mediation will be
scheduled as soon as possible by agreement of RJRTC, the applicable B.A.T.
Customer and the mediator.
(c) ARBITRATION. Neither RJRTC nor the applicable B.A.T. Customer
may initiate arbitration against the other relating to any dispute under this
Agreement until the mediation required under Sub-Section 7.7(b) has been
completed. If any dispute arising
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out of, or in connection with, this Agreement cannot be resolved through such
mediation, including disputes relating to the Agreement's existence, validity or
termination, either RJRTC or the applicable B.A.T. Customer may initiate
arbitration against the other entity. Such arbitration shall be filed with and
finally resolved by the International Chamber of Commerce pursuant to its Rules
of Arbitration. Such arbitration shall be conducted before one (1) arbitrator
appointed pursuant to such Rules of Arbitration and the proceeding shall be
conducted in Bermuda. The language to be used in the arbitral proceedings shall
be English.
7.8 SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unlawful, the same shall be deemed to be deleted from this
Agreement, but this Agreement shall remain in full force and effect as if the
deleted provision had never been contained in it. The Parties shall negotiate in
good faith as to the terms of a mutually acceptable and satisfactory provision
in place of any deleted provision, and if such terms shall be agreed, this
Agreement shall be amended accordingly.
7.9 AMENDMENTS. This Agreement may be amended, or any term hereof modified,
only by a written instrument duly executed by the Parties hereto. In the event
of any conflict between this Agreement and the terms of a Purchase Order, the
terms of this Agreement shall govern.
7.10 NOTICES. Unless otherwise provided in this Agreement, day to day
commercial communications may be exchanged by any reasonable means. All material
notices, requests, claims, demands and other communications under this Agreement
shall be in writing and shall be deemed given upon receipt by the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice):
If to RJRTC, to: R. J. Reynolds Tobacco Company
401 North Main Street
Winston-Salem, North Carolina 27101
Attn: General Counsel
If to BATUKE, to: B.A.T (U.K. & Export) Limited
Globe House
1 Water Street
London, United Kingdom
WC2R 3LA
Attn: Company Secretary
Notice addresses for all other B.A.T. Customers shall be provided to RJRTC as
soon as practical.
7.11 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between RJRTC and the B.A.T. Customers regarding the subject
matter hereof, and supercedes any prior agreement and negotiations between them
with respect to the subject matter hereof, including those set forth in Exhibit
"K" to the BCA.
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7.12 ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of RJRTC and each B.A.T. Customer hereto and their respective legal
successors and assigns. This Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligation hereunder be assigned, subcontracted, licensed or transferred by
RJRTC or any B.A.T. Customer without the other entity's prior written consent,
which consent shall not be unreasonably withheld, delayed or conditioned;
provided, however, that RJRTC and any B.A.T. Customer may, without the other
entity's prior consent, assign its respective rights and obligations hereunder
to a wholly owned subsidiary or entity under common control with such assigning
entity through 100% ownership of the equity interests therein. Any permitted
assignee shall assume all the rights and obligations of its assignor under this
Agreement. Any assignment in violation of the foregoing shall be null and void.
7.13 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to and
shall not be construed to give any Person (other than the Parties signatory
hereto and to the extent provided herein, other B.A.T. Customers), including any
employee or former employee, any interest or rights (including, without
limitation, any third-party beneficiary rights) with respect to or in connection
with any agreement or provision contained herein or contemplated hereby.
7.14 COUNTERPARTS. This Agreement and any amendment may be executed in
multiple counterparts, each of which is an original and all which constitute one
agreement or amendment, as the case may be, notwithstanding that all of the
Parties are not signatories to the original or the same counterpart, or that
signature pages from different counterparts are combined, and the signature of
any Party to any counterpart is a signature to and may be appended to any other
counterpart.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be
executed by their duly authorized representatives effective as of the Effective
Date set forth in the Preamble above.
B.A.T (U.K. & EXPORT) LIMITED
By: /s/ [ILLEGIBLE]
---------------------------
Print Name: [ILLEGIBLE]
Title Attorney-in-Fact
Date: July 30, 2004
-------------
("BATUKE")
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R. J. REYNOLDS TOBACCO COMPANY
By: /s/ Charles A. Blixt
---------------------------
Print Name: Charles A. Blixt
Executive Vice President
and General Counsel
Date: JulY 30, 2004
-------------
("RJRTC")
Schedules to the Agreement:
"A" - Product Base Prices through Contract Year 2004 (Including International
Order Policies & Procedures)
"B" - Identification of the Territory
"C" - Supplies to Restricted Countries
"D" - Standard Consumer Product Testing Protocols
"E" - Manufacturing Costing Methodology
"F" - RJRTC Payment Instructions
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