SCHWEITZER MAUDUIT INTERNATIONAL INC, 10-Q, EX-10.1, 2000-08-07

SCHWEITZER MAUDUIT INTERNATIONAL INC
10-Q, EX-10.1, 2000-08-07
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<PAGE> 1

EXHIBIT 10.1

SECOND AMENDED AND RESTATED

AGREEMENT

BETWEEN

PHILIP MORRIS INCORPORATED

AND

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.

FOR

FINE PAPER SUPPLY

EFFECTIVE JULY 1, 2000

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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<TABLE>
<CAPTION>
<S> <C> <C>
I. Definitions..........................................................................................3

A. Affiliate...................................................................................3
B. Annual Forecast.............................................................................3
C. Auditor.....................................................................................3
D. Base Sheet Attributes.......................................................................3
E. Bobbin......................................................................................3
F. Buyer.......................................................................................3
G. Buyer's Direct Purchase Requirements........................................................3
H. Buyer's Indirect Purchase Requirements......................................................4
I. Category....................................................................................4
J. Cigarette...................................................................................4
K. Cigarette Paper.............................................................................4
L. Composition List............................................................................4
M. Contractor..................................................................................4
N. Delivering Carrier..........................................................................4
O. Direct Purchases............................................................................4
P. Dispute.....................................................................................4
Q. Effective Date..............................................................................5
R. Event of Default............................................................................5
S. Existing Products...........................................................................5
T. Excluded Quantities.........................................................................5
U. Fast Flow Orders............................................................................5
V. Fine Papers.................................................................................5
W. Firm Orders.................................................................................5
X. Force Majeure...............................................................................5
Y. First Restatement...........................................................................5
Z. Grade.......................................................................................6
AA. Group.......................................................................................6
AB. Guaranteed Sales Period.....................................................................6
AC. Implementation Agreement....................................................................6
AD. Index.......................................................................................7
AE. Indirect Purchases..........................................................................7
AF. Initial Term................................................................................7
AG. Invoice Price...............................................................................7
AH. Law.........................................................................................7
AI. New Product.................................................................................7
AJ. Order.......................................................................................7
AK. Original Fine Papers Supply Agreement.......................................................7
AL. Phaseout Period.............................................................................8
AM. Plants......................................................................................8
AN. Plug Wrap...................................................................................8
AO. Prior Year..................................................................................8
AP. Prior Year's Purchases......................................................................8
AQ. Product or Manufacturing Advance............................................................9
AR. Records....................................................................................10
AS. Renewal Term...............................................................................10
AT. Seller.....................................................................................10
AU. Seller's Manufacturing Facility............................................................10
AV. Seller's Projected U.S. Production Capacity................................................10
AW. Shipment...................................................................................10
AX. Specifications.............................................................................10
AY. Specification Change.......................................................................10
</TABLE>

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<TABLE>
<CAPTION>
<S> <C> <C>
AZ. Term.......................................................................................11
BA. Tipping Paper..............................................................................11
BB. Year.......................................................................................11

II. Restated Agreement..................................................................................11

III. Term; Early Termination.............................................................................11
A. Term.......................................................................................11
B. Early Termination..........................................................................12
C. Effect of Early Termination................................................................13
D. Phaseout Period............................................................................13

IV. Quantity of Supply; Seller's Maximum Sales Obligation...............................................14
A. General....................................................................................14
B. Direct Purchase Requirements...............................................................14
C. Buyer's Indirect Purchase Requirements.....................................................15
D. Excluded Quantities........................................................................16
E. Seller's Maximum Sales Obligation..........................................................17
F. Purchase of Fine Papers from Other Suppliers in the Event of Seller's Inability
or Refusal to Deliver Buyer's Requirements.................................................19
G. Direct Purchases and Indirect Purchases During Phaseout Period.............................20
H. Purchases of Fine Papers by Buyer for Use by Buyer's Affiliates............................20
I. Fine Papers Manufactured by Seller's Affiliates............................................21

V. Forecasts of Requirements and Monthly Orders........................................................21
A. Forecasts..................................................................................21
B. Direct Purchases...........................................................................22
1. Orders.............................................................................22
2. Firm Orders........................................................................22
3. Schedule of Deliveries.............................................................23
C. Indirect Purchases.........................................................................23
D. Notices....................................................................................24

VI. Delivery and Transportation.........................................................................24
A. Delivery...................................................................................24
B. Duty Drawbacks.............................................................................25
C. Transportation/Risk of Loss................................................................25
D. Production Sources.........................................................................26

VII. Receipt Inspection and Acceptance...................................................................27

VIII. Compensation........................................................................................27
A. General....................................................................................27
B. Definitions................................................................................28
1. Adjusted Base Price................................................................28
2. Base Price.........................................................................28
3. Current Cost.......................................................................28
4. Extraordinary Cost.................................................................28
5. Index..............................................................................29
6. [******] Price.....................................................................29
7. Standard Bobbin....................................................................29
8. Unit...............................................................................29
9. Unit Grade Cost....................................................................29
C. Determination of Invoice Price.............................................................29
</TABLE>

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH RULE
24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

<PAGE> 4

D. Adjustments to Base Price..................................................................30
1. Calculation of Pulp Price Adjustment...............................................30
2. [******]...........................................................................31
3. Calculation of [******] Adjustment During Phase-Out................................32
4. Calculation of Adjustment for Extraordinary Costs..................................33
E. [******]...................................................................................33
F. Determination of Base Price for New Products/New Grades....................................34
G. [******]...................................................................................36
H. Verification of Calculations/Prices; Audits................................................36
I. Changes in Seller's Accounting Methods.....................................................38
J. Alternate Index............................................................................38
K. Price Reopeners............................................................................40
L. Changes in Specifications..................................................................40
M. Precision of Calculations..................................................................40

IX. Invoices and Payment................................................................................41

X. Warranty............................................................................................41
A. Title......................................................................................41
1. Warranty of Title..................................................................41
2. Remedy.............................................................................42
B. Quality....................................................................................42
1. Warranty of Quality................................................................42
2. Remedy.............................................................................43
C. Exclusivity of Warranties..................................................................46

XI. Patents, Trademarks, Trade Secrets and Copyrights...................................................46

XII. Limitation of Liability/Exceptions..................................................................47
A. General....................................................................................47
B. Exception to Limitation of Seller's Liability..............................................47
C. Exception to Limitation of Buyer's Liabilities.............................................48

XIII. Strategic Planning and Cooperation..................................................................49
A. Objectives.................................................................................49
B. Committees.................................................................................49
1. Operating Steering Committee.......................................................50
2. [******]...........................................................................51
3. Review Team........................................................................52
C. Alternate Sources of Supply of Fine Papers.................................................54
D. Sales to Buyer's Affiliates................................................................55
E. Performance Evaluations....................................................................55
F. Specification Changes or Product or Manufacturing Advances.................................55
1. Specification Changes..............................................................56
2. Product or Manufacturing Advance...................................................56

XIV. Force Majeure.......................................................................................59
A. Definition of Force Majeure................................................................59
B. Force Majeure Procedure....................................................................59
C. Effect of Force Majeure....................................................................60
D. Allocation of Seller's Production Capacity.................................................60
E. Termination for Extended Force Majeure.....................................................60
F. Contingency Plans..........................................................................61
</TABLE>

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<TABLE>
<CAPTION>
<S> <C> <C>
XV. Compliance with Laws; Nondiscrimination; Fines......................................................62
A. General....................................................................................62
B. Nondiscrimination..........................................................................63
C. No Collusion...............................................................................63
D. Fines......................................................................................64

XVI. Quality Assurance...................................................................................64

XVII. Inspection..........................................................................................65

XVIII. Confidentiality and Confidential Information........................................................66
A. Confidential Information of the Parties....................................................66
B. Non-Disclosure.............................................................................66
C. Exception to Non-Disclosure................................................................67

XIX. Ownership Of Documents; Development Programs........................................................67

XX. Records.............................................................................................67

XXI. Dispute Resolution..................................................................................67
A. Intent.....................................................................................67
B. Procedure..................................................................................67

XXII. Insurance...........................................................................................68

XXIII. Cancellation for Default............................................................................70
A. [*****]....................................................................................70
B. [*****]....................................................................................72

XXIV. Indemnity...........................................................................................73
A. Indemnity by Buyer.........................................................................73
B. Indemnity by Seller........................................................................75

XXV. Notices.............................................................................................76

XXVI. Governing Law.......................................................................................77

XXVII. Nonwaiver...........................................................................................77

XXVIII. Severability........................................................................................77

XXIX. Assignment..........................................................................................77

XXX. Survival............................................................................................77

XXXI. Amendments..........................................................................................77

XXXII. Independent Contractor..............................................................................77

XXXIII. Headings............................................................................................78

XXXIV. Publicity...........................................................................................78

XXXV. Entire Agreement....................................................................................78
</TABLE>

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A G R E E M E N T

This Agreement, effective as of July 1, 2000, is by and between Philip
Morris Incorporated, a Virginia corporation, doing business as Philip Morris
U.S.A., with offices at 3601 Commerce Road, Richmond, Virginia 23234 ("Buyer"),
and Schweitzer-Mauduit International, Inc., a Delaware corporation, with a place
of business at 100 North Point Center East, Alpharetta, Georgia 30022
("Seller").
R E C I T A L S

1. Buyer is engaged in the business of manufacturing Cigarettes.

2. In the conduct of its Cigarette manufacturing activities,
Buyer requires Fine Papers, including Cigarette Paper, Plug Wrap and Tipping
Paper, that are incorporated into certain of its finished products and
components thereof.

3. Seller owns and operates manufacturing facilities that are
capable of producing Fine Papers in accordance with the Specifications.

4. Buyer and Seller are currently parties to an agreement,
originally effective January 1, 1993, through which Buyer purchases, accepts and
pays for, and Seller manufactures, sells and delivers, Fine Papers used by Buyer
in its Cigarette manufacturing activities in the United States (the "Original
Fine Papers Supply Agreement"). The Original Fine Papers Supply Agreement has
been amended on several occasions and was most recently amended and restated
effective April 1, 1998 (the "First Restatement").

5. Buyer and Seller are now desirous of amending and restating
the First Restatement with the effect, among other things, of extending the term
of their Fine Papers supply agreement for a period of 30 months beyond the end
of its current Initial Term (presently set to expire June 30, 2002) and possible
24-month renewal terms thereafter.

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6. It is the intention of both Buyer and Seller that the
contractual relationship between them be one that, consistent with their
respective interests and corporate objectives, will foster an ongoing strategic
and cooperative long-term business relationship, based on mutual trust, that
will inure to their common benefit. The parties intend that this relationship
shall enable them to strive jointly for managed continuous improvement in
quality, technological development, superior service, secure source of supply,
and the lowest total cost throughout both Seller's and Buyer's entire supply
chain. To that end, the parties are committed to sharing certain strategic
information, to engaging in joint planning efforts and to forming joint
cross-functional improvement teams such that the contractual relationship will
enhance their competitive positions in the respective markets in which each does
business, all as detailed herein. The parties further intend that their
strategic alliance will lead to Seller's investigation and, if appropriate,
implementation of all proven new or improved methods relating to acquisition of
pulps, materials, processes and technology, so that the parties may benefit
mutually from any cost reductions associated with the manufacture of Fine
Papers.

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N O W T H E R E F O R E, the parties agree as follows:

I. DEFINITIONS

A. AFFILIATE -- any business entity which by means of voting
interest is controlled by or under common control with a party to this
Agreement. For purposes of this definition, an Affiliate includes entities in
existence as of the Effective Date hereof as well as entities that may come into
being in the future so long as such entities are controlled by or under common
control with an entity that is an Affiliate as of the Effective Date hereof.

B. ANNUAL FORECAST -- as defined in Article V.A.

C. AUDITOR -- the independent public accounting firm to be
selected by Buyer and approved by Seller to verify that the compensation payable
hereunder to Seller has been computed in accordance with the terms of Article
VIII hereof.

D. BASE SHEET ATTRIBUTES -- the basis weight, porosity, filler,
appearance or other physical or chemical properties for each Grade.

E. BOBBIN -- an inventory measure of a cylindrical spool of Fine
Papers of varying lengths, widths and properties, all of which are described in
the Specifications for each Grade.

F. BUYER -- Philip Morris Incorporated, a Virginia corporation,
doing business as Philip Morris U.S.A.

G. BUYER'S DIRECT PURCHASE REQUIREMENTS -- the aggregate quantity
of each Category of Fine Papers (measured in Standard Bobbins or, in the case of
Tipping Paper, by weight) Buyer shall purchase directly for delivery to the
Plants during any Year for use in the manufacture of Cigarettes or Cigarette
components for Buyer at the Plants.

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H. BUYER'S INDIRECT PURCHASE REQUIREMENTS -- the aggregate
quantity of each Category of Fine Papers (measured in Standard Bobbins or in the
case of Tipping Paper, by weight) Buyer's Contractors shall purchase for
delivery to the Plants during any Year for use in the manufacture of Cigarettes
or Cigarette components for Buyer at the Plants.

I. CATEGORY -- the several Groups comprising Cigarette Paper,
Plug Wrap and Tipping Paper, respectively.

J. CIGARETTE -- a quantity of tobacco, rolled in paper for
smoking, with or without a filtering medium.

K. CIGARETTE PAPER -- the Category of Fine Papers that is used to
enclose the tobacco, forming the rod of a Cigarette.

L. COMPOSITION LIST -- Seller's confidential list of components
used to produce each Grade of Fine Papers, as communicated by Seller to Buyer
pursuant to the terms of a Confidentiality Agreement between Buyer and
Kimberly-Clark Corporation, dated April 22, 1993, as amended from time to time.

M. CONTRACTOR -- one of Buyer's contract manufacturers (including
convertors) of Cigarettes or Cigarette components at the Plants.

N. DELIVERING CARRIER -- the shipping company or companies
specified by Buyer or Seller, in accordance with Article VI, to take receipt and
transport Shipments of Fine Papers from Seller's Manufacturing Facility(ies) to
such destination(s) as Buyer may specify for further processing or inclusion in
Cigarettes.

O. DIRECT PURCHASES -- purchases of Fine Papers by Buyer directly
for use in manufacturing Cigarettes or Cigarette components at the Plants.

P. DISPUTE -- any dispute, controversy or claim as defined in
Article XXI.A hereof.

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Q. EFFECTIVE DATE -- the date set forth in Article III.A hereof.

R. EVENT OF DEFAULT -- any of the events set forth in Article
XXIII hereof.

S. EXISTING PRODUCTS -- the Fine Papers identified in Exhibit A.

T. EXCLUDED QUANTITIES -- (a) Grades of Fine Papers the
Specification for which has not been agreed upon by Buyer and Seller pursuant to
Article XIII.F.1, (b) New Products available for purchase by Buyer from
suppliers other than Seller pursuant to XIII.F.2, (c) Grades of Fine Papers for
which Seller has no qualified manufacturing facility in accordance with Article
XVI or (d) New Products developed jointly by Buyer and another supplier as the
result of the implementation of a Product or Manufacturing Advance concerning
which either Seller failed to commit to develop and/or implement or which the
parties were unable to negotiate the agreement(s) necessary to develop and/or
implement such Product or Manufacturing Advance within the period allowed, all
as provided in Article XIII.F.2.

U. FAST FLOW ORDERS -- An Order communicated electronically or
telephonically requesting delivery of Fine Papers within [******] of Seller's
receipt of such Order or within such earlier period agreed to by the parties.

V. FINE PAPERS -- Cigarette Paper, Plug Wrap and Tipping Paper to
be used in the manufacture of Cigarettes or Cigarette components.

W. FIRM ORDERS -- as defined in Article V.B.2.

X. FORCE MAJEURE -- the events of force majeure set forth in
Article XIV.A hereof.

Y. FIRST RESTATEMENT -- that certain amendment and restatement of
the Original Fine Papers Supply Agreement effective April 1, 1998.

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Z. GRADE -- a Fine Paper with a unique set of Base Sheet
Attributes as defined in the Specifications and which is identified by Seller's
separate identification number for each such base sheet.

AA. GROUP -- several Grades with the same general Base Sheet
Attributes grouped as follows, unless otherwise agreed:

flax cigarette papers

[******] (sometimes hereinafter referred to
as [******])

wood cigarette papers

non-porous plug wrap

porous plug wrap, less than [******]

porous plug wrap, [******} or higher

heat sealable plug wrap

regular white tipping paper

regular cork tipping paper

economy white tipping paper

AB. GUARANTEED SALES PERIOD -- the minimum period specified in the
applicable Implementation Agreement, if any, following the initial commercial
production of a New Product manufactured by Seller during which Buyer shall make
Direct Purchases and Indirect Purchases of such New Product pursuant to this
Agreement.

AC. IMPLEMENTATION AGREEMENT -- an agreement, or an amendment or
supplement hereto, between Seller and Buyer setting forth the terms and
conditions of Seller's undertaking to manufacture a New Product, including
amendments thereto.

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AD. INDEX -- as defined in Article VIII hereof.

AE. INDIRECT PURCHASES -- purchases of Fine Papers by Buyer's
Contractors for use in manufacturing Cigarettes or Cigarette components for
Buyer at the Plants.

AF. INITIAL TERM -- as defined in Article III.A hereof.

AG. INVOICE PRICE -- the price per bobbin or pound, as determined
in accordance with Article VIII.C hereof or such other method as shall be
provided in an Implementation Agreement between Buyer and Seller, which shall be
the amount Buyer shall pay Seller for each Grade of Fine Papers sold by Seller
to Buyer through Direct Purchases hereunder.

AH. LAW -- (a) any statute, regulation, rule, order or other
requirement of any competent governmental authority first enacted or promulgated
after the Effective Date hereof or (b) the enforceable decision of any court
interpreting any statute, regulation, rule, order or other requirement of any
competent governmental authority, the effect of which is to modify Seller's
obligations with respect to any statute, regulation, rule, order or other
requirement as reasonably understood by Seller on the later of the Effective
Date hereof or the date of enactment or promulgation of such statute,
regulation, rule, order or other requirement.

AI. NEW PRODUCT -- a Grade, Group or Category of Fine Papers first
produced and sold to Buyer by Seller or another supplier after the Effective
Date of this Agreement for use by Buyer or Buyer's Contractors to manufacture
Cigarettes or Cigarette components at the Plants.

AJ. ORDER -- as defined in Article V.B.1 (including Fast Flow
Orders).

AK. ORIGINAL FINE PAPERS SUPPLY AGREEMENT -- that certain
agreement, effective January 1, 1993, by and between Philip Morris Incorporated
and Kimberly-Clark Corporation and assigned by Kimberly-Clark Corporation to
Schweitzer-Mauduit International Inc., including all amendments thereto
(including the First Restatement).

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AL. PHASEOUT PERIOD -- the period described in Article III.D.

AM. PLANTS -- all the Cigarette manufacturing facilities owned and
operated by Buyer that are located in the continental United States, whether
presently existing or built or acquired during the Term hereof. In addition, the
Plants shall include those Cigarette or Cigarette component manufacturing
facilities located in the continental United States and operated by Contractors
that Buyer shall designate in writing as being subject to this Agreement. The
term also shall include Cigarette or Cigarette component manufacturing
facilities, other than those identified above, performing Cigarette
manufacturing services for Buyer that the parties shall jointly designate in
writing as being subject to this Agreement.

AN. PLUG WRAP -- the Category of Fine Papers enclosing cellulose
acetate, or such other filtering medium as Buyer may employ, forming the filter
portion of a Cigarette.

AO. PRIOR YEAR -- the Year before the current Year.

AP. PRIOR YEAR'S PURCHASES -- the aggregate quantities of Fine
Papers purchased in the Prior Year (a) by Buyer through Direct Purchases
hereunder (excluding any purchases by Buyer pursuant to Article IV.H for use by
Buyer's Affiliates and any purchases of New Product which Buyer is obligated by
an Implementation Agreement to purchase exclusively from Seller), (b) by Buyer's
Contractors through Indirect Purchases hereunder (excluding any purchases by
Buyer's Contractors of any New Product which Buyer is obligated by an
Implementation Agreement to purchase exclusively from Seller) and (c) by Buyer
from other suppliers for use in manufacturing Cigarettes or Cigarette components
for Buyer at the Plants (excluding any Grade of Fine Papers for which Seller has
no manufacturing facility qualified pursuant to Article XVI for the manufacture
of such Grade and such Grade is commercially available from another supplier).
The term includes Buyer's Direct Purchases and Indirect Purchases hereunder of a
New Product

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following the expiration, termination, or cancellation of Buyer's obligation to
purchase such New Product exclusively from Seller under an Implementation
Agreement. The quantities of Fine Papers purchased by Buyer in any Year through
Direct Purchases hereunder shall be the quantities so stated as delivered as
Direct Purchases hereunder in such Year on Seller's several invoices to Buyer
and accepted as such by Buyer, including any quantities delivered to and
credited to Buyer for the replacement of nonconforming Fine Papers pursuant to
Article X.B.2.a during such Year, less any returns, plus any quantities
identified for delivery in such Year in Buyer's Firm Orders for Direct Purchases
hereunder but not delivered. The quantities of Fine Papers purchased through
Indirect Purchases in any Year shall be determined by quarterly reports
submitted by Buyer to Seller pursuant to Article VIII.E. The quantities of Fine
Paper purchased by Buyer from other suppliers for use in the manufacture of
Cigarettes or Cigarette components for Buyer at the Plants shall be determined
by an annual report to be submitted by Buyer to Seller following the end of each
Year. Such report shall identify actual quantities of Fine Papers (measured in
Standard Bobbins, or in the case of Tipping Paper, by weight) that were
purchased by Buyer from other suppliers (less returns, plus replacements) and
delivered to the Plants for incorporation into Cigarettes or Cigarette
components manufactured for Buyer as well as Buyer's Cigarette production at the
Plants during that period.

AQ. PRODUCT OR MANUFACTURING ADVANCE -- any process, product
composition, manufacturing technique, processing technique, idea or the like
applicable to Fine Papers that Buyer desires to investigate or implement through
(a) a material change to the Base Sheet Attributes that define an existing
Grade, (b) a New Product the Base Sheet Attributes of which vary so materially
from the Base Sheet Attributes that define the Grades of an existing Group that
such New Product constitutes a new Group or Category, (c) a change in the
manufacturing or

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<PAGE> 15

processing technique applicable to Fine Papers that is currently used by Seller
or (d) the implementation of a new manufacturing or processing technique
applicable to Fine Papers.

AR. RECORDS -- as defined in Article XX hereof.

AS. RENEWAL TERM -- as defined in Article III.A hereof.

AT. SELLER -- Schweitzer-Mauduit International, Inc., a Delaware
corporation.

AU. SELLER'S MANUFACTURING FACILITY -- each of the facilities
specified in Article VI.D (or as otherwise agreed in writing by Buyer and
Seller) at which Fine Papers are produced by Seller for incorporation into
Cigarettes and Cigarette components to be manufactured at the Plants.

AV. SELLER'S PROJECTED U.S. PRODUCTION CAPACITY -- Seller's good
faith projection of the production capability of each of Seller's U.S.
manufacturing facilities that are qualified as provided in Article XVI.

AW. SHIPMENT -- the quantity of Fine Papers loaded on a single
vehicle for delivery hereunder.

AX. SPECIFICATIONS -- the physical, chemical, visible and other
properties and attributes of the individual Fine Papers to be purchased and sold
hereunder, all as specified by Buyer in Buyer's General Direct Material
Specification, Class Material Specification and in the individual material code
specification and Buyer's individual Plant requirements applicable to each Fine
Papers product, or such supplements or additions as Buyer may require in writing
from time to time.

AY. SPECIFICATION CHANGE -- a non-material change to the Base
Sheet Attributes that define an existing Grade utilized in the manufacture of
Cigarettes or Cigarette components at the Plants, including reductions in the
tolerance range for variations in Base Sheet Attributes.

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AZ. TERM -- the Initial Term and any Renewal Terms as defined in
Article III.A.

BA. TIPPING PAPER -- the Category of Fine Papers (before printing)
used to enclose the filter portion of a Cigarette and to attach the filter to
the rod of the Cigarette.

BB. YEAR -- the 12-month period beginning January 1 and ending
December 31.

II. RESTATED AGREEMENT

This Agreement amends and restates the First Restatement. The terms set
forth herein shall apply to Direct Purchases and Indirect Purchases within the
scope hereof after the Effective Date and during the remaining Term hereof.

III. TERM; EARLY TERMINATION

A. TERM

This Agreement shall be effective July 1, 2000, (the "Effective Date")
and shall continue in effect through December 31, 2004 (such period being
hereinafter referred to as the "Initial Term"). Thereafter, the Agreement
automatically shall renew for three successive terms of two years each ("Renewal
Terms"); provided, however, either party may cause the Agreement to terminate
effective at the end of the Initial Term or any Renewal Term (whether or not
such Renewal Term has then commenced) by providing written notice of termination
to the other party (a) in the case of a termination to be effective at the end
of the Initial Term, not later than [******], or (b) in the case of a
termination to be effective at the end of a Renewal Term, not later than
[******]

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[******]

Notwithstanding the foregoing, this Agreement shall not expire with
respect to any New Product purchased and sold through Direct Purchases and
Indirect Purchases hereunder prior to the expiration of the Guaranteed Sales
Period, if any, specified in any applicable Implementation Agreement between the
parties respecting such New Product.

B. EARLY TERMINATION

In addition to the termination provision provided in Article III.A.,
this Agreement may be terminated effective prior to the expiration of the
Initial Term or any Renewal Term:

1. by mutual written agreement of the parties, such
termination to be effective as provided in such agreement;

2. by either party as provided in Article XIV.E in the
event of an extended Force Majeure;

3. by either Party, at its election, after invoking
Article [******] to renegotiate the provisions of Article [******] and having
failed to agree on a revised Article [******] within the [******] negotiation
period provided by Article [******], upon written notice to the other in
accordance with Article [******], such notice to specify the effective date of
termination, which date shall be no sooner than (a) [******] to the date when
Seller must [******] referred to in Article [******] or (b) the end of the
Phaseout Period defined in Article III.D hereof, whichever first occurs; or

4. by Seller, at its election, upon [******] prior
written notice to Buyer, if Buyer purchases, or otherwise accepts delivery from
its Contractors of Fine Papers or products that incorporate Fine Papers produced
by suppliers other than Seller for incorporation into

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Cigarettes to be manufactured by the Plants, except (a) as expressly permitted
by this Agreement or (b) as the result of Seller's failure or refusal to perform
in accordance with its contracts with Buyer's Contractors.

C. EFFECT OF EARLY TERMINATION

Subject to Article XXX, neither party shall have any further duty,
obligation or liability to the other hereunder as of the effectiveness of the
termination of this Agreement in accordance with Article III.A or Article III.B;
provided, however, with respect to Firm Orders for Direct Purchases hereunder of
Fine Papers that are not delivered as of the effectiveness of such termination,
nothing herein shall be deemed to excuse Seller from its obligation to
manufacture, sell and deliver Fine Papers covered by such Firm Orders or to
excuse Buyer from its obligation to purchase, accept and pay for Fine Papers
delivered pursuant to such Firm Orders provided such deliveries are timely made.

D. PHASEOUT PERIOD

The final 24 months that this Agreement shall remain in effect prior to
expiration of the last Renewal Term or termination pursuant to Article III.A or
Article III.B above are hereinafter referred to as the Phaseout Period. Except
as otherwise may be agreed in writing, during the Phaseout Period the quantities
of Fine Papers to be purchased and sold as Direct Purchases and Indirect
Purchases hereunder shall be as set forth in Article IV hereof, and the Invoice
Prices during the Phaseout Period shall be determined as set forth in Article
VIII hereof or in the applicable Implementation Agreement for a New Product.

13
<PAGE> 19

IV. QUANTITY OF SUPPLY; SELLER'S MAXIMUM SALES OBLIGATION

A. GENERAL

Buyer currently purchases all of the Cigarette Papers and most of the
Plug Wrap used in the manufacture of Cigarettes or Cigarette components for
Buyer at the Plants through Direct Purchases. Buyer currently obtains all of the
Tipping Paper used in the manufacture of Cigarettes or Cigarette components for
Buyer at the Plants through Indirect Purchases. In the future Buyer may cause
some or all of the Cigarette Papers and more of the Plug Wrap used to
manufacture Cigarettes or Cigarette components for Buyer at the Plants to be
purchased through Indirect Purchases made by Buyer's Contractors. Similarly,
Buyer may purchase some or all of the Tipping Paper used to manufacture
Cigarettes or Cigarette components for Buyer at the Plants through Direct
Purchases.

B. DIRECT PURCHASE REQUIREMENTS

During the Term hereof and subject to Article IV.D, Article IV.E,
Article IV.F and Article IV.G, Buyer agrees to purchase, accept and pay for, and
Seller agrees to manufacture, sell and deliver, Buyer's Direct Purchase
Requirements for each Category of Fine Papers; provided, however, at Buyer's
sole discretion and without limiting Buyer's rights during a Phaseout Period as
provided in Article IV.G, Buyer shall have the right during any Year to reduce
its purchase obligation hereunder with respect to Direct Purchases and to
purchase Fine Papers from suppliers other than Seller for use in the manufacture
of Cigarettes or Cigarette components for Buyer at the Plants but only to the
extent (a) that the aggregate of Buyer's Direct Purchases and Indirect Purchases
of any Category of Fine Papers from other suppliers do not exceed (i) during the
period July 1, 2000 to December 31, 2000, five percent of the Prior Year's
Purchases and (ii) in 2001 and Years thereafter, 10 percent of the Prior Year's
Purchases and (b) that the Fine Papers

14
<PAGE> 20
so purchased from other suppliers do not include any New Products that Buyer is
obligated by an Implementation Agreement to purchase exclusively from Seller.

Buyer's Direct Purchase Requirements that are to be purchased and sold
hereunder shall be communicated to Seller in accordance with Article V. Nothing
in this Agreement shall be deemed to limit or preclude Buyer from changing its
Cigarette products lines, reducing or eliminating its manufacture of Cigarettes
or Cigarette components within the United States, or altering the physical
constituents of Cigarettes or Cigarette components such that Buyer's Direct
Purchase Requirements for any Category, Group or Grade of Fine Papers are
reduced or eliminated during the Term of this Agreement.

C. BUYER'S INDIRECT PURCHASE REQUIREMENTS

During the Term hereof and subject to Article IV.D, Article IV.E,
Article IV.F and Article IV.G, Buyer shall direct its Contractors purchasing
Fine Papers used to manufacture Cigarettes or Cigarette components for Buyer at
the Plants through Indirect Purchases to obtain Buyer's Indirect Purchase
Requirements of Fine Papers from Seller, and Seller shall manufacture, sell and
deliver Buyer's Indirect Purchase Requirements of Fine Papers ordered by such
Contractors; provided, however, at Buyer's sole discretion and without limiting
Buyer's rights during a Phaseout Period as provided in Article IV.G, Buyer shall
have the right during any Year to reduce its obligation hereunder with respect
to Indirect Purchases and to cause its Contractors to purchase Fine Papers from
suppliers other than Seller for use in the manufacture of Cigarettes or
Cigarette components for Buyer at the Plants but only to the extent (a) that the
aggregate of Buyer's Direct Purchases and Indirect Purchases of any Category of
Fine Papers from other suppliers do not exceed (i) for the period July 1, 2000
through December 31, 2000, five percent of the Prior Year's Purchases and (ii)
in 2001 and Years thereafter, 10 percent of the Prior Year's

15
<PAGE> 21

Purchases and (b) that the Fine Papers so purchased from other suppliers do not
include any New Products that Buyer is obligated by an Implementation Agreement
to purchase exclusively from Seller.

Nothing in this Agreement shall be deemed to preclude Buyer from
changing its Cigarette products lines, reducing or eliminating its manufacture
of Cigarettes or Cigarette components within the United States, or altering the
physical constituents of Cigarettes or components thereof such that Buyer's
Indirect Purchase Requirements for any Category, Group or Grade of Fine Papers
is reduced or eliminated during the Term of this Agreement.

D. EXCLUDED QUANTITIES

Notwithstanding Article IV.B and Article IV.C above, Buyer shall have
no obligation hereunder to purchase from Seller, directly or indirectly, any
Excluded Quantities except: with respect to (a) a New Product available for
purchase by Buyer from suppliers other than Seller pursuant to Article XIII.F.2,
or (b) a New Product developed jointly by Buyer and a supplier other than Seller
as the result of the implementation of a Product or Manufacturing Advance as
provided in Article XIII.F.2, Buyer shall purchase Buyer's Direct Purchase
Requirements of such New Product, and cause its Contractors to purchase Buyer's
Indirect Purchase Requirements of such New Product, from Seller if (a) Seller
demonstrates to Buyer's reasonable satisfaction that Seller has qualified
manufacturing facilities with sufficient uncommitted capacity to manufacture
such New Product in quantities sufficient to satisfy the aggregate of Buyer's
Direct Purchase Requirements and Buyer's Indirect Purchase Requirements with
respect to such New Product and (b) Seller commits to sell such New Product to
Buyer and Buyer's Contractors at [******]; provided,

16
<PAGE> 22

however, such obligation to purchase from Seller shall be reduced to the extent
and for such period (not including future discretionary renewal terms) as Buyer
is contractually obligated or otherwise committed to purchase such quantities of
the New Product from a supplier other than Seller. Notwithstanding Seller's
inability to satisfy the foregoing conditions, Buyer will consider purchasing
such New Products from Seller where it is reasonable to do so. Buyer will take
into consideration Seller's development efforts respecting any New Product, and
Buyer will minimize its purchase commitments with other suppliers for such New
Products if Buyer, in Buyer's sole discretion, determines it is reasonable to do
so.

E. SELLER'S MAXIMUM SALES OBLIGATION

Each Year, not later than [******], Seller shall prepare and
deliver to Buyer a report that shall identify Seller's Projected U.S. Production
Capacity for each Category of Fine Papers during each of the following [******]
Years. Seller's [******] projections were as follows:

<TABLE>
<CAPTION>
Year Seller's Projected U.S. Production Capacity
---- -------------------------------------------

Cigarette Paper Plug Wrap Tipping Paper
(Standard Bobbins) (Standard Bobbins) (Metric Tons)

Notwithstanding Article IV.B and Article IV.C, for each Year that this
Agreement is in effect, Seller's maximum sales and delivery obligation for each
Category of Fine Papers hereunder through both Direct Purchases and Indirect
Purchases ("Seller's Maximum Sales Obligation") shall not exceed [*****] of the
highest of Seller's Projected U.S. Production Capacities for that Category and
for that Year as reflected in the three most recent annual reports Seller shall

17
<PAGE> 23

have submitted to Buyer in accordance with this Article IV.E (including annual
reports and any updates to such reports submitted to Buyer that increase the
Seller's Projected U.S. Production Capacity for any Category for any such Year);
provided, however, for [******], Seller's Maximum Sales Obligation for any
Category shall be [******] of the applicable projection set forth above in this
Article IV.E, and for [******], Seller's Maximum Sales Obligation shall be
[******] of the higher of the projection set forth above in this Article IV.E
and the applicable projection set forth in the [******], and for [******],
Seller's Maximum Sales Obligation for any Category shall be [******] of the
highest of the applicable projection set forth above in this Article IV.E and
the projections set forth in the [******]. The aggregate limitation imposed by
this Article is inclusive of Fine Papers purchased by Buyer pursuant to Article
IV.H for transfer (or resale) to Buyer's Affiliates.

For each Year that the Agreement remains in effect, Seller's Maximum
Sales Obligation for each Category shall be reduced by the forecasted amount
that Seller's Projected U.S. Production Capacity for that category will be
reduced below Seller's Maximum Sales Obligation for that Category and for that
Year (as previously established as provided above) as a result of Seller's
implementation at Buyer's request of a Specification Change or Product or
Manufacturing Advance; provided, however, that Seller shall provide Buyer notice
of the annual forecasted reduction in writing no later than [******] of the
Year preceding the Year that the forecasted reduction shall be applicable and
shall provide forecasts of such reductions no less than 30 days prior to the
implementation of a Specification Change or a Product or Manufacturing Advance
that occurs during the then-current Year.

If the aggregate of Buyer's Direct Purchase Requirements for Fine
Papers and Buyer's Indirect Purchase Requirements for Fine Papers in any Year
exceeds Seller's Maximum Sales

18
<PAGE> 24

Obligation for that Year, then Seller shall use reasonable efforts to supply
such quantities of Fine Papers in excess of Seller's Maximum Sales Obligation as
may be Ordered by Buyer as Direct Purchases hereunder or by Buyer's Contractors
as Indirect Purchases.

F. PURCHASE OF FINE PAPERS FROM OTHER SUPPLIERS IN THE EVENT OF
SELLER'S INABILITY OR REFUSAL TO DELIVER BUYER'S REQUIREMENTS

Notwithstanding Article IV.B or Article IV.C, if Buyer projects at any
time before or during a Year that the aggregate of Buyer's Direct Purchase
Requirements and Buyer's Indirect Purchase Requirements for any Group of Fine
Papers in such Year will exceed Seller's Maximum Sales Obligation for that Year,
Buyer shall so notify Seller and, with such Notice or thereafter, may request
that Seller commit to sell such excess to Buyer and its Contractors, if ordered.
In the event that Seller does not commit to sell and deliver hereunder Buyer's
estimate of the aggregate of Buyer's Direct Purchase Requirements and Indirect
Purchase Requirements in excess of such Maximum Sales Obligation within [******]
after receiving such request, Buyer may purchase Fine Papers from other
Suppliers or cause its Contractors to purchase Fine Papers from other Suppliers
in quantities aggregating up to the total quantity of Buyer's projected
requirements that Seller has not committed to supply for that Year; provided,
however, insofar as is reasonable but with due consideration of Buyer's need for
secure supplies of Fine Papers at least equal to Buyer's actual projected
requirements, Buyer and its Contractors [******] in the purchases of Fine Papers
from Seller otherwise required by Article IV.B and Article IV.C.

19
<PAGE> 25

G. DIRECT PURCHASES AND INDIRECT PURCHASES DURING PHASEOUT PERIOD

During the Phaseout Period, (1) up to [******] of Buyer's Prior Year's
Purchases may be purchased (whether as Direct Purchase or Indirect Purchase, or
both) from suppliers other than Seller during the first [******] of the final
[******] months of the Term, and (2) up to [******] of Buyer's Prior Year's
Purchases may be purchased (whether as Direct Purchase or Indirect Purchase, or
both) from suppliers other than Seller during the [******] of the Term.

H. PURCHASES OF FINE PAPERS BY BUYER FOR USE BY BUYER'S
AFFILIATES

In addition to quantities of Fine Papers purchased through Direct
Purchases and Indirect Purchases, Buyer, from time to time, desires to supply
its Affiliates with Fine Papers manufactured in the United States. Buyer shall
have the right, but not the obligation, to place Orders in accordance with the
procedures in Article V.B.1 for additional quantities of Fine Papers not to
exceed the equivalent of [******] Standard Bobbins per Year for Cigarette Paper
and [******] Standard Bobbins per Year for Plug Wrap for transfer (or resale) to
Buyer's Affiliates for use in the manufacture of Cigarettes. Such Orders shall
be treated as Orders for Direct Purchases for all purposes hereunder, except the
calculation of Prior Year's Purchases.

In addition, Buyer shall have the right, but not the obligation, to
place Orders in accordance with the procedures in Article V.B.1 for additional
quantities of Tipping Paper not to exceed [******] pounds per Year for transfer
(or resale) to Buyer's Affiliates for use in the manufacture of Cigarettes. Such
Orders shall be treated as Direct Purchases or Indirect Purchases, as the case
may be, for purposes hereunder, except the calculation of Prior Year's
Purchases.

20
<PAGE> 26

I. FINE PAPERS MANUFACTURED BY SELLER'S AFFILIATES

If due to an event of Force Majeure under Article XIV hereof, Seller is
unable to manufacture, sell and deliver Fine Papers Ordered by Buyer, Seller
shall supplement deliveries of Fine Papers in satisfaction of Buyer's Direct
Purchase Requirements and Buyer's Indirect Purchase Requirements with Fine
Papers manufactured from qualified manufacturing facilities of Seller's
Affiliates, except that for any Category of Fine Papers, Seller shall not be
obligated to supply [******] more than [******] of the [******] of Buyer's
aggregate Direct Purchases and Indirect Purchases of that Category for the
[******] period preceding the event of Force Majeure or sell Buyer and its
Contractors more than the Seller's Maximum Sales Obligation for such Year.

V. FORECASTS OF REQUIREMENTS AND MONTHLY ORDERS

A. FORECASTS

In the fourth calendar quarter of each Year, Buyer shall provide Seller
with Buyer's forecast of Buyer's Direct Purchases hereunder, Buyer's Indirect
Purchases hereunder and Buyer's Direct Purchases for use by Buyer's Affiliates
for the coming Year (the "Annual Forecast"). Buyer's Annual Forecast shall
include the forecasted quantity of Fine Papers to be purchased through Fast Flow
Orders in that Year. Each month Buyer will issue to Seller a short term forecast
consisting of anticipated Direct Purchases and Indirect Purchases of Fine Papers
for the next four calendar months. The detail of the short term forecasts shall
be as agreed between Buyer and Seller for each Grade, and shall be provided to
Seller by such means as the parties mutually agree (e.g., electronic data
interchange or telecopy notice). The Annual Forecast and

21
<PAGE> 27

short term forecasts shall be for information purposes only and shall not
constitute firm orders for any quantity of Fine Papers.

B. DIRECT PURCHASES

1. ORDERS

From time to time, Buyer shall place orders for quantities of Fine
Papers to be purchased and sold hereunder through Direct Purchases (an "Order").
An Order shall be communicated to Seller via Buyer's written forms, electronic
data interchange, telecopy, telephone (confirmed by telecopy) or by such other
means as the parties mutually agree. Each Order shall be governed by the terms
and conditions of this Agreement and shall specify (a) the quantities, Grades
and dimensions (i.e., material codes) of Bobbins of Fine Papers to be delivered
by Seller pursuant to the Order, (b) the Delivering Carrier(s), (c) Seller's
Manufacturing Facility(ies), and (d) the delivery schedule. Buyer may amend or
supplement an Order at any time.

Buyer's use of written forms for the placing of Orders (or amendments
or supplements thereto) shall be for administrative convenience only. Any
preprinted commercial terms and conditions contained on Buyer's written forms
shall not be applicable to an Order.

2. FIRM ORDERS

Except for Fast Flow Orders, the Orders issued pursuant to Article
V.B.1 shall be deemed firm (i.e., Buyer shall be required to accept delivery and
pay for such Fine Papers) for the quantities specified to be delivered in the
current week (Sunday through Saturday) and in the next week after the current
week with respect to all quantities Seller shall have manufactured for delivery
in accordance with such Order. Unless otherwise agreed in writing, and except
for Fast Flow Orders, an Order shall not be deemed firm for any quantities
scheduled for delivery following the week next after the current week or if the
Order is for quantities scheduled to be

22
<PAGE> 28

delivered during the current week, for any quantities not manufactured before
such quantities are reduced, eliminated, or deferred by an amendment or
supplement to an Order or by a subsequent Order. All Fast Flow Orders shall be
deemed firm. All orders that are "firm" in accordance with this Article V.B.2
are hereafter to be referred to as "Firm Orders."

3. SCHEDULE OF DELIVERIES

All deliveries of Direct Purchases shall be made in accordance with the
delivery schedule set forth in the applicable Order or any amendment thereto.
Except for Fast Flow Orders, Seller shall be under no obligation to effect a
delivery of an Order for Fine Papers originating from one of Seller's domestic
Manufacturing Facilities in fewer than [******] (exclusive of Seller's
non-production days) or to effect a delivery of an Order for Fine Papers
originating from the Manufacturing Facilities of Seller's overseas Affiliates in
fewer than [******] (exclusive of Seller's non-production days). For Fast Flow
Orders, Seller shall effect delivery of the quantity so ordered within [******]
of receiving such Order.

For purposes of this Article V.B.3 only, Seller's obligation to "effect
a delivery" of Fine Papers shall be satisfied when the applicable Shipment is
received at Buyer's Plant. Time is of the essence with respect to all
deliveries. To the extent Buyer's delivery schedule in an Order or an amendment
thereto specifies delivery of any quantities of Fine Papers in a period shorter
than the minimum period specified in the immediately preceding paragraph above
for such an Order, Seller shall use best efforts to effect delivery of such Fine
Papers in accordance with the delivery schedule.

C. INDIRECT PURCHASES

Indirect Purchases shall be ordered, delivered and shipped in
accordance with procedures to be developed and agreed upon by Seller and Buyer's
Contractors. Unless the parties otherwise

23
<PAGE> 29

agree in writing, Buyer in no way guarantees the performance of such Contractors
and any contracts that may govern the relationship between such Contractors and
Seller with respect to Indirect Purchases.

D. NOTICES

If, during any Year, Buyer exercises its rights pursuant to Article
IV.B, Article IV.C or Article IV.G of this Agreement to make Direct Purchases or
Indirect Purchases of Cigarette Paper from suppliers other than Seller, then
Buyer shall notify Seller of Buyer's exercise of such rights if Buyer's
intention to exercise such rights was not already disclosed in the current
Annual Forecast.

VI. DELIVERY AND TRANSPORTATION

A. DELIVERY

All Fine Papers purchased and sold hereunder shall be delivered F.O.B.
Seller's manufacturing facility; provided, however, those Fine Papers
manufactured by Seller's Affiliate Papeteries de Mauduit ("PDM") shall be
delivered F.O.B. Buyer's Plant. To the extent Buyer and Seller agree that Seller
may supply any Fine Papers that are manufactured by Seller's Affiliate PDM,
Seller shall ensure that such Fine Papers are cleared through customs and shall
-pay all applicable import and export taxes and duties (without reimbursement
from Buyer) and provide Buyer evidence that such taxes and duties have been
paid.

If Buyer and Seller agree that Seller shall specify the Delivering
Carrier for goods manufactured at any of Seller's domestic manufacturing
facilities, the Fine Papers purchased, sold and so delivered shall be delivered
F.O.B. Buyer's Plant, freight collect.

24
<PAGE> 30

B. DUTY DRAWBACKS

Buyer shall be entitled to 100% of any duty drawback that may be
applicable upon the export of Cigarettes incorporating or deemed to incorporate
Fine Papers originally supplied from the facilities of any of Seller's
non-domestic Affiliates. In no event does Seller guarantee the quantity of Fine
Papers eligible for any duty drawback. For each delivery hereunder for which the
source of Fine Papers is a non-domestic manufacturing facility of Seller's
Affiliate, Seller shall execute and provide to Buyer, not more than 30 days
after such delivery, Customs Form 331 or such other documentation as may be
required to authorize the payment directly to Buyer of duty drawbacks that may
be applicable for such deliveries ("Certificate of Delivery"). In addition to
the federally mandated information required on the Certificate of Delivery,
Seller shall specify on the Certificate of Delivery (a) the duty rate paid for
such Fine Papers upon their entry into the United States and (b) the actual unit
of measure (e.g., kilograms or pounds) utilized as the basis of such duty
payment. Whenever Seller is notified of any adjustment upon liquidation by U.S.
Customs of the duties paid for any delivery of Fine Papers, such that the actual
duties paid are either greater or less than the amount reflected on the
Certificate of Delivery for such Fine Papers, Seller shall immediately notify
Buyer of such adjustment. In the event that Seller fails to provide such notice
of adjustment, Seller shall indemnify Buyer for any fines, penalties and costs
incurred by Buyer and any duty drawback Buyer does not recover as the result of
filing a drawback claim based on the duty reflected on the original Certificate
of Delivery.

C. TRANSPORTATION/RISK OF LOSS

If Buyer selects the Delivering Carrier, Transportation of Fine Papers
from Seller's Manufacturing Facility to Buyer's Plant shall be Buyer's
responsibility unless the Fine Papers are

25
<PAGE> 31

transported from Seller's Affiliate PDM (from which all Shipments are to be
delivered F.O.B. Buyer's Plant). Seller shall be responsible to make
arrangements with the Delivering Carrier to have trucks available to receive and
transport Fine Papers ordered by Buyer. Seller's personnel shall load the Fine
Papers on the Delivery Carrier's trucks. Buyer shall pay all transportation
costs directly to the Delivering Carrier; provided, however, Seller shall
reimburse Buyer for any demurrage or other charges (e.g., less than truckload
rates, air freight) that Buyer may be required to pay the Delivering Carrier due
to Seller's failure to schedule or load any Shipment of Fine Papers in
accordance with applicable terms and conditions of the transportation agreement
between Buyer and the Delivering Carrier, but only if Buyer has communicated
such terms and conditions to Seller in writing. Notwithstanding the foregoing,
in the event that Buyer and Seller agree that Seller shall specify the
Delivering Carrier pursuant to Article VI.A hereof, Seller shall be responsible
for arranging the transportation of any Fine Papers (including insurance) to be
delivered F.O.B. Buyer's Plant, freight collect.

D. PRODUCTION SOURCES

Unless Buyer agrees differently in writing, the manufacturing
facilities identified below shall be the exclusive production sources for the
Fine Papers to be delivered to Buyer pursuant to both Direct Purchases and
Indirect Purchases hereunder, but such facilities may only be used to the extent
that they continue to be qualified by Buyer in accordance with Article XVI:

<TABLE>
<CAPTION>
CATEGORY PRODUCTION SOURCE
<S> <C>
Cigarette Paper Spotswood, NJ (#5, 6, 7, 12, 14, 17);
Papeteries de Mauduit (PDM), Quimperle,
France

Plug Wrap

[*****] Ancram, NY (#21); Lee, MA (#8, Niagara);
Lee, MA (#9, Eagle) Papeteries de Mauduit
(PDM), Quimperle, France
</TABLE>

26
<PAGE> 32

<TABLE>
<S> <C>
[*****] Lee, MA (#9, Eagle); Lee, MA (#8, Niagara)

[*****] Lee, MA (#18, Greylock) (#5, Eagle); Spotswood,
NJ (#14)

[*****] Lee, MA (#8, Niagara)

Tipping Paper
White Lee, MA (#18, Greylock)

Cork Lee, MA (#5, Eagle);
Lee, MA (#18, Greylock)
</TABLE>

VII. RECEIPT INSPECTION AND ACCEPTANCE

Upon receipt at Buyer's Plant or storage facility, Buyer may, but shall
not be required to, perform receipt inspections to confirm that the Fine Papers
in each Shipment conform to the Specifications applicable to the material codes
(i.e., Grades and dimensions) to be delivered pursuant to the subject Order.
Buyer may reject any portion of a Shipment delivered hereunder that does not
conform to applicable Specifications. Receipt inspections shall be cursory in
nature, and acceptance of a Shipment by Buyer shall not be deemed evidence that
the Fine Papers in such Shipment conform to applicable Specifications.
Notwithstanding any receipt inspection, Buyer shall be entitled to revoke its
acceptance, in whole or in part, of any Shipment of Fine Papers that is
subsequently found to fail to conform in any respect to applicable
Specifications. Buyer's sole and exclusive remedy for such revocation of
acceptance shall be the remedy provided in Article X.B.2.

VIII. COMPENSATION

A. GENERAL

This Article states the methods by which the Invoice Price for each
Grade of Fine Papers shall be determined for the period [******]. Prior to
[******], Buyer and Seller shall negotiate in good faith in an attempt to agree
upon

27
<PAGE> 33

the methodology to be used to determine the Invoice Price for each Grade that is
to be applicable beginning [******] if the Agreement is not terminated in
accordance with Article III.A. If the parties so agree, this Agreement shall be
amended accordingly.

B. DEFINITIONS

For purposes of this Article VIII, each of the following terms shall
have the meaning hereinafter set forth:

1. "ADJUSTED BASE PRICE" - for each Grade, the Base
Price adjusted as provided in Article VIII.D hereof for changes in wood pulp
prices, [******] and Extraordinary Costs, as applicable.

2. "BASE PRICE" - for Existing Products, the unadjusted
selling price per Standard Bobbin or per hundredweight, as applicable, for each
Grade as set forth in Exhibit A hereto. For New Products, the unadjusted selling
price per Standard Bobbin or per hundred weight, as applicable, for each Grade
as determined pursuant to Article VIII.F.

3. "CURRENT COST" - the unit manufacturing cost under
normal operating conditions for each Grade based on Seller's actual costs for
labor, materials and utilities at the Seller manufacturing facility where such
Grade is produced, or if produced at more than one facility, by the [******]
where such Grade is produced (provided that in no event shall such costs be
measured at non-domestic facilities), as generated by GEMMS at any given time
based on Seller's actual current and historic costs of manufacturing.

4. "EXTRAORDINARY COST" - increases to Seller's Unit
Grade Cost of producing Fine Papers caused by a [******].

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<PAGE> 34

5. "INDEX" - [******]

6. [******]If [******] reports a [******] of such
[******], the [******] shall be the [******] in such [******]. If [******]
discontinues publication of [******] or if [******] discontinues publishing a
[******] per metric ton of [******], the parties agree to enter good faith
negotiations to designate another market price indicator.

7. "STANDARD BOBBIN" - a Bobbin whose dimensions are
[******].

8. "UNIT" - a Standard Bobbin of Cigarette Paper or Plug
Wrap or a pound of Tipping Paper, as the context requires.

9. "UNIT GRADE COST" - Seller's Current Cost of
manufacturing a Unit of each Grade of Cigarette Paper, Plug Wrap or Tipping
Paper.

C. DETERMINATION OF INVOICE PRICE

The Invoice Price for each Grade for each Year during the period
[******] through [******] shall be determined as follows:

1. for Cigarette Paper and Plug Wrap, the Adjusted Base
Price per Standard Bobbin shall be multiplied by a fraction, the numerator of
which is the number of square meters in the actual Bobbin sold and delivered to
Buyer and the denominator of which is the number of square meters in a Standard
Bobbin;

29
<PAGE> 35

2. for Tipping Paper, the Adjusted Base Price per
hundredweight.

D. ADJUSTMENTS TO BASE PRICE

1. CALCULATION OF PULP PRICE ADJUSTMENT

For Existing Products, effective [******] the Base Price for each
Grade, except Cigarette Papers containing flax, shall be subject to adjustment,
up or down, to reflect changes in the price paid by Seller for wood pulp used in
the production of Fine Papers purchased through Buyer's Direct Purchases and
Indirect Purchases hereunder, the first such adjustment to be made as of
[******]. For New Products, the Base Price for each Grade, except Cigarette
Papers containing flax, shall be subject to adjustment, up or down, on a [*****]
as provided in the preceding sentence, the first such adjustment to be made in
the [******] commencing after the Base Price for that Grade is effective
pursuant to Article VIII.F.5.

a. An adjustment to the Base Price for each
Grade shall be made as of an Adjustment Date if there is a [******] or more
between the [******], less any discounts or rebates due to Seller, [******]prior
to an Adjustment Date and, initially, the [******] in effect as of [******} less
any discounts or rebates due to Seller [******] and, thereafter, the [******],
less any discounts or rebates due to Seller, [******] to the effective date of
the last change in the pulp price adjustment to the Base Price pursuant to this
Article VIII.D.1. This percentage difference shall be calculated as follows:

[******]

30
<PAGE> 36

[******]

2. CALCULATION OF [******]

During the Term hereof and subject to Article IV.D, Article IV.E and
Article IV.F, so long as [******]

31
<PAGE> 37
[******], the Base Price for flax and [***] flax Cigarette Paper shall be
[******] the applicable Base Price listed in Exhibit A, provided, however, if in
any Year, Buyer exercises its rights pursuant to Article [******], Article
[******] or Article [******] of this Agreement to [******] of Cigarette Paper
[******], [******] shall thereafter cease to be applicable for the remainder of
[******}.

3. CALCULATION OF [******] ADJUSTMENT DURING PHASE-OUT

In the event either party provides notice of termination on or before
[******] pursuant to Article III.A or III.B hereof, then effective
[******] for each of [******] and [******], the applicable Base Price for each
Grade of Fine Papers shall be adjusted, up or down, based on the percentage
change in the Index first published for [******] and [******] of the Year
immediately preceding the current Year. The [******]adjustment to the Base
Price for each Grade shall be calculated as follows:

[******]

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<PAGE> 38

[******]

4. CALCULATION OF ADJUSTMENT FOR EXTRAORDINARY COSTS

Effective each Adjustment Date, the Base Price for each Grade shall be
subject to adjustment, up or down, in an amount which shall permit Seller to
recover, [******], Extraordinary Costs that are then being incurred by Seller,
as measured by the amount of such Extraordinary Cost [******}. Upon determining
the amount of such adjustment for any [******}, Seller shall advise Buyer of the
[******} that caused such Extraordinary Cost (for the first adjustment period
only), the amount of such Extraordinary Costs allocated to Direct Purchases and
Indirect Purchases hereunder, and the amount of the adjustment to each Base
Price attributable to such Extraordinary Cost. Seller shall provide information
in appropriate detail for Buyer to understand the basis for any adjustment for
Extraordinary Costs.

[******]

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[******]

F. DETERMINATION OF BASE PRICE FOR NEW PRODUCTS/NEW GRADES

The Base Price for each New Product shall be determined as follows:

1. A New Product shall be assigned by mutual agreement

of Buyer and Seller to an existing Group that has essentially similar Base Sheet
Attributes as other Grades within a

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<PAGE> 40

Category. If the New Product does not fit within an existing Group due to the
absence of similar Base Sheet Attributes, or, if after good faith discussions
the parties cannot agree on the assignment of a New Product to an existing
Group, such New Product shall be assigned to a new Group within the applicable
Category, if any. In the absence of an applicable Category, such New Product
shall not be subject to the terms of this Agreement.

2. Seller shall establish the Base Price for a New
Product as follows:

[******]

[******}

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<PAGE> 41

[******]

5. [******] in accordance with Article VIII.D hereof.

G. [******]

For each Year during the Term hereof, [******]

H. VERIFICATION OF CALCULATIONS/PRICES; AUDITS

[******]

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<PAGE> 42

[******]

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<PAGE> 43

I. CHANGES IN SELLER'S ACCOUNTING METHODS

Seller shall disclose promptly to Buyer and the Auditor any change in
its method of accounting, the type of costs recorded in or allocated to specific
cost accounts or the recording of other information required by this Article
VIII if such change would materially affect the calculation of any price, price
adjustment, rebate or other item called for by this Article VIII.

J. ALTERNATE INDEX

In the event that (a) the Index is discontinued, (b) the nature of the
Fine Papers purchased by Buyer or Buyer's Contractors is changed such that the
Index [******] or (c) the government materially alters the data included in the
Index or the basis of computation of the Index, either party may request
renegotiation of the Index by giving written notice of such request. The parties
shall negotiate in good faith with the goal of agreeing upon a suitable
alternate index. [******]

K. PRICE REOPENERS

[******]

1. [******]

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<PAGE> 44

[******]

2. [******]

3. [******]

4. [******]

[******]

a. [******]

b. [******]

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<PAGE> 45

[******]

L. CHANGES IN SPECIFICATIONS

If there is a change in the Specification for a Grade which affects,
directly or indirectly, the Unit Grade Cost for such Grade, such Grade shall
become a New Product and its Base Price shall be determined in accordance with
Article VIII.F hereof.

M. PRECISION OF CALCULATIONS

The number of digits to the right of a decimal in any number which must
be calculated pursuant to this Article VIII shall be as specified in Exhibit C,
attached hereto and made a part hereof, unless the parties otherwise agree in
writing.

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<PAGE> 46

IX. INVOICES AND PAYMENT

Prior to or upon delivery of each Shipment of Fine Papers ordered by
Buyer in accordance with Article V.B, Seller shall submit an invoice for such
Shipment in the form of an "Advance Shipment Notice" ("ASN"), except for trials
and special orders that are to be invoiced separately. Such invoice shall
specify the number of Bobbins or total pounds of Fine Papers in the Shipment by
material code, Buyer's Delivery Schedule and purchase order or authorization
number, and the place of delivery. Buyer shall then calculate the total
compensation due Seller for such Shipment based on the applicable Invoice Prices
for the Grades specified in Buyer's Order and the number of Bobbins or pounds of
Fine Papers of each such Grade received at the specified place of delivery.
Provided that Seller has delivered the Certificate of Delivery for such Shipment
as required by Article VI.B, Buyer shall pay all proper invoices [******] from
Buyer's receipt of the Shipment at Buyer's Plant.

Payments made to Seller hereunder shall not be considered evidence of
acceptance by Buyer of any non-conforming delivery of Fine Papers, in whole or
in part, or that any such delivery conforms, in whole or in part, to the
requirements of this Agreement. Nor shall payment hereunder be deemed to relieve
Seller of its obligation that any future deliveries of Fine Papers hereunder
conform in all respects with the requirements of this Agreement.

X. WARRANTY

A. TITLE

1. WARRANTY OF TITLE

Seller warrants that title to all Fine Papers received as the result of
Direct Purchases and Indirect Purchases hereunder shall be good, and its
transfer rightful, and that such Fine Papers shall be free from all security
interests, liens and other encumbrances.

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<PAGE> 47

2. REMEDY

If any Fine Papers fail to conform to the above warranty, Seller shall
defend the title thereto and, if requested by Buyer and at no cost to Buyer,
shall promptly cause any security interest, lien or other encumbrance to be
removed by discharging such security interest, lien or other encumbrance or
posting a bond therefor. If Seller fails to cause any such security interest,
lien or other encumbrance to be removed by discharge or posting a bond within
five days after Buyer's written request for such removal, then Buyer, at Buyer's
option, either (a) may cause the removal of such security interest, lien or
other encumbrance by bonding, in which case Seller shall be liable to Buyer for
the expenses thereby incurred, or (b) (but only in the case of Direct Purchases)
may revoke its acceptance of such Fine Papers, in which case Seller shall
promptly refund any compensation Seller shall have received from Buyer in
connection with such Fine Papers.

B. QUALITY

1. WARRANTY OF QUALITY

a. Seller warrants that all Fine Papers received as the
result of Direct Purchases and Indirect Purchases hereunder shall strictly
conform to the applicable Specifications.

b. Seller further warrants that the continuous quality
of each Category of Fine Papers received as the result of Direct Purchases and
Indirect Purchases hereunder shall not result in a rejection rate greater than
the maximum rejection rate provided below:

Maximum Rejection Rate

[******]

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<PAGE> 48

[******]

Recalls by Seller and rejects under preliminary specifications shall be
excluded in calculating the maximum rejection rate. Such rate shall be adjusted
equitably to account for changes in Buyer's floor inspection practices or
mutually agreed changes to the Specifications that could affect the rejection
rate. (The parties agree to negotiate in good faith to reach an agreement upon
objective criteria upon which the quality of each Category of Fine Papers
received as the result of Direct Purchases and Indirect Purchases hereunder
shall be evaluated in the future, and upon reaching such agreement, this Article
X.B.1 and Articles X.B.2 and XXIII.A.1 shall be amended to incorporate such
criteria in lieu of the "rejection rates" set forth herein.)

2. REMEDY

a. If any Fine Papers received as the result of Direct
Purchases and Indirect Purchases hereunder fail to conform to the warranty set
out in Article X.B.1.a, Seller shall promptly replace such Fine Papers with Fine
Papers conforming to the above warranty. Buyer shall give Seller notice of
Buyer's rejection of the nonconforming Fine Papers and a reasonable opportunity
to inspect them after Buyer discovers the nonconforming Fine Papers. Seller
shall take possession of nonconforming Fine Papers within a reasonable time
after Seller has inspected them or has been given a reasonable opportunity to do
so. Seller shall bear all costs, including transportation costs, in fulfilling
the foregoing remedial obligations.

If Seller is unable to replace promptly any nonconforming Fine Papers
with Fine Papers that conform to the warranty set out in Article X.B.1.a, then
Buyer shall have the right to

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<PAGE> 49

purchase substitute Fine Papers from a supplier other than Seller but Buyer
shall not be entitled to recover damages based on such substitute purchases.

b. If the rejection rate of any Category of Fine Papers
received hereunder during any calendar quarter exceeds the maximum rejection
rate set forth in Article X.B.1.b, Seller shall promptly take all necessary
action to identify and correct the cause or causes of the nonconformances that
led to the high rejection rate. Seller shall provide Buyer with a written report
evaluating the nonconformances and their causes and describing Seller's plans
for preventing reoccurrence of such nonconformances in the future. Seller shall
bear all costs in fulfilling the foregoing remedial obligations.

c. [******]

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<PAGE> 50

[******]

d. The remedies in this Article X.B.2, shall constitute
Buyer's sole and exclusive remedies for any breach of the Seller's warranties of
quality set forth in Article X.B.1. Seller shall not be liable in damages to
Buyer for breach of Article X.B, except as set forth in Articles X.B.2 and
XII.B.2 or XII.B.3 hereof, as applicable; provided, however, that the parties
expressly agree that if Seller shall contest [******]

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<PAGE> 51

[******]

C. EXCLUSIVITY OF WARRANTIES

SELLER MAKES NO WARRANTIES OF TITLE AND QUALITY OTHER THAN THE
WARRANTIES SET FORTH IN THIS ARTICLE, AND SELLER HEREBY DISCLAIMS ALL OTHER
WARRANTIES OF QUALITY, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, AND WHETHER
CREATED BY CONTRACT OR BY OPERATION OF LAW, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.

XI. PATENTS, TRADEMARKS, TRADE SECRETS AND COPYRIGHTS

Seller shall, at its expense, defend any suit or proceeding brought
against Buyer to the extent based on any allegation that purchase or use of any
Fine Papers received pursuant to Direct Purchases or Indirect Purchases
hereunder or any process employed by Seller to manufacture any such Fine Papers
constitutes an infringement of any patent, trademark, trade secret or copyright
except to the extent that such suit or proceeding is based in whole or in part
on any Specifications for Fine Papers furnished by Buyer or any process employed
by Seller at Buyer's request; provided, however, that Buyer shall promptly
notify Seller in writing and give Seller authority, information and assistance
for the defense of the suit or proceeding. Seller shall pay all damages and
costs (including reasonable attorneys' fees) awarded in any suit or proceeding
so defended. Neither party shall settle any such suit or proceeding without the
other party's prior written consent, which consent shall not be unreasonably
withheld. Seller's obligation to indemnify Buyer pursuant to this Article XI
shall cease if settlement of any such suit or proceeding is made without its
prior written consent.

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<PAGE> 52

If any Fine Papers or the use thereof by Buyer infringes any patent,
trademark, trade secret or copyright and its use by Buyer is enjoined, Seller
shall, at Seller's option and at no cost to Buyer, either (a) procure for Buyer
the right to use the Fine Papers or (b) replace such Fine Papers with
substantially equivalent non-infringing Fine Papers. The provisions of this
Article XI shall not apply to the extent that any claim of infringement is based
on the manner in which the Fine Papers are utilized by Buyer in its Cigarette or
Cigarette component manufacturing processes and a suit or proceeding is brought
against Buyer by reason of such manner of utilization.

XII. LIMITATION OF LIABILITY/EXCEPTIONS

A. GENERAL

Neither Buyer nor Seller shall be liable to the other for [******]
, whether at law or in equity, except as provided in
Article XII.B and XII.C hereof.

B. EXCEPTION TO LIMITATION OF SELLER'S LIABILITY

Article XII.A hereof shall not limit Seller's liability to Buyer for:

1. [******]

2. [******]

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<PAGE> 53

3. [******]

4. [******]

5. [******]

6. [******]

7. [******]

8. [******]

9. [******]

10. [******]

C. EXCEPTION TO LIMITATION OF BUYER'S LIABILITIES

Article XII.A hereof shall not limit Buyer's liability to Seller for:

1. [******]

2. [******]

3. [******]

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<PAGE> 54

4. Buyer's obligations to Seller as set forth in Article
XXIV.A hereof; and

5. Buyer's obligation to Seller with respect to fines
for noncompliance with laws pursuant to Article XV hereof.

XIII. STRATEGIC PLANNING AND COOPERATION

A. OBJECTIVES

This Agreement is intended to foster a long-term business relationship
between Buyer and Seller regarding Buyer's Direct Purchase Requirements and
Buyer's Indirect Purchase Requirements. It is intended to facilitate both
parties' efforts to improve the quality of Fine Papers subject to this Agreement
and to reduce costs in the entire supply chain of each party. The parties
acknowledge that Buyer's selection of Seller as a strategic supplier of direct
materials and Seller's agreement to so act are significant departures from the
usual practices of each party, and that this approach is based on the
anticipated mutual benefits that the parties expect to achieve through a
long-term business relationship. The parties will pursue their objectives
through (a) mutual efforts to increase productivity and efficiency in the
ordering, manufacture, shipping, delivery, receipt, inspection, processing and
use of Fine Papers, (b) jointly developing and implementing, as appropriate,
technological advances in Fine Papers production and handling machinery and
Cigarette manufacturing machinery as provided herein, (c) reevaluation of the
Specifications for Fine Papers; integrated quality assurance programs, (d)
enhanced inventory management; electronic data interchange and (e) such other
joint efforts as the parties shall deem appropriate.

B. COMMITTEES

In order to achieve the objectives set forth above, the parties hereto
acknowledge the need to cooperate. To that end, the parties have formed the
following three committees:

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<PAGE> 55

1. the Operating Steering Committee;

2. [******]; and

3. the Review Team.

The roles and responsibilities of each of these committees are
described in more detail below.

1. OPERATING STEERING COMMITTEE

Buyer and Seller shall establish an Operating Steering Committee
(hereafter referred to as the "OSC") composed of an equal number of
representatives of each party. Buyer's Manager of Direct Materials Purchasing
shall be the chairman of the OSC. Seller's Senior Account Executive - Buyer,
shall be vice-chairman.

The OSC shall endeavor (a) to achieve the orderly administration of
this Agreement, including the achievement of the goals set forth in Article
XIII.A, (b) to identify and promote development of those areas where strategic
cooperation between Buyer and Seller might be mutually beneficial, (c) to
discuss appropriate methods to reward Seller (including possible additional
compensation) for developing a Grade, Group or Category of Fine Papers or
recommending changes to Buyer's receiving and inspection systems or
manufacturing processes, which development or changes would materially reduce
Buyer's cost of producing Cigarettes or Cigarette components and (d) to identify
opportunities to improve the quality of Fine Papers produced by Seller.

The OSC shall function only as an advisory body and shall have no
authority to take any action or make any decision concerning this Agreement or
any other agreements between the parties unless the parties mutually agree, in
writing, to refer such action or decision to the OSC.

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<PAGE> 56

The parties agree to cooperate with the OSC and to provide such support and
staff services to the OSC as it shall reasonably request.

The OSC shall meet at least once each calendar quarter during the Term
hereof, and more often if the majority of its members so agree. The OSC shall
consider such matters as are referred to it by the parties and such other
matters as its members deem appropriate and consistent with its charge,
including technology and product development, requirements and ordering, raw
materials, visible and other attributes, specifications, productivity
improvements and cost review. In addition, each party shall report the substance
of any major business decision to the OSC promptly after any such decision is
made (a) that could affect such party's ability to perform its obligations under
this Agreement, including decisions that could affect Buyer's Direct Purchase
Requirements, Buyer's Indirect Purchase Requirements or Seller's ability to sell
and deliver such requirements, or (b) with respect to the acquisition,
construction or development of additional domestic Cigarette or Fine Papers
manufacturing facilities, as the case may be.

2. [******]

[******]

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<PAGE> 57

[******]

3. REVIEW TEAM

There shall be a Review Team comprised of the following executive
managers from both parties: from Seller [******] and from Buyer [******]. This
Review Team shall meet on a semi-annual basis, or more frequently if either
party so requests, to assess the continuing viability of the strategic alliance
between Buyer and Seller, discuss their respective future plans and identify and
agree upon those changes or refinements to the relationship that are necessary
to its continued success and achievement of the goals identified herein.

Specifically, Review Team meetings shall address issues raised by
either party, including but not limited to the following:

a. [******]

b. [******]

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<PAGE> 58

c. [******]

d. [******]

e. [******]

f. [******]

g. [******]

h. [******]

i. [******]

j. [******]

k. [******]

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<PAGE> 59

l. [******]

m. [******]

Each party's senior representative at any such meeting of the Review
Team shall be authorized to make decisions and commitments binding on the
parties, but no such decision or commitment shall effect an amendment to this
Agreement or any of the agreements between the parties unless reduced to writing
and signed by the authorized representative of each party.

C. ALTERNATE SOURCES OF SUPPLY OF FINE PAPERS

If during the Term hereof Seller purchases or constructs facilities
which it uses to manufacture Fine Papers, in addition to the manufacturing
facilities for Fine Papers identified as production sources in this Agreement,
Seller will notify Buyer of the possibility that some or all of the quantities
of Fine Papers subject to this Agreement could be manufactured at such
additional facilities at prices and on terms mutually advantageous to each
party. In the event that Seller reports the existence of such possibility to
Buyer, the parties shall negotiate in good faith with the goal of amending this
Agreement in a mutually agreeable way to achieve such mutual advantages, but
nothing herein shall be deemed to obligate Buyer or Buyer's Contractors to agree
to accept deliveries of Fine Papers manufactured at facilities other than those
identified as production sources in this Agreement and then only if such
facilities have been qualified in accordance with Article XVI of this Agreement.

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D. SALES TO BUYER'S AFFILIATES

Buyer's Affiliates use Fine Papers for Cigarette manufacturing
operations in various locations outside the United States. Upon Buyer's request,
the parties will negotiate in good faith with the objective of reaching mutual
agreement on the terms and conditions of appropriate amendments to this
Agreement or other agreements between the parties by which Seller would agree to
supply Fine Papers to some or all of Buyer's Affiliates.

E. PERFORMANCE EVALUATIONS

The parties intend that this Agreement should result in a world-class
supply relationship respecting Fine Papers quality, service, technical
cooperation and prices. To that end, it is contemplated that Buyer shall be
entitled [******]. Should Buyer reasonably conclude, as the result of any such
evaluation, that the above-stated goals are not being achieved, Buyer shall
refer any concerns it has to the OSC for the OSC's recommendation of those
measures, if any, that may be appropriate in furtherance of the above-stated
goals.

F. SPECIFICATION CHANGES OR PRODUCT OR MANUFACTURING ADVANCES

From time to time Buyer may desire to develop or implement either (a) a
Specification Change or (b) a Product or Manufacturing Advance. This Article
describes the processes that will be followed in developing and/or implementing
any such Specification Change or Product or Manufacturing Advance. To the extent
the parties may disagree whether a particular change or development is subject
to the process provided below for a Specification Change or a Product or
Manufacturing Advance, the determination of Buyer's Manager, Cigarette
Components Materials Purchasing shall be controlling and binding on the parties.

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1. SPECIFICATION CHANGES

Buyer shall communicate a proposed Specification Change to Seller in
writing. Seller shall have no obligation hereunder to sell and deliver Fine
Papers conforming to a new Specification until such time as Seller has agreed to
the Specification Change; provided, however, if Seller disagrees with any
Specification Change proposed by Buyer, Buyer and Seller shall negotiate in good
faith with the intention of resolving such disagreement as quickly as possible
but in no event later than 30 days after Buyer communicates the proposed
Specification Change to Seller.

2. PRODUCT OR MANUFACTURING ADVANCE

[******] Any such Request for Assistance shall (a) identify the Product
or Manufacturing Advance in general or specific terms reasonably sufficient for
Seller to understand the nature of the request, (b) advise Seller of the date by
which Buyer seeks to have the Product or Manufacturing Advance developed and/or
implemented into a new or existing Fine Papers product or a manufacturing or
processing technique respecting Fine Papers, (c) request that Seller commit to
participate in the development and/or implementation of the Product or
Manufacturing Advance and complete negotiation of any agreement(s) necessary for
Seller to develop and/or implement such Product or Manufacturing Advance by
either (a) the date to be specified in Buyer's Request for Assistance or (b)
another

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<PAGE> 62

date agreeable to both parties. Thereafter, [******] that may result from the
development and/or implementation effort respecting such Product or
Manufacturing Advance. [******].

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[******].

Notwithstanding the preceding paragraph of this Article XIII.F,
[******]. With respect to any proposed Product or Manufacturing Advance, if (a)
Seller declines to support or assist Buyer in response to a Buyer Request for
Assistance related to such Product or Manufacturing Advance, (b) Buyer and
Seller fail to reach agreement on the terms of a mutually acceptable
agreement(s) for development and/or implementation of such Product or
Manufacturing Advance within the period allowed pursuant to the preceding
paragraph, or (c) on request by Buyer Seller fails to demonstrate to Buyer's
reasonable satisfaction that Seller is able to implement such Product or
Manufacturing Advance into Seller's manufacturing processes or Fine Papers
products for sale and delivery to Buyer or Buyer's Contractors without
infringing patent(s) or without violating or misappropriating the trade secrets
or other intellectual property rights of persons or entities other than Seller
or Buyer, Buyer shall be free to participate in joint development programs with
Fine Papers suppliers other than Seller and subject to Article IV.D, to purchase
New Products resulting from such joint development programs from suppliers other
than Seller, notwithstanding Article IV.B and Article IV.C.

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<PAGE> 64

XIV. FORCE MAJEURE

A. DEFINITION OF FORCE MAJEURE

Neither Buyer nor Seller shall be responsible or liable, or deemed in
breach hereof, to the extent any delay or failure to perform hereunder results
from an occurrence, event or circumstance which could not have been reasonably
avoided by the party experiencing such delay or impediment to performance,
including, but not limited to, acts of God; unusually severe weather; war;
riots, civil commotions; act, demand or requirement of law or of any competent
governmental authority; inability despite due diligence to obtain required
licenses; strikes or other labor disturbances at Seller's or Buyer's
manufacturing facilities; explosion, fire, or flood; unavailability or shortage
of material, equipment or transportation, to the extent beyond such party's
reasonable control; or other similar causes beyond such party's reasonable
control (such causes are hereinafter called "Force Majeure"). If Seller is
delayed or its performance prevented due to delays experienced by or failures to
perform of Seller's Affiliates, such delay or impediment to performance shall
not constitute an event of Force Majeure hereunder except to the extent such
delay or impediment to performance is caused by Force Majeure as defined above.

B. FORCE MAJEURE PROCEDURE

The party experiencing the Force Majeure shall exercise reasonable
efforts in endeavoring to overcome any resulting delay or impediment to its
performance. The party experiencing the Force Majeure shall promptly give
written notification to the other party. This written notification shall include
a full and complete description of the Force Majeure and its cause, the status
of the Force Majeure, and the actions such party is taking and proposes to take
to overcome the Force Majeure.

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C. EFFECT OF FORCE MAJEURE

If performance by either party is delayed or prevented due to Force
Majeure, the time for that performance shall be extended for a period reasonably
necessary to overcome the effect of the Force Majeure. The party experiencing
the Force Majeure shall undertake reasonable measures to make up for the time
lost without additional compensation. Any quantities of Fine Papers not
delivered due to Force Majeure affecting Seller shall not be made up, and such
quantities shall be treated as Direct Purchases or Indirect Purchases (as
applicable) for purposes of calculating Buyer's Prior Year purchases hereunder.
Buyer shall have the right to obtain alternate supplies of Fine Papers during
any event of Force Majeure that delays or prevents Seller's performance
hereunder.

D. ALLOCATION OF SELLER'S PRODUCTION CAPACITY

If any event of Force Majeure hereunder delays or prevents Seller from
fulfilling its obligations to deliver the full quantities of Fine Papers to all
of its regular customers, including Buyer,[******].

E. TERMINATION FOR EXTENDED FORCE MAJEURE

If either party's ability to perform hereunder is reduced, delayed or
prevented, in whole or in part, for a period of [******] as a result of an event
of Force Majeure, the other

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<PAGE> 66

party shall have the right, at its sole option, to terminate this Agreement in
whole or in part, and any and all remaining deliveries hereunder without further
obligation, such option to be exercised, if at all, by such other party giving
written notice of termination to the non-performing party. [******].

F. CONTINGENCY PLANS

1. [******] Buyer and Seller acknowledge that although
the occurrence of any event of Force Majeure will be outside the control of
either party, certain types of Force Majeure are more likely to occur than
others and the adverse effects of such events can often be reduced or minimized
through advance planning. Upon Buyer's request, Seller shall prepare and submit
for Buyer's review and comment a contingency plan to address the possible
occurrence of a strike or similar labor disturbance at Seller's manufacturing
facilities for Fine Papers and such other events of Force Majeure as Buyer and
Seller mutually agree. If, following Buyer's request, Seller fails to develop
reasonable contingency plans for each such event, or if upon the occurrence of
such an event, Seller fails to implement the applicable contingency plan, any
delay in or impediment to Seller's performance due to the occurrence of such
event of Force Majeure shall be deemed to have been within the reasonable
control of Seller and therefore not excused under this Article. [******].

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<PAGE> 67

From time to time during the term of this Agreement, Seller shall, upon
request of the OSC, review its strike contingency plan and any other of its
contingency plans developed pursuant to this Article to determine whether such
plans need revision. If requested by the OSC, Seller shall revise such
contingency plan in accordance with such review and shall notify the OSC of any
such revision.

2. If either party has reason to believe a strike or any
other event of Force Majeure is likely to occur at one or more of its facilities
and would interrupt the sale and purchase of Fine Papers contemplated hereunder,
the party likely to experience such event of Force Majeure shall notify the
other party, as soon as reasonably possible, of such likely occurrence and of
the expected duration of the period in which performance is likely to be delayed
or prevented. The party having reason to believe that it may experience a strike
affecting production shall advise the other party of any production changes that
are planned in anticipation of such strike.

XV. COMPLIANCE WITH LAWS; NONDISCRIMINATION; FINES

A. GENERAL

Each party shall comply with all foreign and United States (federal,
state and local) laws, rules, regulations and ordinances applicable to the
performance of their respective obligations under this Agreement.

Each party shall obtain and maintain all governmental licenses, permits
and approvals necessary for the operation of their facilities required to
perform their respective obligations under this Agreement. Seller shall obtain
all necessary licenses, permits and other clearances required to import Fine
Papers into the United States from the manufacturing facilities of its
non-domestic Affiliates. No later than the last day of January during each year,
each party, upon

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request of the other, shall provide the other a written certification that their
respective manufacturing facilities are being maintained and operated in
accordance with all applicable environmental laws, rules, regulations, orders
and permits.

B. NONDISCRIMINATION

Seller shall comply with all applicable provisions of Executive Order
11246, as amended; ss. 503 of the Rehabilitation Act of 1973, as amended; ss.
402 of the Vietnam Era Veterans Readjustment Assistance Act of 1974, as amended;
ss. 5152 of the Drug-Free Workplace Act of 1988; and the implementing
regulations set forth in 41 C.F.R. ss.ss. 60-1, 60-250 and 60-741 and 48 C.F.R.
ss. 23.5. Each party shall comply with all provisions of the Americans with
Disabilities Act that are applicable to them. The equal opportunity clause set
forth in 41 C.F.R. ss. 60-1.4 and the affirmative action clauses set forth in 41
C.F.R. ss. 60-250.4 and 41 C.F.R. ss. 60-741.4 are hereby incorporated by
reference and made a part of this Agreement. Seller certifies that it does not
and will not maintain any facilities it provides for its employees in a
segregated manner and that it does not and will not permit its employees to
perform their services at any location under Seller's control where segregated
facilities are maintained. Seller further agrees to submit and obtain such
certifications of nonsegregated facilities as are required by 41 C.F.R. ss.
60-1.8. The provisions of this paragraph shall apply to Seller only to the
extent that (a) such provisions are required of Seller under existing law, (b)
Seller is not otherwise exempt from said provisions and (c) compliance with said
provisions is consistent with and not violative of 42 U.S.C. ss. 2000 et seq.,
42 U.S.C. ss. 1981 et seq., or other acts of Congress.

C. NO COLLUSION

Neither Seller nor any person or entity acting or purporting to act on
Seller's behalf shall enter into any combination, conspiracy, agreement or other
form of collusive arrangement with

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any person, corporation, partnership or other entity that directly or indirectly
lessens competition between potential contractors, vendors or suppliers from
whom goods or services may be obtained that will be used by Seller in the
performance of its obligations hereunder. Furthermore, in performing its
obligations hereunder, Seller shall submit to Buyer such information as it may
have respecting the occurrence of such collusion among or between potential
contractors, vendors, suppliers or any other person.

D. FINES

Any fines or other penalties incurred by either party or its agents,
employees or subcontractors for noncompliance with any laws, rules, regulations
or ordinances with which compliance is required herein shall be the
responsibility of the non-complying party except that any non-compliance
relating to the payment of duties on imported materials shall not be reimbursed
by Buyer but shall be the sole responsibility of Seller. If fines, penalties or
legal costs are assessed against either party by any government authority or
court due to noncompliance by the other party or its agents, employees or
subcontractors with any of the laws, rules, regulations or ordinances with which
compliance is required herein, including but not limited to any laws, rules,
regulations or ordinances relating to the payment of duties on imported
materials, the noncomplying party shall indemnify and hold harmless the other
against any and all losses, liabilities, damages, claims and costs (including
reasonable attorneys' fees) suffered or incurred because of the failure of the
noncomplying party or its agents, employees or subcontractors to comply
therewith.

XVI. QUALITY ASSURANCE

Each Manufacturing Facility of Seller and its non-domestic Affiliates
used to produce Fine Papers to be incorporated into Cigarettes and Cigarette
components manufactured at the

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<PAGE> 70

Plants must be qualified by Buyer as capable of manufacturing Fine Papers that
conform to the applicable Specifications for each Grade of Fine Papers to be
manufactured at that facility. Buyer shall not unreasonably withhold any such
qualification. In the event that Buyer withholds its qualification of any Grade
at any of Seller's or its Affiliates' Manufacturing Facilities, Buyer shall give
Seller written notice of its specific reasons for so doing.

At Buyer's request, Seller shall develop and submit to Buyer for its
review a written plan for quality assurance and quality control at each such
Manufacturing Facility.

The parties acknowledge that they have undertaken to strive jointly for
managed continuous improvement in quality. To this end, Buyer and Seller shall
form a joint quality improvement team to identify opportunities to improve the
quality of Fine Papers produced by Seller.

XVII. INSPECTION

Buyer shall have reasonable access to Seller's Manufacturing
Facilities, as well as the facilities of Seller's suppliers or contractors who
are willing to permit such access, for the purpose of (a) auditing compliance
with Seller's quality control and quality assurance programs and (b) inspecting
Seller's manufacturing operations. Such inspections shall not relieve Seller of
its obligation to provide Fine Papers that conform in all respects with the
Specifications. Buyer shall also be entitled to review all quality control and
quality assurance records, to inspect Fine Papers to be delivered to Buyer or
Buyer's Contractors during manufacture and to witness all tests. Seller shall
seek from suppliers of materials incorporated into Fine Papers to be delivered
to Buyer or Buyer's Contractors permission for Buyer to inspect such supplier's
facilities upon reasonable notice.

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Seller shall have reasonable access to Buyer's manufacturing facilities
and the facilities of Buyer's Contractors who are willing to permit such access
to investigate Fine Papers quality complaints or claims and to identify changes
or refinements in Buyer's receiving and inspection systems and its manufacturing
processes that might enable Seller to improve the quality of Fine Papers that it
manufactures.

XVIII. CONFIDENTIALITY AND CONFIDENTIAL INFORMATION

A. CONFIDENTIAL INFORMATION OF THE PARTIES

The parties hereby acknowledge that all information disclosed to each
other pursuant to this Agreement, either orally, in writing or by observation,
including, but not limited to, the contents of this Agreement and its Exhibits
and any disclosure arising out of the implementation of Article XVIII.B hereof
(hereafter "Confidential Information") shall at all times, both during and after
the term of this Agreement, remain the exclusive property of the party making
the disclosure and that, in receiving such disclosure, the other party shall not
acquire any proprietary interest whatsoever therein. Each party shall make use
of the other party's Confidential Information only during the term of and solely
to carry out the purposes and intent of this Agreement.

B. NON-DISCLOSURE

Neither party shall directly or indirectly disclose, or permit anyone
on its behalf to disclose, except as may be required by law, any Confidential
Information disclosed to it by the other party, and each shall carefully guard
and keep secret all such Confidential Information of the other with the same
degree of care which it uses in protecting its own Confidential Information.
Confidential Information received by each party herein shall be disclosed within
such party's organization only on a need-to-know basis. Neither party shall, at
any time, allow

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anyone except the other party, or those expressly authorized by such other party
in writing, to have access to or use any Confidential Information disclosed by
the other party. Upon the termination of this Agreement, however occurring, each
party shall surrender to the other all documents then in their possession
including, but not limited to, plans, Specifications, literature, samples and
other tangible things relating to Confidential Information disclosed by the
other.

C. EXCEPTION TO NON-DISCLOSURE

Neither party shall be liable to the other for disclosure of
information:

1. which can be demonstrated to have been in the other
party's possession lawfully prior to receipt of the same from the party making
such disclosure; or

2. which was received from a third party having no
obligation to hold the same in confidence; or

3. which can be demonstrated to have been public prior
to the date of the disclosure; or

4. which thereafter becomes public through no fault of
the party receiving the disclosure.

XIX. OWNERSHIP OF DOCUMENTS; DEVELOPMENT PROGRAMS

All drawings, designs, blueprints, photographs, sketches, software
(including but not limited to each party's or its affiliates' CAD menus, cell
symbologies and user commands) and other materials prepared by or for the other
party or furnished to such other party in the course of this Agreement shall
belong to the disclosing party and shall not be used for, or revealed, divulged
or made known to, any person, firm or corporation without the prior written
consent of the disclosing party. Upon the disclosing party's request, the other
party shall return to the disclosing party all such materials, together with any
reproductions of such materials that the

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other party may have made, provided that such other party may retain one copy of
such materials for record purposes.

XX. RECORDS

Each party shall keep and maintain complete and accurate records, books
of account, reports and other data necessary for the proper administration
hereof ("Records"). Each party shall retain such Records in accordance with
their respective record retention programs and shall not dispose of such Records
without giving the other party at least 60 days prior written notice of its
intent to discard such Records; provided, however, that no such notice need be
given unless such other party is entitled under the terms hereof to inspect the
Records in question. If the party to whom such notice is given so requests, the
party who gave the notice shall deliver the originals or copies of such Records
to the other party.

XXI. DISPUTE RESOLUTION

A. INTENT

It is the intention of the parties to make a good faith effort to
resolve, without resort to litigation, any dispute, controversy or claim arising
out of or relating to this Agreement or any breach, termination or invalidity
hereof (a "Dispute") according to the procedures set forth in this Article.

B. PROCEDURE

Buyer's and Seller's designated representatives shall attempt to
resolve all Disputes by negotiation. In the event of a Dispute that cannot be
resolved promptly by Buyer's and Seller's representatives, each party shall
immediately designate a senior executive with authority to resolve the Dispute.
The designated senior executives shall promptly begin discussions in an effort
to agree upon a resolution of the Dispute. If the senior executives do not agree
upon a

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resolution of the Dispute within 45 days of the referral to them, either party
may elect to abandon negotiations. If a Dispute cannot be resolved pursuant to
the procedures outlined in this paragraph, the parties may pursue any remedy
available to them at law or in equity.

XXII. INSURANCE

Seller shall maintain the following insurance:

1. Statutory workers' compensation coverage in
accordance with the law of the state where the facilities of Seller are used to
produce Fine Papers sold to Buyer hereunder.

2. Employer's liability with a limit of not less than
[******] per occurrence;

3. Comprehensive general liability, including coverage
for property damage, products liability/completed operations (for two years
after performance hereof) and contractual obligations, with a combined single
limit of [******] per occurrence; and

4. Comprehensive automobile liability with a combined
single limit of [******] per occurrence covering all vehicles of Seller
whether owned or nonowned.

Upon Buyer's request, Seller shall furnish certificates of insurance in
a form and manner reasonably acceptable to Buyer evidencing that the above
insurance is in effect and otherwise complies with the requirements of this
Article. Seller shall require its insurance carriers to give Buyer 30 days
written notice of any material change or alteration in or cancellation of any
policy of insurance required hereunder. Seller shall require its comprehensive
general liability carrier and its comprehensive automobile liability carrier to
name Buyer as an additional insured on those policies and to include on such
policies endorsements indicating that such coverage is intended to be primary to
any other coverage Buyer may maintain in connection with liability Buyer may
incur for which Buyer may be entitled to coverage under such policy.

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XXIII. CANCELLATION FOR DEFAULT

A. DEFAULT BY SELLER

1. If, during the term of this Agreement, one or more of
the following events (an "Event of Default") shall occur, Seller shall be deemed
in default:

a. [******] The rejection rate for any Category
of Fine Papers delivered by Seller shall exceed either [******]

b. Seller shall, for any reason other than (a)
delays to the extent caused by Buyer or Force Majeure, where such delays are not
the result of a breach by Seller of its obligations hereunder, or (b) material
breach by Buyer of its obligations hereunder, fail to meet [******] specified in
Buyer's monthly orders issued in accordance with Article V hereof in [******]

c. Seller shall default in the payment of any
sum which it acknowledges to be due and payable to Buyer hereunder and such
default shall continue for [******] after receipt of written demand
from Buyer for payment of such sum;

d. Any representation made by Seller herein or
in any certificate, statement or document required to be made by Seller pursuant
to the terms of this Agreement shall prove to be false in any material respect
as of the date on which it was made, and any material adverse consequences to
Buyer directly caused thereby shall not have been remedied within 30 days after
written notice thereof shall have been given to Seller by Buyer; provided,
however, that if the material adverse consequences cannot reasonably be remedied
in a 30-day period, and if Seller shall have commenced a remedy based on a plan
of remedy and a schedule acceptable to Buyer, the 30-day period shall be
extended consistent with such plan of remedy;

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e. Seller shall (a) file a petition commencing
a voluntary case under the United States Bankruptcy Code, (b) file a petition
for liquidation, reorganization or an arrangement pursuant to any other federal
or state bankruptcy law, (c) be adjudicated a debtor or be declared bankrupt or
insolvent under any federal or state law relating to bankruptcy, insolvency,
winding-up or adjustment of debts, as now or hereafter in effect, (d) make an
assignment for the benefit of creditors, or (e) admit in writing its inability
to pay its debts as they become due; or if a petition commencing an involuntary
case under the United States Bankruptcy Code or an answer proposing the
adjudication of Seller as a debtor or a bankrupt or proposing its liquidation or
reorganization pursuant to the United States Bankruptcy Code or any other
federal or state bankruptcy law shall be filed in any court and Seller shall
consent to or acquiesce in the filing thereof, if such petition or answer shall
not be discharged or denied within 60 days after the filing thereof;

f. A custodian, receiver, trustee or liquidator
of Seller, or of all or substantially all of the assets of Seller shall be
appointed in any proceeding brought against Seller and shall not be discharged
within 60 days after such appointment, or if Seller shall consent to or
acquiesce in such appointment; or

g. Seller shall default in any material respect
in the observance or performance of any covenant, condition or obligation of
Seller contained herein (other than as provided in paragraphs a, b, c and d of
this Article XXIII.A.1) and such default continues for 30 days after written
notice to Seller specifying the default and demanding that the same be remedied;
provided, however, that if the default cannot reasonably be remedied in a 30-day
period and if Seller shall have commenced a remedy based on a plan of remedy and
a schedule acceptable to Buyer, the 30-day period shall be extended consistent
with such plan of remedy.

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2. In the event of a Default by Seller, Buyer, at its
option, may (a) cancel this Agreement by providing written notice to Seller,
such cancellation to be effective as of the date set forth in such notice but
not earlier than 15 days after such notice is received by Seller, and in any
event, (b) subject to the provisions of Article XII, pursue such remedies as may
be available at law or equity as a consequence of such default.

B. DEFAULT BY BUYER

1. If during the term of this Agreement, one or more of
the following events (an "Event of Default") shall occur, Buyer shall be deemed
in Default:

a. Buyer shall fail or refuse to pay Seller's
invoice as required by Article IX hereof and such failure or refusal shall
continue for 10 business days after receipt of written demand from Seller;

b. Buyer fails or refuses to accept delivery of
any Direct Purchase of Fine Papers as required by this Agreement, and such
failure or refusal has not been remedied by Buyer within 30 days after written
notice thereof shall have been given by Seller to Buyer;

c. Buyer shall (a) file a petition commencing a
voluntary case under the United States Bankruptcy Code, (b) file a petition for
liquidation, reorganization, or for an arrangement pursuant to any other federal
or state bankruptcy law, (c) be adjudicated a debtor or be declared bankrupt or
insolvent under the United States Bankruptcy Code, or any other federal or state
law as now or hereafter in effect relating to bankruptcy, insolvency, winding-up
or adjustment of debts, (d) make an assignment for the benefit of creditors or
(e) admit in writing its inability to pay its debts as they become due; or if a
petition commencing an involuntary case under the United States Bankruptcy Code
or an answer proposing its liquidation or reorganization pursuant to the United
States Bankruptcy Code or any other federal or state

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bankruptcy law shall be filed in any court and Buyer shall consent to or
acquiesce in the filing thereof or such petition or answer shall not be
discharged or denied within 60 days after the filing thereof;

d. A custodian, receiver, trustee or liquidator
of Buyer or of all or substantially all of the assets of Buyer, shall be
appointed in any proceeding brought against Buyer and shall not be discharged
within 60 days after such appointment, or if Buyer shall consent to or acquiesce
in such appointment; or

e. Buyer shall default in any material respect
in the observance or performance of any covenant, condition or obligation of
Buyer contained herein, (other than as provided in paragraphs a. and b. of this
Article XXIII.B.1 and such default continues for 30 days after written notice to
Buyer specifying the default and demanding that the same be remedied; provided,
however, that if the default cannot reasonably be remedied in a 30-day period,
and if Buyer shall have commenced a remedy based on a plan of remedy and a
schedule acceptable to Seller, the 30-day period shall be extended consistent
with such plan of remedy.

2. In the event of a Default by Buyer, Seller may (a)
cancel this Agreement by providing written notice to Buyer, such cancellation to
be effective as of the date set forth in such notice but not earlier than 15
days after such notice is received by Buyer, and in any event, (b) subject to
the provisions of Article XII, to pursue such remedies as may be available at
law or equity as a consequence of such default.

XXIV. INDEMNITY

A. [******]

[******]

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<PAGE> 79

[******],

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<PAGE> 80
B.

[******]

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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XXV. NOTICES

All certificates or notices required hereunder shall be given in
writing and addressed or delivered to the representative(s) specified in this
Agreement. Any notice or communication required hereunder shall be given by
hand; courier service; registered, certified, express or first class mail
(postage prepaid); TWX, telex or facsimile transmission. The date of receipt of
any notice sent by mail (except for confirmatory notices) shall be the date the
notice shall be deemed to have been given.

Notices required hereunder shall be directed to the following
individuals:

Notices to Seller:

President, U.S. Operations
Schweitzer-Mauduit International, Inc.
100 North Point Center East
Suite 600
Alpharetta, Georgia 30022

Copy to: Business Director Cigarette Fine Papers
General Counsel

Notices to Buyer:

Buyer's Manager-Cigarette Components,
Direct Materials Purchasing
Philip Morris U.S.A.
O. Box 26603
Richmond, Virginia 23261

Copy to: Vice President of Materials Purchasing

Buyer or Seller may change the representative(s) designated to receive
notice hereunder by written notice to the other party.

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

<PAGE> 82

XXVI. GOVERNING LAW

The statutes and judicial interpretations of the Commonwealth of
Virginia shall govern this Agreement without regard to conflict of law
principles.

XXVII. NONWAIVER

The failure of either party to demand strict performance of the terms
hereof or to exercise any right conferred hereby shall not be construed as a
waiver or relinquishment of its right to assert or rely on any such term or
right in the future.

XXVIII. SEVERABILITY

The remainder hereof shall not be voided or otherwise affected by the
invalidity of one or more of the terms herein.

XXIX. ASSIGNMENT

Neither party shall assign or transfer any of its rights or
obligations hereunder without the prior written consent of the other party,
which consent shall not be unreasonably withheld.

XXX. SURVIVAL

All warranties, limitations of liability, indemnities and
confidentiality rights and obligations provided herein shall survive the
cancellation, expiration or termination hereof.

XXXI. AMENDMENTS

No amendment, modification or waiver of any term hereof shall be
effective unless set forth in a writing signed by Buyer and Seller.

XXXII. INDEPENDENT CONTRACTOR

Seller is an independent contractor for all purposes hereof. This
Agreement is a contract for the sale of goods and the relationship between the
parties is that of buyer and seller, and is not intended to be one of hiring
under the provisions of any workers' compensation or other laws and

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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shall not be so construed. Nothing herein shall be deemed to constitute a
partnership or joint venture between the parties hereto.

XXXIII. HEADINGS

Headings contained herein are inserted for convenience and shall have
no effect on the interpretation or construction hereof.

XXXIV. PUBLICITY

Except as required by Law (with prior written notice to the
non-disclosing party), neither party shall release any information relative to
this Agreement for publication, advertising or any other purpose without the
other party's prior written consent.

XXXV. ENTIRE AGREEMENT

This Agreement constitutes the entire agreement of the parties with
respect to its subject matter and supersedes any prior or contemporaneous
agreement or understanding between the parties.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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IN WITNESS WHEREOF, the parties have executed this Agreement by their
authorized representatives, effective as of the date set forth in Article
III.A. hereof.

PHILIP MORRIS INCORPORATED

By
--------------------------------------
Name Henry P. Long, Jr.
-------------------------------------
Title Vice President of Purchasing
------------------------------------

SCHWEITZER-MAUDUIT INTERNATIONAL, INC.

By
--------------------------------------
Name Peter J. Thompson
-------------------------------------
Title President -- U.S. Operations
------------------------------------

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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EXHIBIT A

PHILIP MORRIS/SCHWEITZER-MAUDUIT
1998 STRATEGIC SUPPLY AGREEMENT
BASE YEAR PRICING

<TABLE>
<CAPTION>
SWM SWM BASE PRICE
SALES GRADE [******] [******]
PRODUCT CODE CODE [******] [******]
------- ---- ---- -------- --------
<S> <C> <C> <C> <C>
[******] [******] [******] [******] [******]

[******] [******] [******] [******] [******]

[******] [******] [******] [******] [******]
</TABLE>

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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EXHIBIT B

METHOD FOR CONVERSION FROM BOBBINS OF FINISHED TIPPING PAPER
TO POUNDS AND FROM NUMBER OF ARTICLES (ITEMS) TO STANDARD
BOBBINS OF CIGARETTE OR PLUG WRAP PAPER.

1. Determine the quantity of Tipping Paper in pounds included in
a number of Bobbins of Finished Tipping Paper as follows:

a) for each size of Bobbin made using a Grade of Tipping
Paper, multiply the length in meters of such Bobbin by the Bobbin width in
meters to determine the area of each such Bobbin;

b) multiply the area for each size made using a Grade of
Tipping Paper by the target basis weight of the Grade in grams per square meter
and divide the products so obtained by [******] to determine the weight of each
different size Bobbin in pounds;

c) multiply the Bobbin weight obtained above for each
size of Bobbin made using a Grade of Tipping Paper by the number of such
Bobbins purchased by the Buyer during the specified period and add the several
products so obtained to determine the pounds of Tipping Paper of each Grade.

2. Determine the quantity of Cigarette Paper or Plug Wrap Paper
in Standard Bobbins included in a number of articles as follows:

a) for each article made using a Grade of Fine Paper,
multiply the length of paper in meters incorporated into such article by the
width of the paper in meters incorporated into the article to determine the
area of paper incorporated into the article;

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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b) multiply the area of paper incorporated into each
article using a Grade of Fine Paper by the number of such articles purchased by
or delivered to the Buyer in the specified period and sum the several products
so obtained for each Grade;

c) for each Grade divide the sum obtained above by
[******] to determine the number of Standard Bobbins of such Grade purchased by
the Buyer during the specified period.

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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EXHIBIT C

PRECISION OF CALCULATION

INPUT DATA

<TABLE>
<CAPTION>
QUANTITY UNIT PRECISION
-------- ---- ---------
<S> <C> <C>
Bobbin Length meter Nearest [******]
Bobbin Width millimeter Nearest [******]
[******] Invoice Price
Cigarette $ per bobbin Nearest [******]
Plug Wrap $ per bobbin Nearest [******]
Tipping Paper $ per CWT Nearest [******]
Volumes:
Cigarette Standard Bobbin Nearest [******]
Plug Wrap Standard Bobbin Nearest [******]
Tipping Paper pound Nearest [******]
Pulp Price $ per metric ton Nearest [******]
Net Book Value dollars Nearest [******]
Unit Grade Cost
Cigarette $ per Standard Bobbin Minimum nearest
[******]
Plug Wrap $ per Standard Bobbin Minimum nearest
[******]
Tipping Paper $ per pound Minimum nearest
[******]
Standard Grade Cost
Cigarette $ per Standard Bobbin Minimum nearest
[******]
Plug Wrap $ per Standard Bobbin Minimum nearest
[******]
Tipping Paper $ per pound Minimum nearest
[******]
[******] Dimensionless Minimum nearest
[******]
</TABLE>

CALCULATED DATA

<TABLE>
<CAPTION>
QUANTITY PRECISION
-------- ---------
<S> <C>
All calculated values Minimum [******]
</TABLE>

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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COMPARATIVE VALUES

<TABLE>
<CAPTION>
QUANTITY UNIT PRECISION
-------- ---- ---------
<S> <C> <C>
Percentage Change (1) percent Nearest [******]
</TABLE>

OUTPUT DATA

<TABLE>
<CAPTION>
QUANTITY UNIT PRECISION
-------- ---- ---------
<S> <C> <C>
Prices
Cigarette $ per Standard Bobbin Minimum [******]
Plug Wrap $ per Standard Bobbin Minimum [******]
Tipping Paper $ per pound Minimum [******]

Carry Forward percent Nearest [******]

Invoice Prices
Cigarette $ per bobbin Nearest [******]
Plug Wrap $ per bobbin Nearest [******]
Tipping Paper $ per CWT Nearest [******]
</TABLE>

----------------
(1) [*****]

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24 b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.

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EXHIBIT D

Example Summary Calculation [*****]

[*****]

CONFIDENTIAL MATERIAL APPEARING IN THIS DOCUMENT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION IN ACCORDANCE WITH
RULE 24b-2, PROMULGATED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
OMITTED INFORMATION HAS BEEN REPLACED WITH ASTERISKS.