The information set forth in Item 2.01 is incorporated by reference into this Item 1.01.

Item 2.01. Completion of Acquisition or Disposition of Assets.

On June 10, 2020, Turning Point Brands (the “Company” or “TPB”) and its wholly-owned subsidiary, North Atlantic Wrap Company LLC (“NAWC”), entered into a Master Transaction Agreement (the “Master Transaction Agreement” and the transactions contemplated thereby, the “Transactions”) by and among NAWC, TPB, Durfort Holdings, S.R.L. (“Durfort”) and Blunt Wrap U.S.A., Inc. (“BWUSA” and, together with Durfort, collectively, the “Sellers”). The Transactions closed simultaneously with the execution and delivery of the Master Transaction Agreement on June 10, 2020 (the “Closing Date”). TPB is party to the Master Transaction Agreement solely for purposes of guaranteeing NAWC’s payment and performance obligations under the Master Transaction Agreement and the Unsecured Note (as defined below).

Under the terms of the Master Transaction Agreement, NAWC acquired from Sellers (i) an unencumbered and equal undivided co-ownership interest in the Sellers’ right, title and interest in and to Sellers’ know-how, trade secrets and other confidential information relating to substantially all tobacco wraps and cones products sold by Sellers prior to June 10, 2020 (“Seller Products”), including related FDA grandfathered Seller Products (i.e., products that can be sold without FDA market authorization), regulatory information related to the Seller Products, certain patents and patent applications claiming Seller Product-related inventions, rights in any FDA orders relating to Seller Products to the extent requested, filed, granted to or obtained by the Sellers prior to the Closing Date, including grandfather determinations (the “Acquired Intellectual Property”), together with (ii) certain raw materials, works-in-progress and finished goods purchased at cost (the “Acquired Inventory” and, together with the Acquired Intellectual Property, the “Acquired Assets”).

The aggregate purchase price paid by NAWC in respect of the Acquired Intellectual Property was $46 million, comprised of (a) $36 million in cash consideration paid at closing and (b) an unsecured subordinated promissory note (the “Unsecured Note”) delivered by NAWC to Sellers on the Closing Date in the principal amount of $10 million (the “Principal Amount”), with an annual interest rate of 7.5% (the “Interest Rate”), payable quarterly, with the first payment due September 10, 2020. The Principal Amount is payable in two $5 million installments, with the first installment due 18 months after the date of the Transactions, and the second installment (which is subject to reduction as described in the next succeeding paragraph) due 36 months after the Closing Date.

The second installment under the Principal Amount of the Unsecured Note is subject to reduction, on a dollar-for-dollar basis, by the sum of any amounts that become payable by the Sellers as indemnification for losses under the terms of the Master Transaction Agreement, as described below. The Unsecured Note will be repaid within 36 months of the Closing Date or such later time as all claims for indemnification that could operate to reduce the Principal Amount have been settled or otherwise resolved.

The Master Transaction Agreement contains covenants regarding the Acquired Intellectual Property, including certain exclusive rights with respect to certain patents as they relate to tobacco wraps and cones, non-exclusive intellectual property licenses and Seller-granted covenants not to sue. The Master Transaction Agreement also contains customary representations, warranties, covenants and indemnification provisions whereby Sellers will indemnify NAWC and affiliated parties for losses suffered as a result of breaches of representations and warranties, breaches of covenants and certain other matters. The indemnification obligations of the Sellers are subject to a deductible of $345,000 and an indemnity cap of $4.6 million. The deductible and cap on indemnification do not apply with respect to breaches of certain fundamental representations and warranties, breaches of covenants and certain other matters, including claims made on the basis of fraud. The representations and warranties in the Master Transaction Agreement generally survive for 18 months following the Closing Date, with longer survival periods with respect to fundamental representations and warranties.

On June 10, 2020, in connection with the closing of the Transactions, National Tobacco Company, L.P., a wholly-owned subsidiary of TPB, entered into an exclusive distribution agreement (the “Master Distribution Agreement”) with BWUSA to market and sell the original Blunt Wrap® cigar wraps brand in the USA. The Master Distribution Agreement provides for an initial 10-year term and automatically renews for 5-year terms thereafter. The Master Distribution Agreement is expected to become effective within 120 days of the Closing Date.

On June 10, 2020, in connection with the closing of the Transactions, Intrepid Brands, LLC, a wholly-owned subsidiary of TPB (“Intrepid”), entered into an exclusive hemp supply agreement (“Hemp Supply Agreement”) with LSR HC, LLC, an affiliate of Durfort and BWUSA (“LSR”). Under the terms of the Hemp Supply Agreement, LSR will supply certain hemp cigar wraps and hemp cigar cones under one or more of Intrepid’s trademarks. The Hemp Supply Agreement provides for an initial 5-year term, and automatically renews for additional 5-year terms thereafter.

Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

The information set forth in Item 2.01 related to the Unsecured Note is incorporated by reference into this Item 2.03.

Item 7.01. Regulation FD Disclosure.

On June 10, 2020, the Company issued a press release, attached as Exhibit 99.1, announcing the closing of the Acquisition. A copy of the press release is furnished as Exhibit 99.1 hereto and is incorporated herein by reference.

The information set forth in the attached Exhibit 99.1 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.

Turning Point Brands, Inc. Exhibit
EX-99.1 2 nt10011977x4_ex99-1.htm EXHIBIT 99.1 Exhibit 99.1 Turning Point Brands Announces Acquisition of Assets from Durfort Holdings LOUISVILLE,…
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About TURNING POINT BRANDS, INC. (NYSE:TPB)

Turning Point Brands, Inc., formerly North Atlantic Holding Company, Inc., is a provider of Other Tobacco Products (OTP) in the United States. The Company operates through three segments: smokeless products, smoking products and NewGen products. The Smokeless products market consists of approximately four product categories, which includes loose leaf chewing tobacco, Moist Snuff, Moist Snuff Pouches and Snus. The smoking products consist of various product categories, including cigarette papers, large cigars, (MYO cigar wraps and MYO cigar smoking tobacco, MYO cigarette smoking tobacco and related products, and traditional pipe tobacco. The NewGen products consist of various products, such as liquid vapor products, tobacco vaporizer products and a range of non-tobacco products and other non-nicotine products. Its portfolio of brands includes Zig-Zag, Beech-Nut, Stoker’s, Trophy, Havana Blossom, Durango, Our Pride and Red Cap.