LICENSE, PRODUCTION AND DISTRIBUTION AGREEMENT

LICENSE, PRODUCTION, AND DISTRIBUTION AGREEMENT

-- MATEVEZA YERBA MATÉ ALE --

This License, Production, and Distribution Agreement (“ Agreement ”) is entered into effective as of the 1st day of November, 2006 (“ Effective Date ”), by and between Golden West Brewing Company, a California corporation d/b/a Butte Creek Brewing Company , (“ Butte Creek ”), and Mateveza USA, LLC, a California limited liability company (“ Mateveza USA ”).  

WHEREAS, Mateveza USA controls certain valuable trademarks, trade secrets and other intellectual property associated with the production and marketing of yerba maté ale products in the United States (“ Licensed Property ” as defined herein);

WHEREAS, Butte Creek is engaged in the manufacture, sale, and distribution of beers, ales, and other malt beverages in various channels; and

WHEREAS, Mateveza USA and Butte Creek desire to enter into this Agreement for the purpose of (a) Butte Creek manufacturing, selling, and distributing yerba maté ales products using the Licensed Property (the “ Products ” as defined herein); and (b) Mateveza USA granting Butte Creek the right to use the Licensed Property in connection with such manufacture, sale, and distribution of the Products.

NOW, THEREFORE, for the mutual consideration set forth herein, the parties hereto agree as follows:

1.

Definitions .

For purposes of this Agreement:

“ ABC ” means the California Department of Alcoholic Beverage Control.

“ Acceptable Product ” means a Product that is in compliance with the terms of Sections 3.B(i) through 3.B(ix), and Sections 4.B(vi) and (vii), inclusive.

“ Affiliate ” means, with respect to a specified Person, another Person that Controls, is Controlled by, or is under common Control with, the specified Person.

“ Agreement ” has the meaning set forth in the first paragraph hereof.

“ Auditor ” has the meaning set forth in Section 7.D.

“ Brewing Sheet ” means the recipe for brewing the Products, as set forth in Schedule 1.3 .

“ Business Day ” means any day that is not a Saturday, Sunday, or statutory federal holiday in the United States.

“ Butte Creek Monthly Reports ” has the meaning set forth in Section 7.A.

 “ Change of Control ” occurs:  (i) where any Person or group of Persons acting in concert who, on the Effective Date, does not possess Control over a party hereto, gains Control over such party, or (ii) in the event of any sale or other transfer of all or substantially all of the assets of Mateveza USA or Butte Creek other than to an Affiliate of such party.

 

“ Confidential Information ” has the meaning set forth in Section 12.A.

 “ Control ” means the power to exercise voting control over a majority of the issued and outstanding voting securities of a Person.

“ Cost of Goods Sold ” means all direct and indirect costs in accordance with U.S. Generally Accepted Accounting Principles (“ U.S. GAAP ”) for calculations of Cost of Goods Sold (“ COGS ”) for the applicable category of Products, plus freight and shipping costs and that portion of the General and Administrative (“ G & A ”) costs reasonably allocated to the Products .  On or before January 1, 2007, Butte Creek will prepare in good faith a true and complete listing of the elements of Butte Creek’s COGS (including freight and shipping and G & A costs) and a description of how the cost elements are derived (including indirect cost allocation methodologies) and when they are updated, including the formula to the portion of the G & A costs that will be allocated to the Products, substantially in the format set forth on Schedule 1.1 .   To the extent Butte Creek purchases goods or services from an Affiliate of Butte Creek, all cost components shall be based on the fair market value of the component for such item in an arm’s length transaction between unrelated parties. The components and/or allocations as then set forth in Schedule 1.1 must be agreed by Mateveza USA and Butte Creek and, once agreed, will be deemed incorporated into this Agreement, may be changed only upon the mutual agreement of Mateveza USA and Butte Creek, and will be subject to the audit rights provision in Section 7.D of this Agreement.

“ Disclosing Party ” has the meaning set forth in Section 12.A.

“ Distributor ” means any third-party distributor, wholesaler, or other entity authorized to purchase and sell malt beverages at wholesale to licensed accounts in the Territory for the retail sale of such beverages to consumers for on-premise and/or off-premise consumption.

“ Distribution Privileges ” has the meaning set forth in Section 4.

“ Effective Date ” has the meaning set forth in the first paragraph hereof.

“ Expired Product ” means any Product that has not been sold by Butte Creek to a Distributor or other customer within 90 days from the date of its manufacture.

“ FDCA ” has the meaning set forth in Section 3.B(vii).

“ Final Determination ” has the meaning set forth in Section 7.D.

“ First Fiscal Year ” means the period of time beginning on January 1, 2007 and ending on December 31, 2007.

 

 “ Fiscal Year ” means the period of time beginning January 1 and ending on December 31.

 

“ Force Majeure ” means acts of God (including, but not limited to, fire, storm, flood, frost, disease, pestilence, crop failure, and earthquake), explosion, accident, acts of the public enemy, war, rebellion, insurrection, sabotage, epidemic, quarantine restrictions, or other acts beyond the reasonable control of a party, but expressly excluding strikes or other labor stoppages, slowdowns or disputes.

“ Formulas ” has the meaning set forth in Section 2.F(ii).

 

 

“ Gross Sales Proceeds ”means (1) Butte Creek’s collected and cleared gross revenues from sales of Products to Distributors or other customers, net of (a) all federal or state excise taxes applicable to the Products as paid by Butte Creek, and less (b) Management Committee-approved discounts, deductions, allowances, set-offs, refunds, markdowns, or adjustments to Distributors or other customers, plus (2) any amounts received by Butte Creek on account of insurance or other recovery for lost, stolen, destroyed or damaged Products.

 “ Intellectual Property ” means any and all domestic and international rights in: (i) trademarks, service marks, trade dress, logos, trade names and Internet domain names, together with all goodwill associated therewith; (ii) patents, patent disclosures, inventions and know-how; (iii) copyrights, copyrightable works and moral rights; (iv) trade secrets and confidential information; (v) other intellectual proprietary property (of every kind and nature and however designated), whether arising by operation of law, contract, license, or otherwise; and (vi) all registrations, applications, renewals, extensions, continuations, continuations-in-part, divisions or reissues of the foregoing now or hereafter in force or hereafter acquired or adopted.

“ IP License ” has the meaning set forth in Section 2.A.

“ Licensed Channels ” means those market segments which may be targeted for distribution of the Products as set forth in the Marketing Plan.

“ Licensed Property ” means:  (a) the “MATEVEZA” trademarks and all other current and future trademarks or service marks, slogans, logos, insignias, emblems, symbols, trade dress, label designs, copyrightable material and other proprietary identifying characteristics or content (whether or not registered) owned, used, or licensed by Mateveza USA or its Affiliates with respect to the Products, including, but not limited to, those marks set forth on Schedule 1.2 ; (b) all Formulas, recipes, know-how, and other trade secrets associated with the Products including, but not limited to the Brewing Sheet; and (c) and including the goodwill associated with any and all of the foregoing.

“ Licensed Marks ” means the trademarks and service marks included in the Licensed Property.

“ Loss ” has the meaning set forth in Section 15.B.

“ Management Committee ” has the meaning set forth in Section 8.B(i).

“ Manufacturing Capacity ” means that amount of brewing and bottling capacity which Butte Creek has committed to reserving for the Products, as described in Section 3.C

 “ Market Withdrawal ” has the meaning set forth in Section 3.E.

 “ Marketing Plan ” means a description of Mateveza USA’s objectives with respect to brand development, key territories, key channels, and brand positioning for sales of the Products, as may be updated by Mateveza USA from time-to-time, upon 30 (thirty) days prior written notice to Butte Creek.

 “ Material Breach ” means (i) the breach of any representation, warranty, covenant or obligation in this Agreement by a party that causes or is reasonably likely to cause serious brand equity and/or other reputational injury to the other party, the Licensed Marks, or the Products; (ii) any willful misrepresentation or falsification of a record or report required by this Agreement, or any fraudulent act or omission in connection with this Agreement; (iii) the violation by Butte Creek of the non-favoritism and the non-compete provisions of Sections 2.G or 2.H or the production and distribution limitations of Sections 3.A or 4.A; (iv) the failure or inability of Butte Creek to timely manufacture or distribute the volume of products ordered by customers in the Licensed Channels in the Territory as required by

 

Sections 3.B(iii), 4.B(iv) and 4.B(v); (v) the failure to timely pay a shortfall determined by audit as required by Section 7.D; (vi) the failure to make Royalty Payments due under Section 5 or to report Royalty Amounts and sales as required under Sections 7.A(ii) and 7.A(iii); ( vii ) the failure of Mateveza USA to pay any sums due Butte Creek under this Agreement within the time frame required ; or (viii) sales by Butte Creek that are in violation of Section 13.

“ Mateveza Website ” means www.mateveza.com and any other current or future domain name and external Internet address containing information about the MATEVEZA brand, the Products, and initiatives and events associated with the brand.

“ Net Profits ” means Gross Sales Proceeds from Butte Creek’s sales of the applicable Products during a given month; minus (i) Butte Creek’s Cost of Goods Sold for the Products recorded in such month (including freight and shipping and G & A costs as described above); minus (ii) Butte Creek’s cost of Management Committee-agreed Product marketing initiatives (advertising, point-of-sale materials, etc.) published, broadcast, or distributed in such month; and minus (iii) the amount of reimbursements or adjustments by Butte Creek for other out-of-pocket expenses incurred by Mateveza USA and/or Butte Creek during such month in association with Management Committee-agreed marketing or sales initiatives for the Products pursuant to Section 6.A(i) or 6.D below (for which such reimbursement or adjustment was agreed by the Management Committee prior to such expense being incurred).

“ Non-saleable Product ” means any Product that is materially defaced, exposed from its retail sales carton, or known or reasonably believed to have been materially damaged in production, or known or reasonably believed to have been materially damaged by handling, storage, or shipment in improper temperature, relative humidity, or environmental conditions.

“ OLCC ” means the Oregon Liquor Control Commission.

“ Person ” means any natural person, corporation, company, partnership, limited partnership, limited liability company, firm, association, trust, government, governmental agency, or any other entity, whether acting in an individual, fiduciary or other capacity.

“ Products ” means the yerba maté ales that will be branded with and utilize the Licensed Property, as set forth on Schedule 1.4 .

“ Records ” has the meaning set forth in Section 7.C.

“ Receiving Party ” has the meaning set forth in Section 12.A.

“ Royalty Amount ” with respect to sales of Products manufactured prior to January 1, 2007 means the applicable Royalty Percentage multiplied times the Gross Sales Proceeds for the applicable category of Products during a given month; and “ Royalty Amount ” with respect to sales of Products on or after January 1, 2007 means 50% of Net Profits during a given month.  Under no circumstances may the Royalty Amount be less than $0 or may the calculation of the Royalty Amount trigger any payment obligation from Mateveza USA to Butte Creek.

“ Royalty Payment ” has the meaning set forth in Section 5.A(iii).

“ Royalty Percentage ” with respect to sales of Products prior to January 1, 2007 means 5% for 12 ounce bottled Products, 10% for 22 ounce bottled Products, and 10% for Products sold in kegs.

“ Specifications ” means the written description of the materials and methods used to manufacture a Product, as determined by the Management Committee, including, but not limited to the applicable

 

Brewing Sheet, Formula, ingredients, manufacturing and bottling processes and procedures, quality control procedures, suppliers, regulatory compliance procedures, and packaging and labeling standards.

“ Subsidiary ” means, with respect to a specified Person, another entity that is majority-owned by the specified Person.

“ Term ” has the meaning set forth in Section 10.A.

“ Territory ” means the states of California, Oregon, and Washington.

“ Trade Spending ” means special allowances, extraordinary volume incentives, extraordinary performance allowances, and surge funds ( i.e. , to support the manpower to shelve Products) and display/advertising allowances to provide incentive to a customer to promote the display or sales of the Products in the customer’s store.

“ TTB ” means the federal Alcohol and Tobacco Tax and Trade Bureau.

“ Wholesale Price ” has the meaning given in Section 6.C.

“ Written Notice ” means written notice as set forth in Section 19.A.

“ WSLCB ” means the Washington State Liquor Control Board.

 

2.

IP License; Quality Control; Legends; Non-Compete.

A.

IP License; Territory .  Mateveza USA hereby grants to Butte Creek a royalty-bearing, non-transferable limited license to use the Licensed Property for the sole purpose of manufacturing, selling, and distributing the Products in the Licensed Channels in the Territory in accordance with this Agreement (the “ IP License ”).  

(i)

The foregoing IP License will be exclusive to Butte Creek in the Territory; provided, however, that if Butte Creek does not maintain Distributors or Manufacturing Capacity to satisfy demand for the Products in any material market area or market segment within the Territory, or if Butte Creek is unable or fails for any other reason within its control to fulfill firm purchase orders for Product within the Territory,  then Mateveza USA may appoint other brewers to serve market areas or market segments in the Territory where Butte Creek is unable to perform.

(ii)

If Mateveza USA proposes to authorize manufacturing, selling, and distribution of Products outside the Territory, then Butte Creek will have the first right to  expand its Territory to include the additional territory proposed by Mateveza USA on the same terms and conditions contained in this Agreement; provided that Butte Creek maintains Distributors and Manufacturing capacity to satisfy demand for the Products in all material market areas and market segments within the additional territory and the original Territory.  Absent such amendment of the Territory hereunder, Mateveza USA may, in its sole discretion, engage another brewery to manufacture, sell and distribute Products in the additional territory, provided such licensing agreement, contract brewing agreement, or other arrangement includes quality provisions substantially the same as those required in Section 4 and 5 of this Agreement.

B.

Quality Control .  Butte Creek shall not use the Licensed Property in a manner that  injures, demeans , or dilutes the reputation of Mateveza USA or the goodwill symbolized by the Licensed

 

Property.  Butte Creek shall conform its use of the Licensed Property to the provisions regarding use of the Licensed Property in Section 13.  Products, promotions, and advertising offered by Butte Creek in connection with the Licensed Property shall be offered in accordance with Butte Creek’s obligations to meet Mateveza USA’s quality standards set forth in Sections 3 and 4, and all commercially reasonable style and display policies agreed upon between Mateveza USA a nd Butte Creek from time to time, in accordance with Mateveza USA’s responsibility for the Marketing Plan and matters affecting the brand integrity and branding strategy for the Licensed Property across all market channels and all territories.

C.

Ownership .  The Licensed Property is owned by Mateveza, LLC,  a California limited liability company.  Mateveza USA has the right to use and sublicense the Licensed Property throughout the United States pursuant to an exclusive master license agreement with Mateveza, LLC.  Butte Creek acknowledges that, all right, title and interest in and to the Licensed Property and all goodwill of the business associated therewith will be-long exclusively to and inure to the benefit of their owner, and Butte Creek shall do nothing inconsistent with such ownership.  Butte Creek agrees that it will not contest the ownership or validity of the Licensed Property, nor assist anyone else to do so, nor attempt to register or use any trademarks or service marks or other content in a manner that would amount to infringement or misappropriation of the Licensed Property. Butte Creek’s use of Licensed Property and any goodwill generated from the use of the Licensed Property by Butte Creek shall inure to the benefit of Mateveza USA.  

D.

Markings .  Where practical and appropriate or reasonably required by Mateveza USA, Butte Creek shall include the following attribution on all product packaging, advertising and promotional materials for all Products using the Licensed Marks:  “MATEVEZA™ is a licensed trademark of Mateveza, LLC” or such other attribution for the Licensed Property as may be reasonably specified by Mateveza USA from time to time.

E.

Retained Rights .  Mateveza USA retains the right to use and to grant rights to use the Licensed Property for purposes of marketing and promoting the Products in the Territory in accordance with this Agreement, as well as the right to use and to grant rights to use the Licensed Property for any other purpose not in conflict or inconsistent with the rights granted to Butte Creek herein.

F.

Ownership of Additional Intellectual Property .

(i)

As between Butte Creek and Mateveza USA, Mateveza USA shall own all slogans, branding, Product and packaging trade dress and designs, and marketing, advertising, and promotional materials (including the copyrights and trademark rights therein), developed or acquired by either party during the term of this Agreement that are used in connection with the Products.  Any rights in such Intellectual Property shall be deemed Licensed Property owned by Mateveza USA and licensed to Butte Creek in accordance with the terms of this Agreement.

(ii)

As between Butte Creek and Mateveza USA, Mateveza USA shall own all Product recipes and formulas (including but not limited to the Brewing Sheet) currently existing or hereafter developed or acquired by either party during the term of this Agreement that are used in connection with the Products (collectively “ Formulas ”). Any rights in such Intellectual Property shall be deemed Licensed Property owned by Mateveza USA and licensed to Butte Creek in accordance with the terms of this Agreement.  Notwithstanding the foregoing, Butte Creek may not modify the Brewing Sheet except with the prior written consent of Mateveza  USA.

G.

Other Products .  Butte Creek shall not require distributors that purchase Mateveza to purchase other Butte Creek products.

 

H.

Non-Compete .  Butte Creek agrees to not directly or indirectly produce, offer, support or promote any other malt beverage product containing yerba mate during or for a period of 2 years after the end of the Term of this Agreement.  Butte Creek agrees to not directly or indirectly produce, offer, support or promote the Licensed Property or any tradename or trade dress similar to the Licensed Property, except with Mateveza USA’s consent or in accordance with the Agreement.  Provided Butte Creek is not in default, and subject to the limited exceptions of Section 2.A above, Mateveza USA agrees that it will not directly offer, and will not grant rights to third parties, to produce, distribute and market any malt beverage product containing yerba mate within Butte Creek’s exclusive Territory during the Term of the Agreement.

I.

Butte Creek’s Independence .  Butte Creek represents, warrants, and agrees that: (a) Butte Creek is an independent business entity, with sufficient knowledge and experience to conduct and manage its own business affairs and the performance under this Agreement without the assistance of Mateveza USA or others; (b) except to the limited extent otherwise provided in this Agreement, Butte Creek will exercise control over its own operations, business organization, management, marketing plans, and business affairs; (c) Butte Creek will be more dependent upon its own resources than any assistance from Mateveza USA which may be incidental to this Agreement; and (d) the operation of Butte Creek’s business is not substantially associated with the Licensed Marks.  Butte Creek acknowledges and agrees that the foregoing warranties are essential and reasonable.  Should any of the foregoing representations, warranties, and covenants be incorrect at any time while this Agreement is in effect, Butte Creek shall immediately notify Mateveza USA upon becoming aware of same.

3.

Manufacture and Supply of Products .

A.

Product Standards .  Butte Creek agrees to formulate, manufacture, bottle and package Products in accordance with their Specifications and the terms and conditions of this Agreement (the “ Manufacturing Privileges ”). All Products shall meet the quality standards established by Mateveza USA.  Butte Creek will not market, sell, or distribute any kind or category of Product until Mateveza USA has provided its prior approval of such Product and a representative sample thereof.

B.

Supply Representations and Warranties .  Subject to Force Majeure, Butte Creek represents, warrants, and covenants that:

(i)

it has sufficient capacity to manufacture and distribute, in all material respects, the amount of Products set forth as the Manufacturing Capacity ;

(ii)

it will exercise all commercially reasonable efforts to manufacture and maintain in its custody sufficient quantities of Products for reasonably anticipated volumes of Product purchases by accounts in the Territory;

(iii)

it will exercise all commercially reasonable efforts to timely fulfill its manufacturing requirements in accordance with this Agreement as necessary to promptly supply all approved and accepted orders for Products in the Licensed Channels in the Territory;

(iv)

it will exercise all commercially reasonable efforts to ensure that it does not sell any Expired Products or Non-Saleable Products;

(v)

it will exercise reasonable effort to ensure that all Products under this Agreement shall have been manufactured, stored, and delivered in accordance with their Specifications and all applicable laws and regulations, including but not limited to federal Good Manufacturing Practices for Manufacturing, Packaging, and Holding Food (CFR Title 21, Part 110) and the rules and regulations of the TTB and ABC;

 

(vi)

it will exercise reasonable effort to ensure that all Products manufactured and distributed under this Agreement (a) shall comply with all applicable labeling laws and regulations, including without limitation Title 7 of the Code of Federal Regulations, Section 205 (which governs products labeled or otherwise designated as organic), and the labeling rules and regulations of the TTB, ABC, OLCC, and WSLCB, and (b) shall be marked with accurate scan codes that are readable throughout the Territory;

(vii)

it will exercise reasonable effort to ensure that shipments of Products under this Agreement shall not be adulterated or misbranded within the meaning of the Federal Food, Drug and Cosmetic Act (the “ FDCA ”), or any similar state or municipal law in the Territory, and shall not be considered articles which may not, under the provision of Section 404 of the FDCA, be introduced into interstate commerce;

(viii)

it will exercise reasonable effort to ensure that the Products manufactured and distributed under this Agreement will be substantially free from material  defects (including, but not limited to, manufacturing defects) and will be merchantable and suitable for human consumption in the manner in which such products are normally or reasonably foreseeably consumed; and,

(ix)

it will promptly notify Mateveza USA if Butte Creek is (or if Butte Creek becomes aware that any of Butte Creek’s suppliers are) under a written citation from any regulatory agency (federal, state, or local) for violation of any standards with respect to the Products or those portions of the storage, production, and other facilities of Butte Creek or its suppliers who are involved in, committed to, or have an effect on the production of Products.

C.

Manufacturing Capacity .  Butte Creek shall reserve a minimum Manufacturing Capacity of 1,000 31-gallon barrels (bbls) per year available for the production of the Products, on a monthly basis of approximately 84 bbls per month.  Butte Creek may increase its stated Manufacturing Capacity for the Products upon 30 days written notice to Mateveza USA.  If Mateveza USA reasonably determines that demand for the Products in the Territory exceeds the monthly Manufacturing Capacity, Mateveza USA may elect to have the Products brewed by a third party, provided, however, that Mateveza shall provide  Butte Creek with written notice of the need to increase capacity, whereupon Butte Creek shall have 15 days from the date of delivery of such notice to provide Mateveza with written notice of its election to increase its stated Manufacturing Capacity in order to satisfy such demand.  If Butte Creek elects to increase its Manufacturing Capacity, it shall have 60 days to implememnt such increased Manufacturing Capacity; absent such election and/or implementation by Butte Creek to increase its Manufacturing Capacity hereunder, Mateveza USA may, in its sole discretion, engage another brewer to manufacture, sell and distribute additional Products in the Territory, provided such licensing agreement, contract brewing agreement, or other arrangement includes quality provisions substantially the same as those required in Sections 4 and 5 of this Agreement.

D.

Consumer Complaints .  Butte Creek shall provide, with its Butte Creek Monthly Reports, a log of all material positive and negative incidents or consumer complaints about the Products, and Butte Creek shall notify Mateveza USA as soon as reasonably practicable of any material consumer or product quality issues with respect to the Products that are brought to Butte Creek’s attention.

E.

Notification, Recalls and Withdrawals .  Butte Creek will notify Mateveza USA if any contamination, adulteration, or public health issues arise that are likely to have a material impact on Butte Creek’s sales of the Products in the Territory.  The parties will cooperate, at Butte Creek’s expense, in the containment, assessment, and any market withdrawal or recall of the Products (“ Market Withdrawal ”) due to contamination, adulteration, or public health risk.  Butte Creek will exercise reasonable effort to trace and locate any Products suspected of any such hazard, and will follow its

 

commercially reasonable procedures for the hold, recovery, transportation, storage, and disposition of affected Products.  Butte Creek will ensure that replacement Products are provided as soon as possible and will coordinate the replacement of withdrawn or recalled Products.  If such Market Withdrawal is due to a negligent or intentional  act or omission of Butte Creek,  Butte Creek will bear all costs related to the Market Withdrawal of the Products; and if such Market Withdrawal is due to a reason other than the negligent or intentional act or omission of Butte Creek, then Butte Creek’s costs related to the Market Withdrawal may be netted from Gross Sales Proceeds before accounting for any Royalty Amount hereunder.  Any media releases, public announcements, or public disclosures by either party regarding any Market Withdrawal shall be made jointly with a mutually agreed statement.  Any statement regarding any Market Withdrawal that is not made jointly shall be provided to the other party for written approval prior to such release, announcement, or disclosure, which approval shall not be unreasonably withheld or delayed.

4.

Distribution .  

A.

Distribution Standards .  Butte Creek agrees to use commercially reasonable efforts to carry out its obligations related to the sale (as set forth in Section 6) and distribution of the Products in Licensed Channels in the Territory and in accordance with the terms and conditions of this Agreement (the “ Distribution Privileges ”).  Butte Creek shall only sell and distribute in Licensed Channels and to Distributors approved by Mateveza USA in writing, which approval will not be unreasonably withheld or delayed.  Butte Creek may not enter any agreement for the distribution of the Products by Distributors without the prior approval of Mateveza USA, which approval will not be unreasonably withheld or delayed.  Mateveza USA reserves the right to revoke such approval in its reasonable discretion, provided, however, that such revocation does result in the breach of any contractual commitment or obligation on the part of Butte Creek.  Butte Creek will not market, sell or distribute any kind or category of Product until Mateveza USA has first provided its prior written approval of such Product in all respects, including without limitation the quality, design, packing and wrapping of such Product.  For each proposed Product, Butte Creek will furnish a reasonable number of representative samples to Mateveza USA (at no cost to Mateveza USA), including proposed packaging and packing materials, for the purpose of Mateveza USA determining whether to approve of such Product.  

B.

Distribution Representations and Warranties by Butte Creek .  Butte Creek represents, warrants, and covenants that (as to the Manufacturing Capacity) it will exercise all commercially reasonable efforts to:

(i)

furnish, operate, and maintain in good working condition and suitable appearance adequate equipment, devices, and facilities for the storage, loading, transporting, unloading, and delivery of the Products;

(ii)

comply in all material respects with the warehouse operating procedures and quality control procedures that Butte Creek has in place for its warehousing network, and all applicable laws, regulations, and ordinances with respect to its handling, storage, use, sale, and distribution of the Products;

(iii)

maintain in its custody sufficient quantities of Products for reasonably anticipated volumes of Product purchases by accounts in the Territory, which shall be based upon projected and actual sales;

(iv)

timely and accurately fulfill sales and merchandising obligations for the Products throughout the Territory to at least the degree of care and skill commensurate with the high standards for performance consistent with, and no less stringent than, the care and skill exercised by Butte Creek in the sale, merchandising, and marketing of its own brands;

 

(v)

timely fulfill its distribution obligations in accordance with this Agreement as necessary to promptly supply all financially-qualified orders for Products by customers in the Licensed Channels in the Territory;

(vi)

sell Products at not less than the Wholesale Price determined as set forth in Section 6.C and in accordance with the Marketing Plan, except with the prior consent of the Management Committee;

(vii)

(a) not sell or distribute any Non-saleable Product or Expired Products, (b) report quantities of Non-saleable Product and Expired Product to Mateveza USA, and (c) adhere to Mateveza USA’s instructions as to the appropriate disposition of such goods, which disposition will be at Butte Creek’s sole cost and expense (and without credit or other compensation by Mateveza USA);

(viii)

promptly notify Mateveza USA if it becomes aware that any of its accounts are engaged in misrepresentation or misuse of any Licensed Property;

(ix)

comply in all material respects with all laws, rules, and regulations applicable to its performance pursuant to this Agreement and procure and maintain all required governmental licenses, permits, approvals, and consents including but not limited to those of the TTB, ABC, OLCC, and WSLCB;

(x)

not intentionally interfere with or impair in any material respects the relationship between Mateveza USA and Mateveza USA’s vendors, suppliers, or customers; and

(xi)

take no action intended to facilitate the distribution of Products outside the Licensed Channels or outside the Territory.

C.

Distribution Representations and Warranties by Mateveza USA .  To the extent that Mateveza USA undertakes any selling activities in the Territory in support of Butte Creek’s distribution of the Products as contemplated hereunder, Mateveza USA represents, warrants and covenants that it will exercise all commercially reasonable efforts to:

(i)

arrange sales of Products at not less than the Wholesale Price determined as set forth in Section 6.C and in accordance with the Marketing Plan, except with the prior consent of the Management Committee;

(ii)

promptly notify Butte Creek if it becomes aware that any of accounts are engaged in misrepresentation or misuse of any Licensed Property;

(iv)

comply in all material respects with all laws, rules, and regulations applicable to its performance pursuant to this Agreement and procure and maintain all required governmental licenses, permits, approvals, and consents including but not limited to those of the TTB, ABC, OLCC, and WSLCB; and,

(v)

not intentionally interfere with or impair in any material respects the relationship between Butte Creek and its vendors, suppliers, or customers.

5.

Payment Obligations .

A.

Royalties for Products .

 

(i)

For each month during the Term of the Agreement, Butte Creek shall pay Mateveza USA monthly royalties (each a “Royalty Payment”) on the sale of Products based upon the Royalty Amounts as defined in Section 1 above.  Except as set forth herein, Butte Creek shall not offer any discounts, deductions, allowances, set-offs, refunds, markdowns or adjustments to customers without the prior written consent of Mateveza USA, which consent shall not be unreasonably withheld.  In the event that Butte Creek offers any of the aforementioned to a customer without the prior written consent of Mateveza USA, Butte Creek will be responsible for accounting for such unauthorized amount to Mateveza USA as Gross Sales Proceeds.

(ii)

After the First Fiscal Year, Cost of Goods Sold will be adjusted from time to time as necessary if the Cost of Goods Sold increases or decreases for any Product.

(iii)

Butte Creek shall pay the Royalty Payment to Mateveza USA within thirty (30) days after the end of each month, by check or other means acceptable to Butte Creek and Mateveza USA.  The receipt and deposit of monies by Mateveza USA shall not prevent or limit Mateveza USA’s right to contest the accuracy and/or correctness of any statement in respect of such payments.

B.

Monetary Defaults .  A late charge may be assessed on any Royalty Payment under this Agreement that is not paid when due, at a rate of 1% per month from the date due until paid in full; provided, however , that any late charge will not be assessed at a rate which exceeds the maximum amount permitted by applicable law.  

6.

Sales and Marketing Performance Obligations .   Mateveza USA will be responsible for the development of the initial Marketing Plan, and revisions, modifications, and updates thereto during the term of this Agreement, in consultation with the Management Committee.

A.

Rights and Obligations of Butte Creek .

(i)

Butte Creek will reasonably assist and cooperate with all advertising, promotions , and media marketing efforts of Mateveza USA under this Agreement; provided that any expenditures made to third parties in connection with advertising promotion, and/or media marketing efforts that are not approved by the Management