Key Terms for Wine and Distilled Spirits Supply Agreements Donna H. Hartman, Esq.

Donna H. Hartman Speaker Pic OlenderFeldman LLP Beverage Alcohol/Corporate Attorney Key Terms for Wine and Distilled Spirits Supply Agreements Speaker Pic

Creating a Brand Without a Winery or Distillery © 2017 Donna H. Hartman, Esq.

Producer Licenses / Permits Federal - Basic Permits: State: Bonded Winery Bonded Wine Cellar Taxpaid Wine Bottling House Distilled Spirits Plant Wholesaler Winery License Farm Winery License Winegrape Grower’s Permit Distillery License Distilled Spirits Manufacturer Craft Distillery License (Note: Types vary depending upon operation and state.) © 2017 Donna H. Hartman, Esq.

Sourced Product Benefits For Supplier / Manufacturer: For Purchaser / Brand Owner: No Additional Cost for Plant, Labor, and Equipment Utilize Extra Production Capacity Opportunity to Sell Excess or Finished Product in Bulk Additional Income Greater Profit Margin Increased demand for Product / Services Lower Cost to Entry Faster to Market Valuable Branding Exclusivity Increased Profit Lower Production Minimums Programming Opportunities © 2017 Donna H. Hartman, Esq.

Options for Creating a Brand Private Label Supply Agreement Custom Crush Bulk Purchase © 2017 Donna H. Hartman, Esq.

Various Service Companies / Titles Wine / Distilled Spirits Supply Bulk Purchase Custom Crush Grape Purchase Co-Packing Contract Bottling Private Labeling © 2017 Donna H. Hartman, Esq.

Are Agreements Really Necessary? YES! © 2017 Donna H. Hartman, Esq.

Why? Outline Key Business Terms; Define Parties’ Roles and Responsibilities; Identify Timing for Certain Actions; Manage Parties’ Expectations as to Products and Performance; and Sets Forth Process for Remedies / Resolution. © 2017 Donna H. Hartman, Esq.

Key Agreement Terms © 2017 Donna H. Hartman, Esq.

1. Define Parties Seller / Producer / Supplier /Bottler / Grower/ Vineyard / Distiller Purchaser / Brand Owner © 2017 Donna H. Hartman, Esq.

2.1 Define Product Type Style Characteristics Quality Organic Quantity Mash Bill / Blend Distillery Photo Courtesy of Millstone Spirits Group LLC © 2017 Donna H. Hartman, Esq.

2.2 Define Product - Grape Specifications Grape Varietal / Varieties Vineyard Location (e.g., certain block, row) Quality Standards (e.g., brix, acidity) Organic Viticultural Practices (e.g., pruning, irrigation, pest/disease control) Quantity © 2017 Donna H. Hartman, Esq.

3. Production and Planning Supply Agreements Forecast / Production Estimate Product Removal Schedule Bottling Agreements Annual bottling requirements Related bulk purchase shipments Grape Purchase Harvest Method (Hand or Machine) Grape Maturity and Harvest Delivery Date(s) Prior Notice Timing © 2017 Donna H. Hartman, Esq.

4.1 Pricing Schedule / List Type of Service Forecast Variance (+/-) Additional Charges Supply of Bottles /Packaging Materials Warehousing Frequency of Price Changes © 2017 Donna H. Hartman, Esq.

4.2 Pricing - Grapes Options: Variables: Tonnage (Number of tons at a set price per ton). Acreage (Specific amount or area at a set price, regardless of final weight or volume). Combination (Acreage defaults to tonnage if amount of fruit produced is < specified amount). Variables: Excess Fruit Quality, Defect, Rot, etc. © 2017 Donna H. Hartman, Esq.

5. Payment Terms How / Where Payments are Made When Payments are Made Specific Date Upon Delivery “X” days after Harvest Paid as a Percentage (i.e.,- 50% within 30-days of harvest; 50% prior to December 31st of Harvest year). © 2017 Donna H. Hartman, Esq.

6. Roles and Responsibilities Providing Standards and Specifications for Products Sourcing Grapes / Identifying Growers Overseeing and approving Winemaking or Distilling Process Obtaining / Filing Regulatory Approvals and Reports Arranging for Product Transportation and Delivery Conducting Testing /Analysis Designing Labels / Packaging Filing for Intellectual Property Protection © 2017 Donna H. Hartman, Esq.

7. Testing / Analysis Define Sampling Procedures and Testing Methods Appoint Party Responsible to Conduct Tests / Analysis Define Timing Intervals or Schedule Identify Basis for Acceptance, Rejection, or Correction © 2017 Donna H. Hartman, Esq.

8. Transportation and Delivery Identify Party Responsible for Delivery Define Method of Handling, Packaging and Form (e.g., bulk or bottles) Set Delivery Date (or Window) and Location Identify Documents needed for Delivery / Filling of Tanks Define when Title / Risk of Loss Passes Determine Insurance Requirements © 2017 Donna H. Hartman, Esq.

9. Term Length of Agreement Annual; 1 Harvest Multi-Year Renewal Terms None Extension – Notice Given Evergreen – Automatic if Parties do not give notice of termination. © 2017 Donna H. Hartman, Esq.

10. Termination (Exit Strategy) Set Expiration Evergreen – Proper Notice Given Early Termination Breach Financial Change In Control Loss of License Convenience (Upon proper notice) © 2017 Donna H. Hartman, Esq.

11. Confidentiality / Intellectual Property Prevents disclosure of trade secrets, formulas, Product composition, marketing plans, etc. Liquidated Damages for Breach Intellectual Property Limited, Non-exclusive, Royalty-free License Permission to Use Trade Name Cannot benefit or trade upon goodwill (e.g., Vineyard name, Winemaker’s name) © 2017 Donna H. Hartman, Esq.

12. Federal / State Remedies Available for Non-Payment File a Lien Priority over other secured creditors if properly / timely filed Types Vary By State (e.g., Producer’s, Grower’s, Agricultural) File a Uniform Commercial Code (UCC) Financing Statement Creates a security interest that attaches to Product File a Personal Property Security Interest (where credit extended) File a Claim under the Perishable Agricultural Commodities Act (PACA) Protects produce industry against unfair and fraudulent practices Statutory Trust for Payment © 2017 Donna H. Hartman, Esq.

13. Limitation of Damages / Waiver of Warranties Disclaim certain types of damages (e.g., special, incidental and consequential) Contract price Insurance Limit Money Damages Waiver of Implied Warranties Need to expressly and explicitly disclaim (e.g., merchantability, fitness for a particular purpose) © 2017 Donna H. Hartman, Esq.

14. Dispute Resolution Mediation Arbitration Litigation © 2017 Donna H. Hartman, Esq.

Thank You! dhartman@olenderfeldman.com

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