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Exhibit 10.7
NOTE: PORTIONS OF THIS
EXHIBIT ARE THE SUBJECT OF A CONFIDENTIAL TREATMENT
REQUEST BY THE
REGISTRANT TO THE SECURITIES AND EXCHANGE COMMISSION. SUCH
PORTIONS HAVE BEEN REDACTED
AND ARE MARKED WITH A "[*]" IN PLACE OF THE
REDACTED LANGUAGE.
AGREEMENT
This agreement has been executed by and between I.L.A.R. S.p.A.
(hereinafter referred to as "Producer")
located at Via Tiburtina 1314, 00131,
Rome, Italy, and Castle Brands (USA) Corp.,
located at 570 Lexington Avenue,
29th Floor, New York, NY 10022 (hereinafter
referred to collectively as
"Importer") in counterparts on the dates
specified adjacent to the signatures of
the respective parties and shall be
effective as of August 27, 2004, or such
earlier date that the Producer has
completed the termination of the pre-existing
Import Agreement (the "Effective
Date").
I. WHEREAS,
Producer is the exclusive owner of a brand of liqueur
called Pallini Limoncello and its extensions as defined in
Exhibit II (hereinafter referred to as THE PRODUCTS); and
II. WHEREAS Importer
is a U.S. Corporation organized under the laws
of
the State of Delaware, United States of America and Importer
is engaged in the import and distribution of alcoholic
beverages
in the United States of America; and
III. WHEREAS, Producer would not enter into this Contract without
the
specific undertakings by Importer (a) not to challenge directly
or indirectly anywhere in the world the validity of, interfere
with or claim for themselves, any of THE PRODUCTS and (b) not
to
compete in any way in the field of Lemon Based Cordials or such
other products as may be added to Exhibit II in the TERRITORY
and
(c) not to own a TRADEMARK or brand name in connection with a
Lemon Based Cordial Product in the TERRITORY; and
IV. WHEREAS, it is
understood by the parties that Producer has the
right to, and will, manufacture, bottle, sell, market and
distribute products other than THE PRODUCTS (subject to
Importer's Right of First Refusal as described below) in the
TERRITORY as well as THE PRODUCTS and other products outside of
the TERRITORY; and
V. WHEREAS, the
contracting parties declare that the determining
motive for the execution of the present Agreement is in
consideration of the respective qualities of each party, and
Producer further desires to enter into this Contract in view of
the present distribution capabilities in the alcoholic beverage
businesses of Importer; and
VI. WHEREAS Producer
wishes to appoint Importer, and Importer wishes
to accept its appointment, as sole importer of THE PRODUCTS in
the TERRITORY (as defined in Exhibit II) upon the terms and
condition set out in this agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein set forth, and other good
and valuable consideration, the
receipt of which is hereby acknowledged,
the parties agree as follows:
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1. DEFINITIONS
For the effects of this Contract, Importer and Producer agree on
the
following definitions:
(a) AFFILIATED or RELATED COMPANY:
(i) a company which, directly or indirectly, is CONTROLLED
by or CONTROLS another company, or
(ii) a company which is under common CONTROL with another
company.
(b) AMP: Strategy, plans and spending levels for advertising
merchandising and promotions, including
creative copy and media and shall not
include salaries, expenses or bonuses of
sales, marketing and administrative
personnel or other overhead; except as
provided otherwise in Exhibit III.
(c) BRAND MANAGER: A person hired by Importer, with the consent
of Producer, who will oversee the marketing
plan, advertising programs, use of
AMP funds, public relations projects, sales
staff interaction and day-to-day
sales of THE PRODUCTS. The costs of such
Brand Manager, including travel and
entertainment, shall be paid 50% by
Producer (up to an annual maximum of
$75,000).
(d) CONFIDENTIAL INFORMATION: Confidential Information shall be
as defined in paragraph 11 below.
(e) CONTROL, CONTROLS or CONTROLLED:
(i) a direct or indirect holding, or aggregate holdings, of
shares carrying more than 50% of the voting
rights attributable to the issued
and outstanding share capital of a company
which are currently exercisable at a
general meeting, irrespective of whether
the holding or holdings give de facto
control; or
(ii) the right to elect or remove directly or indirectly at
least one half of the board of directors or
equivalent managing body of a
company; or
(iii) the possession, directly or indirectly, of the power
to direct or cause the direction of the
management and policies of a PERSON or
entity, whether through the ownership of
equity securities, by contract, or
otherwise.
(iv) a change in the President or Chief Executive Officer.
(f) DOMAIN NAME: An address in conveniently readable form for
use
on the worldwide web, the Internet, any
other computer network or communication
system.
(g) IMPORTER GROUP: Importer and AFFILIATED or related
companies
of Importer.
(h) INITIAL TERM: From the date of execution of this Contract
and
expiring on December 31, 2009.
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(i) LAID-IN-COST: The purchase price paid by Importer for THE
PRODUCTS plus all taxes, duties and other
expenses and charges paid by Importer
including storage costs.
(j) OPERATIONAL YEAR: any calendar year during the INITIAL TERM
or any RENEWAL TERM starting from the year
2005.
(k) PERSON: an individual, corporation, company, partnership,
joint venture, trust, unincorporated
organization, government or agency or
political subdivision thereof or any other
entity that may be treated as a
person under applicable law.
(l) THE PRODUCTS: As set forth on the attached Exhibit II.
(m) PROPRIETARY INFORMATION: All information used or developed
pursuant to this Contract.
(n) RENEWAL TERM: Any extended term following the Initial Term.
(o) SHIPMENTS: Shipments of THE PRODUCTS from Importer to
Importer's wholesalers or to State
purchasing agencies pursuant to this
Contract.
(p) TERRITORY: The TERRITORY as set forth on the attached
Exhibit
II.
(q) TRADE DRESS: Overall appearance and presentation of THE
PRODUCTS' Labeling, packaging, and
containers, as well as associated advertising
and copyrights in all materials which are
connected with it.
(r) TRADEMARK: As set forth on the attached Exhibit IV.
2. GRANT OF
RIGHTS AND RESERVATION OF RIGHTS
(a) Subject to, and specifically conditioned upon, Producer
having terminated its prior Importer in the
TERRITORY, Producer hereby appoints
Importer as Producer's exclusive
distributor in the TERRITORY of the THE
PRODUCTS, subject to the terms and
conditions hereafter set forth. Importer
agrees to accept said appointment only
after confirmation that Producer has
effectively terminated any pre-existing
Import Agreements for the TERRITORY.
(b) Importer agrees that it shall not produce, sell, market,
advertise or distribute any of THE PRODUCTS
to any party outside of the
TERRITORY, unless specifically authorized
by Producer in writing. If Importer
learns that any quantity of THE PRODUCTS is
being exported from the TERRITORY,
Importer shall promptly inform Producer
thereof.
(c) (i) Except for the deletion of the TRADEMARK, Producer may
reasonably modify, delete, or add to,
labeling or packaging used on or in
connection with the promotion or sale of
the THE PRODUCTS, including, but not
limited to, adding to or
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deleting, diminishing or expanding size, or
relocating on the labeling or
packaging any TRADE DRESS elements, label
design or logotypes on one hundred
eighty (180) days' written notice to
Importer (or less time if specifically
mandated by a regulatory body in Italy or
the TERRITORY). If Importer does not
agree with any such modification, Importer
shall promptly advise Producer in
writing, expressing the reasons for such
disagreement. Producer agrees to
discuss such proposed modification with
Importer prior to the implementation of
such modification which implementation
shall in any event be at Producer's sole
and absolute discretion, provided however
that Producer shall at all times
comply with any modification mandated by a
regulatory body in the TERRITORY. All
costs and expenses incurred by Importer to
implement such modifications shall be
at Producer's expense.
(ii) In the event of any such modification, Importer shall
have the right, with the prior written
approval of Producer, which cannot be
unreasonably withheld, to use up any
materials, labels, packaging or signage
bearing the affected labels, TRADEMARK,
packaging or TRADE DRESS. If Producer
disapproves of, or wishes to accelerate
such use-up rights, then Producer shall
reimburse Importer for all actual
out-of-pocket expenses incurred due to
destruction and non-use of such materials,
labels, packaging or signage or shall
repurchase any affected inventory from
Importer at the Importer's LAID-IN-COST.
Both parties will use all reasonable
efforts to sell off old inventory as
expeditiously as possible.
(d) Rights of First Refusal. During the term of this Agreement,
Importer shall have the right of first
refusal regarding:
(i) any other current or future products with the Pallini
brand name that Producer currently
maintains in, or adds to, its product line
for sale in the TERRITORY.
(ii) If Importer exercises its option pursuant to
paragraph(2)(d)(i) above, paragraph (1)(l)
and Exhibit II shall be automatically
amended and the term "THE PRODUCTS" as used
in this Agreement shall be deemed to
include such additional products. In the
event that Importer declines to
exercise such option, Producer shall have
the right to offer such additional
products to other Importers, provided,
however, that Producer shall not
thereafter enter into an importation
agreement with any other importer upon
terms more favorable than those originally
offered to Importer without first
offering those more favorable terms to
Importer.
(iii) Importer shall be required to exercise its Right of
First Refusal within sixty (60) days of
being notified by Producer of Producer's
intent to offer a new product in the
TERRITORY. Failure to exercise said option
within sixty (60) days shall be deemed to
be a waiver by Importer of its first
refusal right.
(iv) Any new flavor extension of THE PRODUCTS shall
automatically be added to the definition of
THE PRODUCTS in Exhibit II and are
not therefore subject to Importer's Right
of First Refusal. Producer will
discuss any flavor extensions or deletions
with Importer prior to Producer
making final decisions regarding same.
3. SUPPLY AND
PRODUCT QUALITY
(a) At least sixty (60) days prior to the beginning of each
OPERATIONAL YEAR, Importer shall propose to
Producer in writing a commercially
reasonable rolling forecast of the
quantities and types of THE PRODUCTS to be
supplied to Importer by Producer during
each quarter of the following
OPERATIONAL YEAR. Such
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proposed forecast shall be subject to
discussion between the parties and shall
be subject to revision to reflect market
conditions.
(b) In the event of any request by Importer for SHIPMENTS
greater
than the forecast amount for any given
OPERATIONAL YEAR, Producer will make all
reasonable efforts to supply such
additional products under terms and conditions
to be discussed between the parties.
4. PURCHASES AND
TERMS
(a) Importer shall purchase from Producer THE PRODUCTS set
forth
in Exhibit II.
(b) Importer shall make all payments in U.S. Dollars to any
place
or party Producer requests in writing,
within a term of 90 days from date of
shipment.
(c) Importer shall pay all import duties and all expenses of
importation into the TERRITORY as well as
freight, taxes, insurance and expenses
for movement from the Producer's plant to
the TERRITORY destination. All storage
expenses, if any, shall also be paid by
Importer. Risk of loss with respect to
THE PRODUCTS shall pass to Importer when
loaded on trucks at the distillery.
5. PRICES
Prices for THE
PRODUCTS as set forth in Exhibit II hereto may be
adjusted by Producer not more than once in
any twelve (12) month period and upon
not less than one hundred twenty (120)
days' written notice to Importer. The
prices will not be changed during 2005.
Beginning January 1, 2006 and through
December 31, 2007, prices may be adjusted
based on the percentage increase (if
any) reflected in the Italian inflation
rate as compiled by the Institute of
Statistics (I.S.T.A.T.).
If Producer incurs a raw materials cost increase of 5% or more
during
any calendar quarter of this Agreement, to
the extent that such increase exceeds
the I.S.T.A.T. index referenced above, said
increase, while effective, may be
passed along as a price increase to
Importer on not less than one hundred twenty
(120) days' notice and upon documentation
by Producer.
After 2007 Producer shall have discretion to raise prices
without
reference to the prior two paragraphs, but
Producer recognizes the need for THE
PRODUCTS to be competitively priced at the
wholesale, retail, and consumer
levels and agrees to refrain from price
increases that exceed those of major
competitors for comparable products.
6. QUALITY
STANDARDS
(a) Producer, or Producer's designee, shall manufacture and
bottle THE PRODUCTS in its own premises in
accordance with: (1) all applicable
laws and regulations in the place of
production (including those of any
self-regulatory bodies), (2) all laws and
regulations applicable to the
production and sale of spirits to be
imported in the
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TERRITORY; and (3) industry best
manufacturing practices. Importer shall have
access during all reasonable business hours
to the premises where THE PRODUCTS
are manufactured.
(b) THE PRODUCTS that Producer sells to Importer must be
"Merchantable" which shall mean that THE
PRODUCTS are of good quality, free from
defects (whether patent or latent) in
material and workmanship, merchantable and
fit for human consumption, and shall be
substantially of the same quality as THE
PRODUCTS already distributed in the U.S.
market. Importer acknowledges that
Producer has no permanent structure in the
U.S.A. and is therefore not in a
condition to be updated and timely informed
about the change in U.S. laws and
regulations regarding the alcoholic
beverage trade. Importer shall advise
Producer of all relevant changes to all
applicable rules relating to THE
PRODUCTS being sold in the TERRITORY. In
absence of adequate information from
Importer, Producer will not be held
responsible for any infringement of such
rules.
(c) Importer shall use all reasonable efforts to maintain high
standards of quality on all THE PRODUCTS
sold and distributed by Importer, and
to this end:
(i) Importer acknowledges that THE PRODUCTS are of a
uniquely high quality and unique and
distinctive taste, different from all other
similar products, made of natural
ingredients and subject to factors as
temperature, humidity, heat, light,
etc.
(ii) Importer shall ship and warehouse THE PRODUCTS in
accordance with the reasonable warehousing
standards approved by Producer and
Producer or its duly authorized
representatives shall have access during all
reasonable business hours to the places
where THE PRODUCTS are stored by
Importer.
(d) In consultation with Importer, Producer may reasonably
modify
THE PRODUCTS upon not less than one hundred
twenty (120) days' written notice to
Importer (or less if mandated by a
regulatory body in Italy or in the
TERRITORY). If Importer does not agree with
such modification, it shall so
advise Producer. Except in the case of a
mandate by a regulatory body, Producer
agrees to discuss such proposed
modification with Importer. If the parties
cannot agree on the proposed modification,
Producer's decision as the owner of
the TRADEMARK shall be controlling, except
that it shall have the obligation to
comply with any change mandated by a
regulatory body in Italy or in the
TERRITORY.
(e) In the event of such modification, Importer shall have the
right, with Producer's prior written
approval, which cannot be unreasonably
withheld, to use up all THE PRODUCTS
previously supplied to it. If Producer
fails to permit a use-up requested by
importer, Producer shall be required to
repurchase from Importer all
pre-modification inventory at Importers,
LAID-IN-COST.
(f) During the TERM of this Contract, each party shall provide,
at no cost to the other party, all
information related to this Contract.
Importer shall also provide Producer with:
(i) all reasonable information in its
possession on the relevant spirits market
and the relevant adult beverage
market, including without limitation all
information that relates to THE
PRODUCTS, and (ii) all information that
Importer possesses or controls with
respect to THE PRODUCTS, storage of THE
PRODUCTS, improvement to THE PRODUCTS or
the development of new products to be
marketed under the TRADEMARK.
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(g) Importer shall not (i) distribute, or (ii) advertise,
promote
or merchandise THE PRODUCTS, or (iii) use
or ship any materials bearing the
TRADEMARK outside of the TERRITORY, without
the prior written approval of
Producer.
(h) Producer may, by its own initiative and under its own
responsibility for compliance with the
provisions of this agreement, contract to
a third-party of its trust the right to
produce THE PRODUCTS provided Producer
guarantees the same quality and service
standards (packaging, quality of the
liquid, compliance to regulations and law
requirements).
7. MEETINGS AND
REPORTS
Planning Meetings. Importer shall include the Brand Manager in
any
internal or agency strategic planning
meetings at which Importer knows that
there will be discussed any significant
strategic issues relating to THE
PRODUCTS.
(a) Reports. Importer shall submit to Producer.
(i)
Quarterly statements showing shipments to wholesalers by
market;
(ii) Within sixty (60) days after the end of each calendar
quarter reports detailing the amount and
destination of expenditures on
advertising and marketing.
(iii) Such other figures and marketing information as
Producer may reasonably require in writing
to judge the progress and the
standing of THE PRODUCTS in the
TERRITORY.
(iv) Brand Manager's monthly report.
(b) Work
with Sales Personnel. Importer acknowledges the
importance of allowing the Brand Manager to
work with distributors' sales
representatives both with regard to the
possibility of focusing salespeople
attention on THE PRODUCTS for at least one
full day periodically, make them
aware of the sales potential of THE
PRODUCTS, and provide them with some
education regarding the cultural heritage
and the use of THE PRODUCTS. Importer
shall select the key states in which it
wants to concentrate its marketing and
promotional activities and Importer will
make arrangements with distributors for
the Brand Manager to work with sales people
and to meet sales and marketing
managers of distributors in such selected
States,
8. MARKETING AND
AMP
(a) By September 30 of each calendar year, commencing with
2005,
Importer shall produce a preliminary annual
long-term strategic plan for the
years remaining in the INITIAL or RENEWAL
TERM and a full annual marketing plan
for THE PRODUCTS for the next calendar
year. Overall strategic guidelines will
be provided by Producer which shall be
incorporated in these plans. The
strategic plans will contain a vision of
future market growth potential for the
TERRITORY and THE PRODUCTS and will include
a consideration of alternative
strategies for achieving long-term
objectives and the forecasts and projected
increases provided by Importer. These plans
will be presented for approval by
Producer. The
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aforementioned preliminary plans will
generally include the items listed in
Exhibit I and shall be revised, as
necessary.
(b) Producer has the right to review and approve, prior to
implementation of the plans or any
deviations therefrom, the aforesaid strategic
and marketing plans or to request
reasonable changes to such plans. Once the
strategic annual plan has been approved by
Producer, implementation of such plan
shall be left to Importer to fulfill in its
discretion and judgment.
(c) Importer, upon Producer's request, shall periodically
review
with Producer the results and trends of the
strategic and marketing plan
elements referred to in Paragraph 1 hereof,
the administration of this Contract
and any other factors relating to the THE
PRODUCTS. At least one meeting every
six months to review the annual marketing
plan shall take place at a mutually
agreed location at which meeting Importer's
senior marketing personnel and the
BRAND MANAGER responsible for THE PRODUCTS
shall be present.
(d) Importer shall provide to Producer: (i) all information
reasonably required in Exhibit I or
otherwise required in this Contract, and
(ii) any other information in Importer's
possession reasonably requested by
Producer that affects THE PRODUCTS,
including, but not limited to, the strategic
and marketing plans, financial and
marketing information, sales results, market
research and financial data related to the
development of THE PRODUCTS or the
development of the spirits market or the
adult beverage market. However,
Importer shall not be required to provide
information to Producer if such
provision of information would violate any
federal, state or local law or if it
would be unreasonably burdensome. Producer
shall be permitted without Importer's
approval to use all information received
pursuant to this paragraph for its own
purposes, in any country, including
countries outside of the TERRITORY, without
any payment from Producer to Importer, but
always subject to the provisions of
Paragraph 11 hereof.
(e) Any change that Importer shall desire to make to any
product,
labels, packaging, and/or designs of THE
PRODUCTS, shall require the written
consent of Producer prior to distribution
or sale of such product except that
Importer shall have the right to make any
change mandated by a regulatory body
in the TERRITORY.
(f) Importer and Producer shall consult with each other and
shall
have the opportunity to participate in
discussions regarding the selection of,
and changes in, the advertising,
merchandising or promotional agencies working
on THE PRODUCTS. However, the final
decision with respect to any selection or
changes shall be in Importer's sole and
absolute discretion.
(g) Importer's and Producer's total AMP expenditures under this
Contract for THE PRODUCTS shall be in no
event less than the amounts as set
forth on Exhibit III, to be spent in the
TERRITORY pursuant to the approved
marketing plan. Said AMP expenditures
sh
