Reed's, inc. enters into a five-year manufacturing and distribution agreement full sail brewing, inc
Effective october 11, 2019, reed’s inc. entered into a five-year manufacturing and distribution agreement (the “manufacturing and distribution agreement”) and a recipe development agreement (the “recipe development agreement”) with b c marketing concepts inc., dba full sail brewing company, an oregon corporation (“full sail”) for the development, marketing and distribution of ready-to-drink reed’s craft ginger mules. the manufacturing and distribution agreement continues for a five-year term and automatically renews for up to three additional two-year terms, unless either party provides written notice of non-renewal at least 180 days prior to the applicable renewal period. upon any termination of the manufacturing and distribution agreement, other than a termination by reed’s as a result of full sail’s breach or default, then full sail shall have the right to continue to manufacture the products for up to a 24-month period following such termination, at fair market rates with respect to comparable products, on terms and conditions to bereasonably negotiated in good faith and agreed to by the parties (“post-termination co-packing”). if a post-termination co-packing agreement is not reached, then reed’s shall be obligated to purchase or reimburse full sail, at its cost, for up to sixty (60) days inventory of full sail supplies of ingredients and packaging materials which were reasonably procured by full sail in good faith in anticipation of the continued manufacturing of products. the manufacturing and distribution agreement provides for an exclusive license of the reed’s ginger beer brand to full sail and a royalty on sales of the co-developed products in the united states and canada, payable to reed’s. pursuant to the manufacturing and distribution agreement, reed’s will receive the greater of 8% of net sales revenue or $1.76 per case for the first 500,000 cases sold per year and the greater of 6% of net sales revenue or $1.32 per case for all case sales in excess of 500,000 cases sold per year. in addition, reed’s will receive 12% of net sales revenue on all case sales to costco san diego during for the first 12 months of the term. following the first twelve months of the term, the royalty rate for subsequent sales to costco san diego will be included with the aforementioned sales tiers, per the amount of applicable case sales for such each year. minimum royalty amounts from the effective date through december 31, 2020, january 1, 2021 to march 30, 2022 and april 1, 2022 to march 30, 2023 are expected to be $250,000, $800,000 and $1,200,000, respectively, and subsequently increasing 5% in each year over the prior year’s minimum royalty amount. full sail may, in its sole discretion, make up any minimum royalty shortage by paying to reed’s a lump sum cash payment for the first and the second years, as applicable. reed’s may elect to terminate the agreement if full sail does not pay or make up the minimum royalty requirement in the first or second years or in any subsequent year in which full sail does not achieve the annual minimum royalty. the recipe development agreement continues for the duration of the manufacturing and distribution agreement and provides for the development of ready to drink mule and hard ginger seltzer recipes. full sail will be responsible for all costs relating to the development of the products, except for costs and expenses relating to the involvement of reed’s personnel and contractors. pursuant to the recipe development agreement, the parties agreed to develop a joint development committee comprised of representatives of both reed’s and full sail. the development committee shall meet regularly to discuss and approve development milestones. the final recipes, deliverables and specifications for the products must be agreed to in writing by at least one member of the development committee from each of reed’s and full sail. reed’s will retain ownership of the products. the agreements contain customary representations and warranties, insurance requirements and indemnification provisions.
