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Exhibit
10.1
LICENSE
AGREEMENT
THIS LICENSE AGREEMENT (the
“ Agreement ”), made effective as of this 10th
day of May, 2007 (the “ Agreement Date ”), by
and among STAR TOBACCO, INC. , a Virginia corporation whose
address is 16 South Market Street, Petersburg, Virginia 23803
(“ Licensor ”), STAR SCIENTIFIC, INC. , a
Delaware corporation whose address is 16 South Market Street,
Petersburg, Virginia 23803 (“ Star ”) and
TANTUS TOBACCO LLC , a Kentucky limited liability company
whose address is P.O. Box 1030, Jamestown, Kentucky 42629 (“
Licensee ”).
W I T N E S S E T H
:
WHEREAS, Licensor is in the
business of manufacturing, distributing and selling
cigarettes;
WHEREAS, Licensor and Star
are owners of certain trademarks used in connection with
Licensor’s business of manufacturing, selling and promoting
cigarettes;
WHEREAS, Star is the sole
shareholder of Licensor;
WHEREAS, Licensor and Star
desire to license to Licensee and Licensee desires to license from
Licensor and Star certain trademarks of Licensor and Star used in
connection with the manufacture, distribution or sale of
cigarettes, upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, the parties desire
to enter into certain other agreements related to such
license.
NOW, THEREFORE, for and in
consideration of the premises and the mutual covenants herein
contained and other good and valuable consideration flowing between
the parties hereto, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
For purposes of this
Agreement, the following terms and variations thereof shall have
the meanings specified or referred to in this Article I except to
the extent the context requires otherwise:
(a) “ Agreement
” shall have the meaning set forth in the
preamble.
(b) “ Agreement
Date ” shall have the meaning set forth in the
preamble.
(c) “ Breach
” means any breach of, or any inaccuracy in, any
representation or warranty or any breach of, or failure to perform
or comply with, any covenant or obligation, in or
of this Agreement or any other contract,
or any event which with the passing of time or the giving of
notice, or both, would constitute such a breach, inaccuracy or
failure.
(d) “ Cigarette
Field ” shall mean the business of manufacturing, selling
and promoting cigarettes.
(e) “ Cigarette
Inventory ” means the number of cases of finished
cigarettes under the Trademarks located in Licensor’s bonded
warehouse as of the Effective Date, which shall include any cases
of finished cigarettes manufactured by Licensor at the written
request of Licensee subsequent to the Agreement Date and prior to
the Effective Date. Licensor shall use commercially reasonable
efforts to accommodate Licensee’s requests with respect to
the total number of cases, the total number of cases under each of
the Trademarks, the styles and other matters with respect to
finished cigarettes in Licensor’s warehouse on the Effective
Date; provided, however, such number of cases of finished
cigarettes shall not to be less than 2,000 cases nor more than
8,000 cases.
(f) “ Cigarette
Inventory Portion ” shall have the meaning set forth in
Section 2(b)(v)(A) .
(g) “ Cooperative
Marketing Plan ” shall have the meaning set forth in
Section 2(b)(vi) .
(h) “ Damages
” shall have the meaning set forth in
Section 6(a) .
(i) “ Effective
Date ” shall mean the first business day which is more
than thirty (30) calendar days after the Agreement
Date.
(j) “
Equipment” shall have the meaning set forth in
Section 2(b)(viii) .
(k) “ Hard Tobacco
Products ” shall have the meaning set forth in
Section 2(b)(vi) .
(l) “ Licensed
Products ” means the Cigarette Inventory and any
cigarette products produced by or for Licensee under the
Trademarks.
(m) “ Licensee
Indemnified Persons ” shall have the meaning set forth in
Section 6(a) .
(n) “ Licensor
Indemnified Persons ” shall have the meaning set forth in
Section 6(b) .
(o) “ Lien
” shall mean any mortgage, pledge, lien, conditional or
installment sale agreement, encumbrance, covenants, conditions,
restrictions, charge or other claim or interest of third parties of
any kind.
(p) “ Monthly
Payment ” shall have the meaning set forth in
Section 3(b) .
(q) “ MSA
” shall mean the Master Tobacco Settlement Agreement by and
among the settling state officials (on behalf of their respective
settling states) and the participating
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manufacturers to settle and resolve with
finality all released claims against the participating
manufacturers and related entities.
(r) “ Party
” and “ Parties ” shall mean Licensor,
Licensee and Star.
(s) “ Person
” shall mean an individual, corporation, limited liability
company, partnership, association, trust or any other entity or
organization, including any governmental entity.
(t) “ Sales Force
Member ” shall mean those employees and consultants
listed on Schedule II hereto; provided, however, the Parties
agree that any such person listed on Schedule II not offered
employment with or the opportunity to consult for Licensee prior to
the end of the thirty (30) calendar days following the
Effective Date shall not be considered a “Sales Force
Member”. No later than three (3) business days following
the end of such thirty (30) calendar day period, the Licensee
will provide the Licensor with a list of any Sales Force Member who
was not offered employment with or the opportunity to consult for
Licensee.
(u) “ Term
” shall mean the period beginning on the Agreement Date of
this Agreement and ending as set forth in Section 5 and
shall include the initial term and each renewal term, if
any.
(v) “ Trademarks
” shall mean the registered trademarks GSmoke ® , Sport
® and
Main Street ® as further described on Exhibit
A hereto.
(w) “ TTB
” shall mean the Alcohol and Tobacco Tax and Trade
Bureau.
(x) “ Variance
” shall have the meaning set forth in
Section 2(b)(v) .
(a) Exclusive License
.
(i) Subject to the terms and
conditions of this Agreement, Licensor and Star each hereby grant
to Licensee an exclusive license in the Cigarette Field beginning
on the Effective Date throughout the duration of the Term in the
United States and throughout the world (to the extent that Licensor
or Star has rights outside the United States) to use and exploit
the Trademarks, including, without limitation, the exclusive right
in the Cigarette Field to: (a) use the Trademarks in
marketing, advertising, promotion, and public relations activities;
(b) reproduce, distribute, prepare modifications and
derivative works of, publicly display, and transmit the Trademarks
for purposes of exercising the rights granted under this Agreement;
(c) use the Trademarks in connection with manufacturing, or
having others manufacture for Licensee, or selling, or having
others sell for Licensee, or promoting, or having others promote
for Licensee, the Licensed Products; and (d) bring, maintain
and benefit from actions for trademark infringement and related
claims. For the sake of clarity, and without limiting the rights of
Licensee, to
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the extent Licensee sells the
Licensed Products to third parties, the preceding provisions permit
such third parties to sell such purchased Licensed Products into
the stream of commerce and promote the Licensed Products by way of
signage or advertisement bearing the Trademarks. Notwithstanding
the foregoing, this Section 2(a)(i) shall not prohibit
the manufacture for Licensee or sale to Licensee of the Cigarette
Inventory by Licensor nor shall it constitute an infringement of
Licensee’s exclusive license for Licensor to manufacture the
Cigarette Inventory for Licensee or sell the Cigarette Inventory to
Licensee. Except for manufacture and sale of Cigarette Inventory to
Licensee, neither the Licensor nor Star shall have any right after
the Effective Date to use the Trademarks in connection with the
Cigarette Field without Licensee’s prior written
consent.
(ii) In connection with the
use of the Trademarks, Licensee shall not in any manner represent
that it has any ownership in the Trademarks, and Licensee
acknowledges that use of the Trademarks shall not create in
Licensee’s favor any right, title or interest in or to the
Trademarks, except as provided under this Agreement. Licensee
recognizes and acknowledges that all right, title and interest in
the Trademarks, including but not limited to the goodwill
associated with the Trademarks, is and shall remain the property of
Licensor or Star, as applicable.
(iii) When using the
Trademarks, Licensee shall use commercially reasonable efforts to
comply with all applicable laws pertaining to the Trademarks,
including, but not limited to, compliance with notice and marking
requirements, to the extent that failure to comply with such laws
would result in any material loss of Licensor’s or
Star’s rights with respect to the Trademarks.
(iv) If Licensor reasonably
determines that Licensee is using the Trademarks in a manner which
is not compliant with the standards set forth herein or otherwise
is likely to injure the goodwill and reputation associated with the
Trademarks, Licensee will use commercially reasonable efforts to
comply with such reasonable guidelines as may thereafter be
reasonably set by Licensor to preserve the goodwill and reputation
associated with the Trademarks or cease to use the Trademarks in
connection with the offending materials or promotions.
(v) Licensor or Star, as
applicable, shall maintain the United States registrations of the
Trademarks throughout the Term at Licensor’s sole cost. Upon
Licensee’s request from time to time and at Licensee’s
cost, Licensor or Star, as applicable, shall promptly register and
maintain the registration of any of the Trademarks in each
jurisdiction requested by Licensee outside the United States in
which the Trademarks are eligible for registration. With respect to
the United States Trademarks or any of the Trademarks subsequently
registered in additional jurisdictions pursuant to the preceding
sentence, in the event Licensor and/or Star fail to take action
necessary to maintain such trademarks prior to thirty
(30) calendar days of such required maintenance event, after
written notice to Licensor and/or Star (as applicable) of such
non-action, Licensor and/or Star (as applicable) hereby agree to
promptly provide Licensee power of attorney to permit Licensee to
take such action necessary to maintain the registration
of
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the Trademarks in the United
States or in other jurisdictions, and if such power of attorney is
not provided or if such required maintenance action is not taken
within three (3) calendar days of such written notice, then
this Section 2(a)(v) shall act as a power of attorney
to permit Licensee to take such action necessary to maintain the
registration of the Trademarks in the United States or in other
jurisdictions, however, in no event shall such power of attorney
remain in effect beyond each such maintenance event. In the event
that Licensee is required to take action under this
Section 2(a)(v) with respect to United States
Trademarks, such action shall be at the cost of Licensor and/or
Star (as applicable), including reasonable attorney’s
fees.
(vi) Licensee agrees to take
all commercially reasonable action from time to time requested by
Licensor and Star with respect to the marketing of the Trademarks
or the registration, renewal or evidence of use of the Trademarks
that is necessary to protect Licensor’s and Star’s
rights in the Trademarks, including, without limitation,
(i) providing affidavits of Licensee’s rights and
continued use of the Trademarks in United States commerce as
reasonably requested by Licensor or Star and (ii) to the
extent necessary to protect Licensor’s or Star’s rights
in the Trademarks, as applicable, affixing on Licensed Products and
materials used in the advertising, packaging, sale and distribution
thereof all notices required under applicable law or reasonably
requested by either Licensor or Star, including the use of symbols
® and
™ as appropriate, and (iii) to provide any other
reasonable notice requested by Licensor or Star on Licensed
Products using the Trademarks.
(b) Other Rights,
Obligations and Covenants .
(i) Expenses . Except
as otherwise provided on this Agreement, each of the Parties shall
be responsible for and shall pay all of its own expenses incurred
in connection with this Agreement and with the transactions
contemplated hereby, including, without limitation, all legal fees
and other expenses incident to the negotiation and preparation of
this Agreement.
(ii) Further
Assurances . On and after the Agreement Date, each Party hereto
shall take such other action and execute such other documents as
may be reasonably requested by the other Party hereto from time to
time to effectuate, confirm or document the transactions
contemplated hereby in accordance with the terms of this
Agreement.
(iii) Non-Solicitation of
Sales Force .
(A) For a period of
twenty-four (24) months following the Effective Date, Licensor
and Star each agree that neither Licensor nor Star will, directly
or indirectly, induce or attempt to induce any Sales Force Member
to leave the employ of or terminate his, her or its employment or
contractual relationship with Licensee.
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(B) For a period of twelve
(12) months following the Effective Date, Licensor and Star
each agree that neither Licensor nor Star will, directly or
indirectly, employ, rehire or attempt to rehire any Sales Force
Member.
(C) Notwithstanding the
foregoing, in the event the this Agreement is terminated prior to
the Effective Date, other than as a result of a material breach of
the Agreement by Licensor or Star, then the provisions of this
Section 2(b)(iii) shall in no way prohibit Licensor or
Star from employing, hiring or attempting to hire (as an employee,
consultant or otherwise) any Sales Force Member.
(D) Licensor and Star
represent and agree that Licensee shall not have any duty to either
offer employment or any other contractual relationship to any Sales
Force Member or any other Person or to offer any particular
compensation or benefits to any Sales Force Member or any other
Person.
(iv) Sale of Cigarettes in
MSA States . Licensee agrees not to sell any of the Cigarette
Inventory in a state that is a participant in the MSA or knowingly
sell to any Person who intends to sell the Cigarette Inventory in a
state that is a participant to the MSA. Licensee further agrees
that for one (1) year following the Effective Date, Licensee
shall not sell or market cigarettes under the Trademarks in any
state that is a participant in the MSA nor shall Licensee seek
certification of cigarettes under the Trademarks for sale in any
state that is a participant in the MSA.
(v) Manufacture of
Product . The Parties acknowledge and agree that the execution
of this Agreement establishes a binding obligation of Licensee to
purchase the Cigarette Inventory and that Licensee shall pay
Licensor in accordance with the the manner set forth in
Section 2(b)(v)(D), One Hundred Twenty Dollars ($120.00) for
each case of finished cigarettes constituting the Cigarette
Inventory. Immediately following the execution of this Agreement,
the Parties agree to use their best efforts and cooperate to secure
a variance from the TTB (the “ Variance ”) to
permit the Cigarette Inventory to be shipped from Licensor to
Licensee in bond.
(A) Licensor agrees
(i) to store the Cigarette Inventory for as long as requested
by Licensee, but in any event not to exceed two (2) months
following the Effective Date and (ii) from time to time to
promptly ship all or a portion of the Cigarette Inventory
designated in writing by Licensee (each a “ Cigarette
Inventory Portion ”) from the loading dock of Licensor to
the destination or destinations designated in writing by Licensee.
Licensee shall be responsible for the third-party shipping costs
required to ship Cigarette Inventory from Licensor’s loading
dock at Licensor’s Petersburg, Virginia factory to the
destination or destinations designated in writing by Licensee. If
the Variance is not obtained, Licensee shall pay Licensor by wire
transfer (i) at least two (2) business days preceding the
applicable due date, the $3.90 per carton federal excise tax that
Licensor will owe the National Revenue Center on the Cigarette
Inventory Portion and (ii) at least five (5) business
days preceding the applicable due date, the per carton cost
(currently approximately $0.48 per carton) Licensor will
owe
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the United States Federal
Government on the Cigarette Inventory Portion pursuant to the
United States Department of Agriculture’s Tobacco Transition
Payment Program (the tobacco buy-out). Licensee acknowledges that
such federal excise tax and payments associated with the tobacco
buy-out are due on a bi-monthly and quarterly basis,
respectively.
(B) After all of the
Cigarette Inventory has been shipped to Licensee or
Licensee’s designee pursuant to this
Section 2(b)(v) , and provided that Licensee shall have
obtained an approved FTC Labeling Plan that would permit Licensee
to manufacture the cigarettes under its TTB manufacturing license,
if requested by Licensee, Licensor agrees to enter into good faith
negotiations with Licensee with respect to establishing an
agreement whereby Licensor would act as a contract manufacturer of
cigarettes for Licensee under such terms as shall be determined at
such later date.
(C) After the Effective Date,
Licensor and Licensee hereby agree to cooperate in good faith to
facilitate Licensee’s ability to manufacture and distribute
cigarettes under the Trademarks. Such cooperation, includes
granting Licensee the exclusive right to claim ownership of, remove
and use certain dated machinery set forth on Schedule III
hereto owned by Licensor and used in the manufacture of cigarettes,
which right (exclusive or otherwise) shall expire with respect to
any such machinery not removed on a date that is twenty four
(24) months from the Effective Date. For the sake of clarity,
any such cooperative efforts pursuant to this
Section 2(b)(v)(C) shall be at the sole cost and
expense of Licensee with respect to any requests for assistance by
Licensee relating to the machinery.
(D) Upon Licensor’s
shipment of the Cigarette Inventory or any Cigarette Inventory
Portion to Licensee or Licensee’s designee pursuant to this
Section 2(b)(v) , except with respect to certain taxes
and buy-out costs set forth in Section 2(b)(v)(A) ,
Licensee shall compensate Licensor in full by wire transfer for the
Cigarette Inventory or any Cigarette Inventory Portion (as the case
may be) within five (5) business days of shipment
thereof.
(vi) Cooperative Marketing
Agreement . Immediately following the execution of this
Agreement, Star and David Dean, an employee of Star, each agree to
use commercially reasonable efforts to work with Licensee and
Licensee agrees to use its commercially reasonable efforts to work
with Star and David Dean to develop and implement a cooperative
marketing plan (the “ Cooperative Marketing Plan
”) to be implemented as soon as possible after the Agreement
Date. The Cooperative Marketing Plan is intended to utilize
Licensee’s sales forces (including any of the Sales Force
Members employed by Licensee) to market and sell Licensor’s
low-TSNA hard tobacco smokeless tobacco products that are currently
sold under the name of Stonewall and Ariva (the “
Har
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