AGREEMENT PRELIMINARY TO THE FORMATION OF THE AMERICAN CIGAR COMPANY.1

This agreement, made and entered into this 3d day of January, 1901, by and between

George J. Smith, of Kingston, N. Y., and Harry J. Luce, of New York City, N. Y., partners, doing business under the name and style of Powell, Smith & Company (hereinafter called "Partners") parties of the first part; and

The American Tobacco Company, a corporation organized and existing under and by virtue of the laws of the State of New Jersey (hereinafter called "American Company") party of the second part; and

Continental Tobacco Company, a corporation organized and existing under and by virtue of the laws of the State of New Jersey (hereinafter called "Continental Company") party of the third part: Witnesseth:

That partners, as an inducement to the American Company and Continental Company, to enter into this contract, represent and warrant to them:

1st. That, as partners in the business of manufacturing and selling cigars under various brands, they have for the past three years done a business, as follows:

2nd. That Partners own and have used without interference or adverse claim the trade-mark used by them, and that they will be

1 From the Report of the Commissioner of Corporations on the Tobacco Industry.

able to make the conveyance or conveyances hereinafter set out and hereafter contemplated, and that said conveyance when so made will convey to the purchaser all of their property and good-will need ful and useful in the carrying on of the business free from any debts or liabilities, and with full power and right in the purchaser to make use of the brands and trade-marks conveyed, as well as the tangible property and the trade-name "Powell, Smith & Company."

It is agreed that the American Company and the Continental Company may send their expert accountants and agents to examine the books, papers, property and business of Partners, in order to verify the representations above made, and that Partners will afford such experts and agents full and unrestricted opportunity to make such examination.

And it is further agreed that if upon the completion of such examination such experts and agents of the American Company and the Continental Company shall agree and report that the representations of Partners above made are substantially true then and in that case a corporation shall be formed under the laws of the State of New Jersey, with power to engage in the business of manufacturing and selling cigars, cheroots and little cigars, and with such other powers as the said the American Company and the Continental Company shall desire or be advised are desirable, with an authorized capital stock of ten million dollars ($10,000,000).

Said new corporation shall be organized, and the examinations hereinbefore provided for and hereinafter provided for shall be made as expeditiously as possible, so that on or as soon as practicable after January 16, 1901, (conveyances and inventories to be as of that date) Partners shall convey to said new corporation their entire cigar business, including name, good-will, trade-marks, trade-names, symbols, patents and copy-rights and rights analagous thereto, recipes of manufacture, and including also stock on hand, whether manufactured, in process of manufacture, or fully manufactured, labels, wrapping materials, advertising matter, and supplies, machines and appliances suitable and useful in the manufacture of cigars, and such as have been used by Partners in their manufacture of cigars, real estate in Kingston, N. Y., and in Poughkeepsie, N. Y., suitable for the business of said new corporation, and all the property, whether herein specially mentioned or not, owned by Partners, useful and available in the business of cigar manufacturing (except cash on hand, bills receivable, accounts receivable and contracts not hereinafter scheduled belonging to said Partners, which cash, bills and accounts receivable and contracts not hereinafter scheduled are hereby expressly excluded from the contemplated conveyance); the

said conveyance is to be of the exclusive right to the use of the name of the co-partners "Powell, Smith & Company," as well as the name or names of either of the partners, and any name which Partners or the co-partnership has a right to use on its labels or advertisements. Said conveyance is to contain warranties by Partners, jointly and severally, that the business and property conveyed are free from any lien, debt, liability, incumbrance or assessment of any kind, legal or equitable, including all taxes of whatever sort for the year 1900, and that the trade-marks conveyed are valid trade-marks, which Partners have the right to convey; and that they will jointly and severally warrant and defend the title made to said new corporation against all claims whatsoever and all persons whomsoever.

At the time of said conveyance, and in the same instrument, Partners shall and will covenant and agree each for himself that he will not, for a term of twenty years from the date of said conveyance directly or indirectly engage in the manufacture of tobacco into cigars, or into any other of its forms, or distributing the same, or own stock in any corporation other than said new corporation, and The American Tobacco Company and Continental Tobacco Company, so engaged in such manufacture or distribution within the several States, colonies or dependencies of the United States, or the several countries or nations of Europe (except the State of Utah and the Territory of Alaska) except for or with the written consent of said new corporation, authorized by a majority vote of all its Directors, and that they will not permit the use of their names, or the name of either of them whether in connection with each other or separately, or with or without other names or initials within said time hereinbefore mentioned, to wit, twenty years.

At the time of said conveyance, and in the same instrument, Partners shall each for himself agree to enter into and devote his whole time and best efforts to the service of said new corporation, and, if the new corporation desires so long to retain him, to remain in said business for five years, at the following salaries, respectively, all payable in equal monthly installments, to wit, George J. Smith ten thousand dollars ($10,000) per year; and Harry J. Luce ten thousand dollars ($10,000) per year. Said contract of employment shall not, however, require said new corporation to retain the service of either of Partners beyond a year after the said conveyance, and after said first year term the new corporation may at any time dispense with the services of either of said Partners without liability to him for any part of the unexpired term of five years.

At the time of said conveyance, and in the same instrument, Partners shall further, each for himself, agree to at any time thereafter

instruct the designated agents of said new corporation as to any of the formulæ, process or recipes for the treatment or cure of tobacco and manufacture of cigars used by or known to him, and further instruct such designated agents in the use of such formulæ, recipes or processes, and that he will not make known to any other than such designated agents, or make use of any such formulæ, processes or recipes.

In consideration of the conveyances, covenants and agreements by Partners as aforesaid, said new corporation is to pay to Partners the sum of One Million two hundred and fifty thousand dollars ($1,250,000) in cash, which said amount shall be in full payment for the trade-names, good-will, trade-marks, symbols, recipes, copyrights, patents and rights analogous thereto and all other intangible assets belonging to said Partners of whatsoever kind, and in any way useful or available in the cigar business, except book accounts, bills receivable and contracts not scheduled, and a further sum for the tangible assets useful and available in the cigar business, to be arrived at as follows: The real estate, buildings, unmanufactured stock, stock in process of manufacture, and that fully manufactured, at the cost thereof to Partners as shown by the books of Partners, if the same have been accurately kept. In arriving at the cost of any such property no amount is to be allowed for interest on the investment made by Partners, but in the case of stock of tobacco the actual cost of carriage, storage and insurance is to be considered. Machinery and fixtures, such as are useful and available in the cigar business is to be taken at its actual and agreed value, and in no case exceeding cost. Wrapping material, labels and supplies other than leaf and manufactured stock are to be taken just as leaf and manufactured stock, provided, however, that none shall be taken by said new corporation except such as will be useful and available to it in its business. Such leaseholds as the said Partners have useful to said new corporation in its business shall be turned over to said new corporation without premium. If Partners have made advances on contracts for purchase of leaf, and additional amounts are due to the vendors thereof, the said new corporation will upon receipt of such leaf if said contract. is taken by said new corporation pay for the same by returning to Partners the amount advanced by them without interest, and settling with the vendor for the balance due him. No contract of whatever sort not set out in Schedule A hereto attached shall be taken by said new corporation unless the same is agreed to by W. R. Harris who is the agent appointed hereby for both the American Company and the Continental Company to pass on such contract.

It is agreed that said new corporation shall be organized under the

direction of the legal advisers of the American Company and the Continental Company and there shall be no charge to said new corporation for legal advice and services in its organization. The expense of such organization other than legal advice and service shall be borne by it, the said new corporation. The stock of said new corporation shall be issued for cash as par, and it shall be issued and paid for in the proportion of seven per cent. to Partners or their nominees, forty-six and one-half per cent. to the American Company or its nominees, and forty-six and one-half per cent. to the Continental Company or its nominees, and each of the parties shall meet any call made by the directors for cash in this way; seven per cent. of the amount so called to be paid by Partners, or their nominees; forty-six and one-half per cent. by the American Company or its nominees, and forty-six and one-half per cent. by the Continental Company or its nominees. Stock shall issue to the amount that payments are made, and at the time such payments instead of being credited to the subscribers paying the same on their respective stock subscriptions. In case the directors of said new corporation decide to purchase any other property or business and to pay for the same in stock and not in cash the stock necessary and used in such purchase shall be deducted equally from the amount that under this agreement would be coming to the American Company and the Continental Company and the payments required by them shall be likewise abated.

The said new corporation shall be organized with a paid-up capital stock of ten thousand dollars, of which the nominees of the American Company and the nominees of the Continental Company shall hold $9,300 and Partners and their nominees shall hold $700, and these first stockholders shall organize and elect a board of directors and thereafter such board of directors shall control the operation of said new corporation, controlling only by the provisions of this agreement. The said nominees of said the American Company and the Continental Company shall select a name for said new corporation and fix the number of the directors.

In witness whereof, and of all the foregoing, the said Partners have caused this instrument to be signed in their partnership name "Powell Smith & Company" by George J. Smith, one of its active partners, and they have individually set their hands and seals hereto; and the said party of the second part has caused this instrument to be signed in its corporate name by its President, and its corporate seal to be fixed, attested by its Secretary; and said party of the third part has caused this instrument to be signed in its corporate name by