EXHIBIT 10.4

                        CONTRACT MANUFACTURING AGREEMENT

                                 EXECUTION COPY

         This Contract Manufacturing Agreement (the "Agreement") is made and
entered into as of this 30th day of July, 2004 (the "Effective Date"), by and
between R. J. REYNOLDS TOBACCO COMPANY, a North Carolina corporation
(hereinafter, "RJRTC"), and BATUS JAPAN, INC., a Delaware corporation
(hereinafter, "BATUS Japan"). RJRTC and BATUS Japan shall be referred to herein
individually as a "Party" and collectively as the "Parties."

                                    RECITALS

         WHEREAS, BATUS Japan or its Affiliates have the right to distribute,
market and sell certain Cigarettes (as defined below) and other tobacco products
in the Territory (as defined below);

         WHEREAS, prior to the Effective Date, certain American-blend Cigarettes
sold by BATUS Japan were manufactured in the United States for BATUS Japan by
Brown & Williamson Tobacco Corporation ("B&W"). B&W and BATUS Japan are both
indirect wholly owned subsidiaries of B.A.T. (as defined below);

         WHEREAS, on October 27, 2003, B&W and RJRTC's Affiliate, R.J. Reynolds
Tobacco Holdings, Inc., entered into a Business Combination Agreement (the
"BCA"), which requires in the pertinent part that an agreement for the contract
manufacturing of American-blend Cigarettes be entered between RJRTC and BATUS
Japan;

         WHEREAS, BATUS Japan desires to continue to have American-blend
Cigarettes it sells in Japan manufactured in the United States and wishes to
engage RJRTC to manufacture those products in the United States;

         WHEREAS, RJRTC has facilities for, and expertise relating to, the
manufacture of American-blend Cigarettes and other tobacco products; and,

         WHEREAS, RJRTC is willing to manufacture American-blend Cigarettes for
BATUS Japan in the United States pursuant to the terms and conditions set forth
in this Agreement.

         NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth herein, and for other good and valuable consideration, the mutuality,
receipt and sufficiency of which are hereby acknowledged, RJRTC and BATUS Japan
agree as follows:



                                    SECTION 1
                                   DEFINITIONS

         For purposes of this Agreement, the following terms shall mean:

1.1      "AFFILIATE" of any Person means another Person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first Person.

1.2      "AGREEMENT" has the meaning set forth in the Preamble above and shall
also include any and all Schedules attached hereto, as may be amended from time
to time by mutual agreement of the Parties.

1.3      "ANTIBOYCOTT LAWS" means laws and regulations of the U.S.A. that
prohibit participation or cooperation with, agreements to cooperate with and, in
some cases, the provision of information in support of, any international
boycott not sanctioned by the U.S.A., such as the Arab League boycott of Israel,
and including but not limited to Section 999 of the U.S.A. Internal Revenue Code
of 1986, and guidelines issued thereunder, and the U.S.A. Export Administration
Regulations, 15 C.F.R. Part 760.

1.4      B.A.T. means British American Tobacco p.l.c., BATUS Japan's indirect
parent corporation.

1.5      "BATUS JAPAN INDEMNIFIED PARTY" has the meaning set forth in
Sub-Section 6.9.

1.6      "CARTON" means a container that contains Cigarette Packages and
associated materials including, but not limited to, inserts and onserts (e.g.,
ten (10) packages of twenty (20) Cigarettes each).

1.7      "CASE" means a shipping container that contains Cartons (e.g., a
container which contains fifty (50) cartons).

1.8      "CIGARETTE" means: (a) any roll of tobacco wrapped in paper or in any
substance not containing tobacco or (b) any roll of tobacco wrapped in any
substance containing tobacco which, because of its appearance, the type of
tobacco used in the filler, or its packaging or labeling, is likely to be
offered to, or purchased by consumers, as a cigarette described in the foregoing
clause (a).

1.9      "CIGARETTE PACKAGE" means the smallest container for Cigarettes that,
when filled with Cigarettes and sealed, is intended for distribution and sale
(e.g., packs of twenty (20) Cigarettes).

1.10     "CONFIDENTIAL INFORMATION" means; (a) information or data (whether of a
technical or business nature), including, but not limited to, that relating to
research, development, know-how, inventions, Trade Secrets, engineering,
manufacturing,

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proposals and business plans, marketing plans and matters, financial matters and
arrangements, personnel matters, sales, suppliers or customers; or (b)
proprietary information or data of either Party hereto or of a third Person with
whom such Party has an obligation of confidence (including all such information
owned by any Affiliate of either Party), whether created by a Party individually
or through the efforts contemplated by this Agreement; or (c) any other
information or data, not publicly known, of either Party hereto or of a third
Person with whom such Party has an obligation of confidence (including all such
information owned by any Affiliate of either Party); whether any of the
foregoing set forth in clauses (a)-(c) above is observed or in oral, written,
graphic or electronic form, and whether or not marked or otherwise identified as
"confidential."

1.11     "CONTRACT YEAR" means each successive period during the Term of this
Agreement running from January 1st through December 31st.

1.12     "DAMAGES" has the meaning set forth in Sub-Section 6.8.

1.13     "DELIVERY GRACE PERIOD" has the meaning set forth in Sub-Section
2.17(c).

1.14     "EFFECTIVE DATE" is the date set forth in the Preamble above.

1.15     "EXPORT LICENSE" means any license, permit, or other authorization
issued by a Governmental Authority, including but not limited to OFAC (as
defined below), permitting the manufacture, export and/or sale of the Products
hereunder.

1.16     "FOREIGN CORRUPT PRACTICES ACT" means 15 U.S.C. Sections 78dd-l, et
seq. and any and all amendments thereto.

1.17     "GOVERNMENTAL AUTHORITY" means any of the following: (a) the government
of the U.S.A. or any other foreign country; (b) the government of any state,
province, county, municipality, city, town, or district of the U.S.A. or any
foreign country, or any multi-country district; and (c) any ministry, agency,
department, authority, commission, administration, court, magistrate, tribunal,
arbitrator, instrumentality, or political subdivision of, or within the
geographical jurisdiction of, any government described in the foregoing clauses
(a) and (b).

1.18     "INCOTERMS" means the terms for the international transportation of
goods published by the International Chamber of Commerce, as in effect from time
to time during the Term of this Agreement.

1.19     "INTELLECTUAL PROPERTY" means information, concepts, ideas,
discoveries, inventions (whether conceived or reduced to practice, and whether
or not patentable), Specifications, requirements, samples of prototypical
Cigarettes and Cigarette components, data, codes and programs, graphics,
designs, prints, sketches, drawings and photographs, developments, processes and
methods, know-how, Trades Secrets, patent applications, patents, other
intellectual property of any type (including copyrights,

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trademarks, and service marks), and enhancements, derivatives, and improvements
thereof.

1.20     "NON-TOBACCO COMPONENT" means a material that is used in combination
with any Tobacco Material for the manufacture of Cigarettes, including tobacco
rod wrapping materials, filter materials and components, plug wrapping
materials, tipping materials, inks, flavor and casing components, and Packaging.

1.21     "OFAC" means the United States Department of the Treasury, Office of
Foreign Assets Control, or any successor agency, department or unit of the
federal government of the U.S.A. with regulatory authority over export/re-export
transactions subject to U.S.A. jurisdiction.

1.22     "ON TIME/IN FULL" is the performance metric used in certain
circumstances to measure RJRTC's performance under this Agreement. On Time/In
Full delivery performance is measured at the Purchase Order SKU order line level
by week. To be credited for On Time/In Full delivery of a specific Purchase
Order SKU order line level by week, RJRTC must: (a) deliver one hundred percent
(100%) of the SKU volume ordered; (b) on the firm delivery date established
pursuant to the mechanisms provided in Sub-Section 2.16 of this Agreement for
the particular Purchase Order SKU order line; (c) at the railroad railhead or,
if air freight delivery is required by the applicable Purchase Order, at the
fuselage of the aircraft; and (d) with all export and shipping documentation
fully and properly completed. For purposes of Sub-Sections 1.22(b) and (c)
above, should RJRTC cause a specific Purchase Order SKU order line volume level
by week to arrive in the Territory not later than the date on which such SKU
volume would have arrived in the Territory if delivered to the railroad railhead
by RJRTC on the firm delivery date established pursuant to the mechanisms
provided in Sub-Section 2.16, then such Purchase Order SKU order line volume by
week shall be deemed delivered on time.

1.23     "ON TIME/IN FULL DELIVERY PERCENTAGE" means the percentage of RJRTC' s
On Time/In Full deliveries over the time period stated in Sub-Section
2.17(d)(iv) measured as follows: [(total number of Purchase Order SKU order
lines issued by week during the measurement period by BATUS Japan and accepted
by RJRTC) minus (number of total Purchase Order SKU order lines not delivered by
RJRTC On Time/In Full)] divided by (total number of Purchase Order SKU order
lines issued by week during the measurement period by BATUS Japan and accepted
by RJRTC) times one hundred (100). Stated formulaically:

Number of Total Purchase Order SKU order lines issued by week during the
measurement period by BATUS Japan and accepted by RJRTC (-) Number of Total
Purchase Order SKU order lines not delivered On Time/In Full

_________________________________________  x 100= On Time/In Full Delivery
                                                  Percentage
Total Purchase Order SKU order lines issued by week

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during the measurement period by BATUS
Japan and accepted by RJRTC

By way of illustration, if over the applicable measurement period orders for
1,500 total Purchase Order SKU order lines were issued by BATUS Japan and
accepted by RJRTC, and RJRTC has On Time/In Full delivery of 1,450 of such total
Purchase Order SKU order lines, RJRTC's On Time/In Full Delivery Percentage for
the measurement period would be as follows:

                             1,500(-)50

                            ______________ x 100 = 96.6%

                                1,500

1.24     "OUTSIDE THE JURISDICTION OF THE U.S.A." means all places other than
the fifty (50) States of the U.S.A., including offshore areas within their
jurisdiction pursuant to Section 3 of the Submerged Lands Act (43
U.S.C. Section 1311), the District of Columbia, Puerto Rico, and all
territories, dependencies, and possessions of the U.S.A., including foreign
trade zones established pursuant to 19 U.S.C. Sections 81A-81U, and also
including the outer continental shelf, as defined in Section 2(a) of the Outer
Continental Shelf Lands Act (43 U.S.C. Section 1331 (a)).

1.25     "PACKAGING" means materials that are used to contain Cigarettes (or
containers enclosing Cigarettes) for the purpose of distribution and sale to
customers, including component materials referred to as foil, innerframes,
closures, Cigarette boxes, labels, films, tear tapes, optional pack inserts and
onserts, cartons and cases, including all graphics, holographics and printed
matter on such materials.

1.26     "PERSON" means any firm, corporation, partnership, limited liability
company, joint venture, trust, unincorporated association or organization,
business, enterprise or other entity, any individual and any Governmental
Authority.

1.27     "PPI" means the Producer Price Index for Stage of Processing - Finished
Goods, as compiled by the United States Bureau of Labor Statistics (1982 = 100).
If the Bureau of Labor Statistics substantially revises the manner in which the
PPI is determined, an adjustment shall be made in the revised index that will
produce results equivalent, as nearly as possible, to those that would be
obtained if the PPI had not been so revised. If the 1982 average is no longer
used as an index of one hundred (100), or if the PPI is no longer available,
then the Parties shall substitute a mutually acceptable comparable index, based
on changes in the cost of production measured at the finished goods level
published by an agency of the federal government of the U.S.A.

1.28     "PRINCIPAL PARTY IN INTEREST" means the Person in the U.S.A. listed as
such on Shipper's Export Declarations or Automated Export System records (and as
defined in the U.S.A. Export Administration Regulations (15 C.F.R. Part 730 et
seq.) and the U.S.A. Foreign Trade Statistics Regulations (15 C.F.R. Part 30))
as the Person that receives the

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primary benefit, monetary or otherwise, of the transaction associated with such
export shipment,

1.29 "PRODUCT" or "PRODUCTS" means American-blend Cigarettes manufactured for
B.A.T. Customers pursuant to this Agreement which are intended to be distributed
or sold in the Territory.


1.30 "PRODUCT BASE PRICES" means the prices for each Product chargeable by RJRTC
for Products subject to Purchase Orders issued by BATUS Japan Customers between
the Effective Date and the end of Contract Year 2004. The Product Base Prices
are listed on the attached Schedule "A," The Product Base Prices are calculated
by adding (or subtracting) all of the costing elements identified on Schedule
"A." Schedule_"A" includes the international Order Policies & Customer
Responsibilities included therewith.

1.31 "PROHIBITED COUNTRIES" means countries subject to Trade Restrictions (as
defined below) and for which no Governmental Authority licenses or
authorizations permitting manufacture or export of Products are obtained. For
the purposes of this Agreement, Prohibited Countries shall not include
Restricted Countries.

1.32 "PURCHASE ORDER" means a purchase order issued by BATUS Japan on its behalf
(or on behalf of its Affiliate, RFEBV) to RJRTC containing the following
information about an order for Products pursuant to this Agreement: (a) identity
of Products by SKU, with each SKU ordered entered on a separate order line; (b)
quantity of Products by SKU; (c) delivery instructions and required delivery
date(s) for the Products at the railroad railhead or, if air freight delivery is
required by the applicable Purchase Order, at the fuselage of the aircraft (with
each Purchase Order  typically providing for multiple deliveries of Product by
SKU at scheduled intervals); (d) shipping instructions to the Territory; (e)
consignee identification; (f) contact personnel; (g) Case mark requirements; (h)
matters including "bill to" and "sold to" (which may be BATUS Japan or RFEBV);
and (i) such other requirements as the BATUS Japan may specify or RJRTC may
reasonably require.

1.33 "RAI" means Reynolds American Inc., RJRTC's parent corporation,

1.34 "RECEIVING PARTY" has the meaning set forth in Sub-Section 5.1.

1.35 "RESTRICTED COUNTRIES" means those countries in the Territory that from
time to time are subject to Trade Restrictions and for which Products are
manufactured for export under this Agreement by RJRTC pursuant to licenses or
other authorizations duly issued and in effect by the applicable Governmental
Authority whether within or outside the U.S.A, including but not limited to
OFAC, and to which the additional provisions of Schedule "C" shall apply. These
additional provisions shall prevail only to the extent that they are
inconsistent with the other provisions of this Agreement.

1.36 "RESTRICTED COUNTRIES RENEWAL Term" has the meaning set forth in Schedule

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1.37 "RESTRICTED PARTIES" means Persons who have been denied export privileges
or who are otherwise restricted under the U.S.A. Export Administration
Regulations or wife respect to whom transactions, including but not limited to
export and financial transactions, are restricted, pursuant to applicable Trade
Restrictions (as defined below) in force from time to time.

1.38 "RFEBV" means BATUS Japan's Affiliate, Rothmans Far East, B.V

1.39 "RJRTC Indemnified Patty" has the meaning set forth in Sub-Section 6.8.

1.40 "SKU" means a stock keeping unit designation referring to a particular
Cigarette brand style.

1.41 "SPECIFICATIONS" means specifications and standards set by the BATUS Japan
on the Effective Date, and which are consistent with the specifications and
manufacturing standards met by B&W immediately prior to the Effective Date, as
set forth in the Specifications manuals. Unless changed pursuant to the
procedures set forth in this Agreement with respect to the Products and their
Packaging, the Parties agree and acknowledge that, once secondary production is
moved to RJRTC's North Carolina facilities, Specifications relating to the
process of manufacture will be reoriented to reflect different processes in
manufacturing and/or quality systems at RJRTC's North Carolina facilities,
provided that such new process specifications or specified materials do not
alter the Product or Packaging performance or characteristics of the Product or
its Packaging discernable to consumers when they interact with the Product or
its Packaging, or marketing claims made for the Product prior to the time of
reorientation. The Parties acknowledge that, prior to the Effective Date, the
Specifications manuals have been provided to and reviewed by RJRTC and that both
Parties have a copy of the Specifications manuals initialed by the other Party.

1.42 "TERM" means the period in which this Agreement is in effect as defined in
Section 4 and, where applicable, each Restricted Countries Renewal Term.

1.43 "TERRITORY" means Japan the political jurisdiction outside the U.S.A. where
BATUS Japan and RFEBV distribute and sell the Products and any other
jurisdictions that the Parties may mutually agree upon in writing from time to
time. The Territory subject to this Agreement is listed on the attached Schedule
"B" as may be amended from time to time by mutual written agreement of the
Parties.

1.44 "TOBACCO MATERIAL" means any type or form of tobacco, including tobacco in
whole leaf, strip, stem or blended cut filler form, reconstituted tobacco, and
including tobacco by-products, and tobacco in any type of processed form,
whether or not in blended form.

1.45 "TRADEMARK" means any trademark: (a) that at any time is used on or in
connection with a Product or (b) that is owned, licensed or controlled by BATUS
Japan or an Affiliate  of BATUS Japan.

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1.46 "TRADE RESTRICTIONS" mean restrictions on trade and dealings with certain
countries, Persons or entities, including but not limited to restrictions on
exports, imports, sales, and supplies of products, transshipments, and financial
transactions imposed pursuant to export controls, trade sanctions and other
trade and investment regulations of the U.S.A. and/or any other Governmental
Authority outside the U.S.A. in force from time to time.

1.47 "TRADE SECRET" means information and data, including, without limitation,
Specifications, that: (a) derive independent economic value, actual or
potential, from not being generally known to the public or other Persons who can
obtain economic value from their disclosure and use and (b) are the subject of
efforts that are reasonable under the circumstances to maintain their secrecy.

1.48 "TSRA" means the U.S.A. Trade Sanctions Reform and Export Enhancement Act
of 2000 (Title IX of Pub. L. 106-387).

1.49 "TTB" means The Alcohol & Tobacco Tax and Trade Bureau, an agency of the
U.S.A. Department of the Treasury.

1.50 "U.S.A." means the District of Columbia, the fifty (50) states of the
United States of America, its territories and possessions (including Puerto
Rico), and its military facilities and installations wherever located.

1.51 "WORKOUT PERIOD" has the meanings set forth in Sub-Sections 2.17(d)(i),
(ii) and (iii).

1.52 "OTHER TERMS" shall have the defined meanings stated elsewhere in this
Agreement

                                    SECTION 2
                        RESPONSIBILITIES OF THE PARTIES

2.1 APPOINTMENT OF RJRTC FOR MANUFACTURE. Commencing on the Effective Date and
until such time, if any, that this Agreement is terminated pursuant to its terms
and provisions, BATUS Japan hereby appoints RJRTC to be BATUS Japan's exclusive
manufacturer of all of BATUS Japan's requirements for American-blend Cigarettes
intended to be disturbed and sold in the Teritory, except Cigarettes bearing the
brand names CARTIER, VOGUE, DUNHILL or STATE EXPRESS 555. American-blend
Cigarettes manufactured under this Agreement bearing the brand name DUNHILL
shall be subject to the terms and conditions of this Agreement, but shall not be
subject to RJRTC's rights of exclusive appointment to manufacture, and the
manufacturing, packaging and supply of DUNHILL brand Cigarettes may be moved to
alternative sources of supply outside the U.S.A. at BATUS Japan's sole
discretion upon one (1) calendar years' advance written notice to RJRTC.

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 2.2 RJRTC's MANUFACTURE OF PRODUCT. Commencing on the Effective Date, RJRTC
shall provide Products to the BATUS Japan subject to and in accordance with the
terms and conditions of this Agreement. RJRTC shall initially manufacture
Products in the U.S.A. at its facility in Macon, Georgia. It is contemplated
that RJRTC will subsequently move the manufacture of Products to its facilities
located in North Carolina in various stages. Secondary manufacturing operations
will be moved first. After installation in North Carolina, all secondary
manufacturing equipment will be fully qualified using customary equipment
commissioning protocols. Blended cut filler will also be shipped from Macon to
North Carolina for test Product Manufacture. Shipment tests have been or will be
conducted on the transported blended cut filler and on Products manufactured
from the transported blended cut filler (including internal smoke panels) to
test the effects of such transport and Product quality and performance.
Subsequently, RJRTC will move its primary production operations from Macon to
North Carolina. However, notwithstanding the foregoing, other than for limited
testing purposes, RJRTC shall not move its primary production to its North
Carolina facilities without BATUS Japan's prior written consent, which shall be
granted only after full consumer acceptability testing of Products manufactured
in North Carolina has been completed (the costs associated with such consumer
acceptability tests relating to such final transfer of manufacturing shall be
borne by BATUS Japan, including the costs of sampling and consumer testing as
determined necessary by BATUS Japan in the Territory). The trial, sampling and
consumer testing methodology will be determined by BATUS Japan in accordance
with BATUS Japan's standard Consumer Product Testing Protocols attached hereto
as Schedule "D." Further, RJRTC shall not transfer production of Products
subject to this Agreement to any other facility without BATUS Japan's prior
written consent.

Other than the costs and expenses relating to consumer acceptability
testing of Products to the Territory as described above, RJRTC shall bear all
other costs and expenses (including capital expenditures) incurred in moving
manufacturing operations for Products subject to this Agreement from Macon to
North Carolina.

2.3 SPECIFICATIONS.

      (a) ORIGINAL.

            (i) The BATUS Japan has furnished RJRTC with the
Specifications for all Products to be produced by RJRTC for the BATUS Japan
pursuant to this Agreement.

            (ii) Promptly after the Effective Date of this Agreement, the
Parties shall meet to discuss matters relating to, but not limited to, mutually
acceptable manners by which: (1) costs might be controlled and (2) Products
might be manufactured using processes: process conditions and equipment
configurations that have been adopted by RJRTC, subject to the applicable BATUS
Japan's determination of consumer acceptability,

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      (b) CHANGES PROPOSED BY BATUS JAPAN.

            (i) In accordance with the procedures stated below in clauses (ii)
through (iv), RJRTC shall comply with arty BATUS Japan reasonable instructions
in meeting any new Specifications (the costs of evaluating and implementing any
such changes shall be borne by BATUS Japan prior written approval of the budget
for expenditure of such costs which approval shall not be unreasonably
withheld). If such budgets include required capital expenditures which RJRTC
requests BATUS Japan to fond, a separate mutually acceptable agreement will be
negotiated between the parties relating to the ownership and/or transfer of such
capital improvements.

            (ii) The Parties shall conduct trials, as appropriate, in order to
evaluate the effect of changes in Specifications upon Products, Product pricing
and RJRTC's manufacturing environments (the costs associated with  shall be
borne by BATUS Japan subject to trail BATUS Japan BATUS Japan prior written
approval of the budget for expenditure of such costs which approval shall not be
unreasonably withheld).

            (iii) BATUS Japan shall provide written approval for changed
Specifications of all Products upon completion of activities, including those
set forth in the foregoing clauses (i) and (ii) BATUS Japan shall not be
responsible for accepting any quantity of Products for which such BATUS Japan
has not provided such final approval, unless such BATUS Japan has otherwise
agreed in writing.

            (iv) RJRTC shall accept and acknowledge all changed Specifications
for which BATUS Japan has provided final approval and provided to RJRTC,
provided that RJRTC has determined that it can meet those Specifications.

            (v) Should mutually agreed changes to Specifications require Product
pricing changes, the parties shall negotiate the applicable pricing changes
(both increases and decreases) based on the associated effects of the
Specification changes on RJRTC's costs.

      (c) CHANGES PROPOSED BY RJRTC.

            (i) RJRTC shall inform BATUS japan of changes in RJRTC's
manufacturing operations proposed at any time during the Term which are
anticipated to have an effect upon or require modifications to Specifications or
upon RJRTC's ability to produce the projected volumes of Products anticipated to
be ordered by such BATUS Japan (the costs of evaluating and implementing any
such changes shall be borne by RJRTC, subject to RJRTC's prior written approved
of the budget for expenditure of such costs which approval shall not be
unreasonably withheld). RJRTC shall provide sufficient advance notice of such
proposed changes in manufacturing operations so as to allow BATUS Japan
commercially reasonable time 10 evaluate and test the effects of the associated
Specification changes on the Products and the Products' consumer acceptability
in the Territory.

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            (ii) The Parties shall conduct trials, as appropriate, in order to
evaluate the effect of the foregoing changes in Specifications upon Products,
Product pricing and RJRTC's manufacturing environments and the Products'
consumer acceptability in the Territory (the costs associated with such trials
shall be borne by RJRTC, including the costs of sampling and consumer testing as
determined necessary by the BATUS Japan Customers in the Territory, subject to
RJRTC's prior written approval of the budget for expenditure of such costs which
approval shall not be unreasonably withheld). The trial, sampling and consumer
testing methodology will be determined by mutual agreement of the Parties in
accordance with BATUS Japan's standard Consumer Product Testing Protocols
attached hereto as Schedule "D."

            (iii) BATUS Japan shall provide written approval
for changed Specifications of all Products upon completion of activities,
including those set forth in the foregoing clauses (i) and (ii). BATUS Japan
shall not be responsible for accepting any quantity of Products for which such
BATUS Japan has not provided such final approval, unless such BATUS Japan has
otherwise agreed in writing.

            (iv) RJRTC shall accept and acknowledge all changed Specifications
for which BATUS Japan has provided final approval and provided to RJRTC.

            (v) Should mutually agreed changes to Specifications require Product
pricing changes, the Parties shall negotiate the applicable pricing changes
(both increases and decreases) based on the associated effects of the
Specification changes on RJRTC's costs.

2.4 CONTACT PERSONNEL. Promptly after the Effective Date,  each Party
BATUS Japan shall designate primary contact individuals for purposes of this
Agreement. Those individuals shall have responsibility for communicating and
receiving information regarding all matters that are relevant pursuant to the
Parties' relationship with one another in accordance with this Agreement. Each
Party shall promptly notify the other upon the occurrence of a change in the
identity of any contact individual of that Party.

2.5 MONTHLY VIDEO CONFERENCES; PERIODIC MEETINGS. Representatives of RJRTC and
BATUS Japan shall conduct monthly video Conferences to discuss with one another
the Products, quality control procedures, and any other matters relating to the
activities involving the supply of Products to BATUS Japan by RJRTC. All issues
identified by either Party during such conferences shall be immediately
evaluated, addressed and remedied as soon as commercially reasonable. Further,
BATUS Japan and RJRTC shall arrange for other periodic meetings at mutually
agreeable times as needed to facilitate each Party's continued performance under
the Agreement.

2.6 VISIT AT FACILITIES AND INSPECTION. Representatives of any BATUS Japan
may, upon reasonable notice and at times reasonably acceptable to RJRTC, visit
RJRTC's facilities at which the Products are manufactured. BATUS Japan shall
bear its own expenses with regard to any such visits, unless otherwise agreed
upon in writing by the Parties. If requested by BATUS Japan RJRTC shall cause
appropriate individuals working on the

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activities relating to this Agreement to be available for meetings at the
location of the facilities where such individuals are employed at times
reasonably convenient to each party. BATUS Japan's inspection rights shall
include the inspection of the inventory of Products maintained by RJRTC, RJRTC's
manufacturing facilities and processes relating to the Products, RJRTC's quality
control procedures relating to the Products, and all materials used in the
manufacturing and packaging of the Products.

Further, if requested by BATUS Japan at any time during the Term, BATUS Japan
shall have the right to station not more then four (4) employees of BATUS Japan
or any of its Affiliates on site at the facilities at Which RJRTC manufacturers
the Products subject to this Agreement. These employees, when escorted RJRTC
personnel, shall be allowed to observe the production of Products and shall
function as intermediaries between BATUS Japan and RJRTC to facilitate the
timely production, inventory management, quality and shipment of Products
subject to purchase Orders issued by BATUS Japan under this Agreement. RJRTC
shall provide these employees offices form which to operate, telephone,
computer, fax and copier services, and shall provide access to all facility
common areas such as parking spaces, restroom facilities, meeting rooms,
cafeteria facilities, etc. BATUS Japan shall reimburse RJRTC for the costs of
telephone, computer, fax and copier services actually used by BATUS Japan's
personnel.

BATUS Japan shall be responsible for ensuring that its representatives abide by
all of RJRTC's rules and regulations with regard to safety, security, personnel
matters, computer use and computer network use while at RJRTC's facilities.
BATUS Japan shall inform its representatives that have access to RJRTC's
premises of their obligations under this Agreement and shall require its
representatives to enter into a confidentiality agreement with RJRTC in a form
to be mutually agreed by the Parties. BATUS Japan shall be responsible for
ensuring that all of its visitors to RJRTC's facilities are received and logged
through RJRTC's reception area, in accordance with RJRTC's usual practice. BATUS
Japan Customer shall also be responsible for ensuring that its representatives
and visitors refrain from actions and conduct that materially interfere with
RJRTC's business and operations and shall instruct its representatives and
visitors not to conduct unauthorized activities on RJRTC's facilities.

2.7 INITIAL FORECAST. Promptly after the Effective Date of this Agreement, BATUS
Japan shall provide RJRTC with a forecast (by SKU) that provides a projection
for volumes for the various Products that BATUS Japan may require RJRTC to
manufacture and supply during the period immediately following the Effective
Date through the end of Contract Year 2005.

2.8 SUBSEQUENT ANNUAL FORECASTS. Beginning with Contract Year 2006, and for each
successive Contract Year, BATUS Japan shall provide RJRTC with a forecast (by
SKU) that provides a projection for volumes for the various Products that BATUS
Japan may require RJRTC to provide during each successive Contract Year. A
Preliminary forecast for each successive contract year shall be provided to
RJRTC at least by July 1st and a confirmed forecast shall be provided by October
1st of each proceeding Contract

                                      -12-


Year. Any and all forecasts supplied are non-binding and will be supplied for
purpose of general planning of capacities, inventories, etc.

2.9 PERIODIC FORECASTS. Promptly after providing its initial forecast in
accordance with Sub-Section 2.7. BATUS shall begin providing
RJRTC on a monthly basis rolling eighteen (18) month forecasts (by SKU)
that provide projections for volumes of the various Products for which the
BATUS JAPAN expects to place Purchase Orders during the period covered by
such periodic forecasts. Any and all forecasts supplied are non-binding and will
be supplied for purposes of general planning of capacities, inventories, etc.

2.10 PURCHASE OF MATERIALS. RJRTC shall use raw materials (including, but not
limited to, Tobacco Materials, Non-Tobacco Components, and Packaging materials)
that are obtained from sources and suppliers selected by RJRTC, which sources
and suppliers must be approved by the BATUS JAPAN, such approval not to be
withheld, conditioned or delayed unless the BATUS JAPAN can reasonably
demonstrate that RJRTC's selected source(s) or supplier(s) do not at the time of
selection meet the applicable Specifications. Unless otherwise agreed upon in
writing, RJRTC shall be solely responsible for ordering, receiving, storing,
maintaining, using, paving for (including the payment of all import duties, fees
and internal revenue taxes, if applicable) and disposing of ail raw materials.

2.11 INVENTORY. The Parties shall communicate in order to ensure that RJRTC
possesses an inventory of raw materials sufficient to promptly fill Purchase
Orders that BATUS Japan may place. The Parties shall communicate such that each
Party possesses knowledge regarding the level of inventory of Products that
RJRTC possesses. The Parties shall agree in writing to the levels of inventory
for all required raw materials that RJRTC will be responsible for having on hand
to fulfill BATUS Japan's forecasted purchase Orders.

2.12 SHARING OF INFORMATION. RJRTC and the BATUS JAPAN shall cooperate with
one another (and relevant third Persons) in order to ensure that each is
provided with relevant information regarding the physical and chemical
properties (including toxicological information) of raw materials, equipment,
process conditions, processes or treatment conditions that RJRTC may employ when
producing Products for the BATUS JAPAN- If requested by a BATUS JAPAN,
RJRTC shall provide samples of raw materials, at the times and in the amounts
requested, to the BATUS JAPAN or an Affiliate designee for testing and
evaluation. Any change to raw material, type of equipment (routine/preventive
maintenance and ordinary wear and tear excepted), processes, process conditions,
or treatment conditions that RJRTC may employ when producing Products for a
BATUS JAPAN must be approved by the BATUS JAPAN prior to implementation
of the change by RJRTC.

2.13 CIGARETTE PACKAGING, CARTON AND CASE MARKINGS.

      (a) MARKINGS. Every Cigarette Package, Carton and Case produced by RJRTC
for the BATUS JAPAN shall bear such markings as required by: (i) the
applicable laws

                                      -13-


and regulations of the U.S.A. for exported Products; (ii) the applicable laws
and regulations of the relevant Territory; and (iii) the Specifications.

      (b) LIMITATIONS. Except as set forth in Sub-Section 2.13(a) or otherwise
agreed between the Parties in writing, RJRTC shall not be obligated to produce
(and BATUS Japan shall not be obligated to accept as conforming) Products with
markings on the Packaging, Carton or Case identifying RJRTC or an Affiliate of
RJRTC as the corporate source of the Products.

2.14 REVENUE STAMPS. [Intentionally Left Blank].

2.15 PURCHASE ORDERS AND PRODUCTION SCHEDULES. BATUS Japan shall place with
RJRTC from time to time such Purchase Orders for Products that BATUS Japan (or
RFEBV) desires to order. Unless an alternative schedule is determined necessary
by BATUS Japan, BATUS Japan will place one (1) Purchase Order per month which
will contain binding orders (by SKU) for a four (4) week period, and
non-binding forecasted orders for the succeeding two (2) month period. Each
Purchase Order will designate delivery dates for Products ordered by SKU, which
will typically require one (1) delivery per week during the four (4) week firm
order period. BATUS Japan shall provide (or reference) to RJRTC the
Specifications for each of the Products ordered pursuant to a Purchase Order.
RJRTC shall schedule production of Products based on forecasts provided by BATUS
Japan and Purchase Orders placed by BATUS Japan. Each Purchase Order which
requires normal ocean freight shipment shall contain instructions for each
delivery that specify mode of transport to the Territory and a requested
delivery date of the Products at the railroad railhead that: (a) for the first
delivery under a Purchase Order shall not be less than twenty-eight (28)
calendar days from RJRTC's receipt of the Purchase Order; (b) for the second
delivery under a Purchase Order shall not be less than thirty-five (35) calendar
days from RJRTC's receipt of the Purchase Order, (c) for the third delivery
under a Purchase Order shall not be less than forty-two (42) calendar days from
RJRTC's receipt of the Purchase Order; and (d) for the fourth delivery under a
Purchase Order shall not be less than forty-nine (49) calendar days from RJRTC's
receipt of the Purchase Order.

Notwithstanding the foregoing, BATUS Japan may submit not more than three (3)
Purchase Orders per calendar year which require that the first delivery under
the Purchase Order he delivered to the railroad railhead within twenty-eight
(28) calendar days from RJRTC's receipt of the Purchase Order. All other
Purchase Orders submitted by BATUS Japan during the calendar year shall require
first delivery of Product to the railroad railhead in not less than thirty (30)
calendar days from RJRTC's receipt of the Purchase Order.

Purchase Orders which require delivery by air freight shipment may contain
requested delivery dates at the fuselage of the aircraft that are not less than
twenty-eight (28) calendar days from RJRTC's receipt of the applicable Purchase
Order.

                                      -14-

 2.16 PRODUCTION ACTIVITIES. RJRTC shall acknowledge receipt of each Purchase
Order within three (3) business days of RJRTC's receipt of such Purchase Order.
RJRTC shall promptly inform BATUS Japan RJRTC's schedule for production and
delivery of ordered Products at the railroad or, if air freight delivery is
required by BATUS Japan in the applicable Purchase Order, at the fuselage of the
aircraft. If RJRTC determines that it cannot fill any portion of the Purchase
Order by the requested delivery date(s), BATUS Japan shall be notified in
writting within three (3) business days of RJRTC's receipt of the Purchase
Order. RJRTC's notice shall include a proposed alternative delivery date(s) for
the Products (or any portion thereof) subject to the Purchase Order. In such
cases, the Parties will negotiate a revised delivery date(s) agreeable to both
Parties and shall confirm such final agreed delivery date(s) in writing. If an
alternative delivery date(s) acceptable to the applicable BATUS Japan cannot be
agreed using normal transport as defined in Sub-Section 2.17(a), RJRTC will be
obligated to fill the Purchase Order (or the applicable portion of the Purchase
Order) on a date that is acceptable to the BATUS Japan pursuant to the air
freight remedy specified in Sub-Section 2.17(c). If no notice is given by RJRTC
in accordance with this Sub-Section 2.16, the original delivery date(s) stated
in the Purchase Order shall become a firm delivery date(s) by which RJRTC must
deliver the Products subject to the Purchase Order at the railroad railhead or,
if air freight delivery is required by the BATUS Japan in the applicable
Purchase Order, at the fuselage of the aircraft. RJRTC shall produce and deliver
to the applicable BATUS Japan the amount of ordered Products within the time
period set forth in the applicable Purchase Order (unless modified as stated
above), and such Products shall meet the BATUS Japan Secifications.

Notwithstanding the foregoing of this Sub-Section 2.16. RJRTC shall have the
right to accept or reject, in whole or in part, any Purchase Order placed by
BATUS Japan , in the event that: (a) the Purchase Order would require RJRTC to
possess materials in inventory for production of Products in excess of the
inventory levels agree to pursuant to Sub-Section 2.11. and RJRTC does not
otherwise possess inventory levels sufficient to fulfill the Purchase Order
(RJRTC's right of rejection shall apply only to the extent that such inventory
levels are unavailable and the remainder of the Purchase Order shall be filled);
(b) RJRTC is not prepared to manufacture Product due to a change in
Specifications by BATUS Japan, if such changes have not been
previously agreed to by RJRTC and the B.A.T. Customer, (c) the production of
Product would be, in RJRTC's good faith belief based on credible evidence, in
violation of the law of a relevant Governmental Authority, or (d) & Force
Majeure event has occurred,

2.17 DELIVERY AND SHIPMENT; REMEDIES FOR FAILURE TO DELIVER BY AGREED DELIVERY
DATES.

      (a) SHIPPING INSTRUCTIONS. Following the manufacture of Products, and
subject to obtaining all required Export Licenses in accordance with Schedule
"C" (if any), RJRTC shall effect delivery of all Products "at the railroad
railhead          if air freight delivery is required by the applicable B.A.T.
Customer in the BATUS Japan, at the fuselage of the aircraft, by the delivery
date(s) required in BATUS Japan, Purchase  Orders or the agreed firm delivery
date(s) (if modified pursuant to Sub-Section 2.16). RJRTC shall

                                         -15-


ship Products on a first in/first out basis as determined by the date of
manufacture and deliver Products in the manner prescribed in any instructions
that BATUS Japan furnishes; provided, that all Products must be shipped using
shipping terms that require RJRTC to control the Products until delivered to a
location Outside the Jurisdiction of the U.S.A.; and for avoidance of doubt,
risk of loss to Products shall pass to BATUS Japan once the Products pass
Outside the Jurisdiction of the U.S.A. With respect to all shipping, export and
other documents prepared by or for third Persons, INCOTERMS 2000 shipping terms
may be used to the extent required (e.g., FOB named vessel at U.S.A. port of
shipment). As between Parties the use of such INCOTERMS 2000 shipping terms
shall not alter the express provisions of this Agreement. Products shall be
shipped by reputable commercial common carriers selected and contracted by the
BATUS Japan for shipping the Products Outside the Jurisdiction of the U.S.A.
RJRTC shall arrange for shipment and delivery through its freight forwarder and
prepare all necessary shipping documentation relating to the Products, contact
BATUS Japan for routing instructions, and be responsible for arranging loading.
Such shipping documentation shall comply with all U.S.A. legal requirements, as
well as the legal requirements of the country of destination (inspections,
certificates of origin, etc.). RJRTC shall be listed as shipper of the Products
on corresponding export bills of lading, as well as the Principal Party in
Interest for export declaration reporting purposes. BATUS Japan will assist
RJRTC in obtaining copies of all documents evidencing proof of export of
Products within sixty (60) calendar days of the passage of risk of loss. If
BATUS Japan is unable to provide such proof of export, BATUS Japan  will
reimburse RJRTC for any excise taxes assessed by a Governmental Authority and
paid by RJRTC as a result of such transactions. RJRTC will provide documentary
evidence of such payment and will assist BATUS Japan in any effort made to
contest the assessment of such excise taxes.

      (b) TRANSPORT. RJRTC shall be responsible for proper packing of the
Products for shipment in accordance with BATUS Japan directions. Such packing
shall be adequate for normal transport conditions for export so as to prevent
damage and/or deterioration of Products prior to reaching their ultimate
destination. BATUS Japan shall pay all costs (including insurance costs)
relating to the ocean shipment or air freight shipment (if requested by BATUS
Japan in the applicable Purchase Order) of the Products. Further, the Product
invoice prices payable by BATUS Japan shall include overland shipping charges
and associated insurance costs to the railroad railhead in accordance with
Schedule "A." Shipping charges and associated insurance costs for freight from
the railroad railhead the port of export and Ocean freight or air freight
shipping charges and associated insurance costs shall be paid by BATUS Japan .

      (c) AIR FREIGHT REMEDY FOR FAILURE TO DELIVER PRODUCTS MEETING THE
APPLICABLE SPECIFICATIONS WITHIN THE DELIVERY GRACE PERIOD. In accordance with
the procedures stated in Sub-Section 2.16. final agreed firm delivery dates for
Products at the railroad railhead (or, if air freight delivery is required by
BATUS Japan in the applicable Purchase Order, at the fuselage of the aircraft)
shall be established for Products supplied under each Purchase Order issued
BATUS Japan. Absent delays caused by BATUS Japan failure to fulfill its
obligations under this Agreement or an intervening Force Majeure event as
defined in Sub-Section 7.4, RJRTC shall be responsible for delivery of

                                      -16-

 Products meeting the applicable Specifications by the final agreed firm
delivery dates. Should RJRTC be unable to deliver some or all of the Products by
any such firm delivery date, RJRTC must remedy its delay so as to deliver those
Products at the railroad railhead by the next subsequently scheduled delivery
date (the "Delivery Grace Period"). If RJRTC cannot meet its delivery
requirements within the Delivery Grace Period, RJRTC shall be required to
arrange for air freight shipment of those Products to BATUS Japan. In such
circumstances, the BATUS. Japan shall be responsible for payment of only such
shipping and insurance costs as would have been incurred had RJRTC been able to
deliver the Products by the agreed firm delivery date using normal ocean freight
shipment. RJRTC shall be responsible for payment of the difference between those
costs and the air freight shipping and insurance costs actually incurred.

      (d) MATERIAL BREACH OF CONTRACT FOR FAILURE TO DELIVER PRODUCTS MEETING
THE APPLICABLE SPECIFICATIONS BY THE AGREED DELIVERY DATES.

         (i) TERMINATION OF RJRTC'S EXCLUSIVE MANUFACTURING RIGHTS WITH RESPECT
TO SPECIFIC PRODUCT SKU'S.

            (1) DURING THE FIRST TWELVE (12) MONTHS FOLLOWING THE EFFECTIVE
DATE. Notwithstanding any other remedy available to BATUS Japan under this
Agreement, BATUS Japan shall be entitled (but not required) to terminate RJRTC's
exclusive manufacturing rights with respect to any particular Product SKU(s) for
cause without allowing the cure period provided for other material breaches of
contract as provided in Sub-Section 4.2(c)(iv) if during the first twelve (12)
month period following the Effective Date of this Agreement: (A) RJRTC fails to
deliver any particular Product SKU(s) meeting the applicable Specifications
within the Delivery Grace Period with respect to four (4) deliveries of the
affected Product SKU(s); and (B) as a result of RJRTC's failure, pursuant to the
remedies available under Sub-Section 3.4, BATUS Japan rejects and RJRTC is
required to replace all four (4) of such Product SKU deliveries.

            (2) AFTER THE FIRST TWELVE (12) MONTHS FOLLOWING THE EFFECTIVE DATE.
Upon the expiration of the first twelve (12) month period following the
Effective Date, the assessment period shall restart and run anew as if no
previous breaches had occurred for purposes of this Sub-Section 2.17(d)(i).
Thereafter, BATUS Japan shall be entitled (but not required) to terminate
RJRTC's exclusive manufacturing rights with respect to any particular Product
SKU(s) for cause without allowing the cure period provided for other material
breaches of contract as provided in Sub-Section 4(c)(iv) if during any
subsequent twelve (12) month period: (A) RJRTC fails to deliver any particular
Product SKU(s) meeting the applicable Specifications within the Delivery Grace
Period with respect to two (2) deliveries of such Product SKU(s); and (B) as a
result of RJRTC's failure, pursuant to the remedies available under Sub-Section
3.4, BATUS Japan rejects and RJRTC is required to replace both of such Product
SKU deliveries.

            (3) GENERAL CONDITIONS FOR PARTIAL TERMINATION UNDER SUB-SECTION
2.17(d)(i). After any such partial termination becomes effective under this Sub-

                                      -17-


Section 2.17(d)(i) and without being subject to the right of first refusal
provided in Sub-Section 4.4, BATUS Japan may have the affected Product SKU(s)
manufactured by any other Person, free from RJRTC's exclusive manufacturing
rights stated in Sub-Section 2.1

BATUS Japan must invoke its partial termination rights under this Sub-Section
2.17(d)(i) by written notice to RJRTC within ten (10) business days of the
accrual of such right or such right of partial termination shall be waived with
respect to the applicable material breach. If BATUS Japan invokes its partial
termination rights, after notice of partial termination is given, termination of
RJRTC's exclusive manufacturing rights with respect to the affected SKU(s) shall
become effective not less than three (3) months, nor more than twelve (12)
months, from the date of BATUS Japan's notice as designated by BATUS Japan in
such notice (the "Workout Period"). During such Workout Period, BATUS Japan
shall continue to order the affected SKU(s) exclusively from RJRTC, but shall be
allowed to have test Products manufactured by alternative sources for purposes
of qualifying such alternative manufacturers. If the right of partial
termination is waived by BATUS Japan, the applicable twelve (12) month
assessment period shall restart and ran anew from the day such waiver becomes
effective as if no previous breaches had occurred with respect to such Product
SKU for purposes of this Sub-Section 2.17(d)(j).

Notwithstanding anything contained in the foregoing, during the Workout Period,
RJRTC shall not be required to make any capital expenditures or incur any costs
which would reduce RJRTC's profit margin on the affected SKU(s) below five
percent (5%) during such Workout Period in order to provide Products which meet
the applicable Specifications. Such capital expenditures or excess costs shall
be borne by BATUS Japan.

Upon the effective date of any partial termination under this Sub-Section
2.17(d)(i). RJRTC shall honor and fulfill any then-outstanding Purchase Orders
for the terminated SKU(s). Further, RJRTC shall prepare and provide to BATUS
Japan an accounting of its inventories of finished Products and unique
Non-Tobacco Components relating to the terminated SKU(s). BATUS Japan shall be
required to purchase a portion of such finished Products equaling a thirty (30)
calendar days' inventory based on BATUS Japan's most recent monthly periodic
forecast provided under Sub-Section 2.9. BATUS Japan shall also purchase RJRTC's
inventory of such unique Non-Tobacco Components up to the agreed inventory
levels established under Sub-Section 2.11.

            (ii) TERMINATION OF RJRTC'S EXCLUSIVE MANUFACTURING RIGHTS
WITH RESPECT TO ALL PRODUCT SKUS IN A CIGARETTE BRAND FAMILY FOR PERSISTENT
FAILURE TO MEET SPECIFICATIONS. Notwithstanding any other remedy available to
BATUS Japan under this Agreement, BATUS Japan shall be entitled (but not
required) to terminate RJRTC's exclusive manufacturing rights with respect to
all Product SKUs in a particular Cigarette brand family for cause without
allowing the cure period provided For other material breaches of contract as
provided in Sub-Section 4.2(c)(iv) if: (1) it is finally determined that RJRTC
has delivered any particular Product SKU within such Cigarette brand family that
does not meet the required Specifications; (2) during the

                                      -18-



twelve (12) month period following the determination of the Parties as to such
breach, twenty-five percent (25%) or more of the total volume of the affected
Product SKU manufactured by RJRTC under this Agreement failed to meet the
required Specifications; and (3) as a result of RJRTC's failure, pursuant to the
remedies available under Sub-Section 3.4, BATUS Japan rejects and RJRTC is
required to replace the volume of the affected Product which failed to meet the
required Specifications.

After the effective date of such partial termination, and without being subject
to the right of first refusal provided in Sub-Section 4.4, BATUS Japan may have
any and all Product SKUs in that Cigarette brand family manufactured by any
other Person, free from RJRTC's exclusive manufacturing rights stated in
Sub-Section 2.1.

BATUS Japan must invoke its partial termination rights under this Sub-Section
2.17(d)(ii) by written notice to RJRTC within thirty (30) calendar days of the
accrual of such right or such right of partial termination shall be waived with
respect to the applicable material breach. Further, after notice of partial
termination is given, termination of RJRTC's exclusive manufacturing rights with
respect to the affected Cigarette brand family shall become effective not less
than three (3) months, nor more than twelve (12) months, from the date of BATUS
Japan's notice as designated by BATUS Japan in such notice (the "Workout
Period"). During such Workout Period, BATUS Japan shall continue to order
Products in the affected Cigarette brand family exclusively from RJRTC, but
shall be allowed to have test Products in that Cigarette brand family
manufactured by alternative sources for purposes of qualifying such alternative
manufacturers.

Notwithstanding anything contained in the foregoing, during the Workout Period,
RJRTC shall not be required to make any capital expenditures or incur any costs
which would reduce RJRTC's profit margin on the affected Cigarette brand family
below five percent (5%) during such Workout Period in order to provide Products
which meet the applicable Specifications. Such capital expenditures or excess
costs shall be borne by BATUS Japan.

            (iii) TERMINATION OF THE ENTIRE AGREEMENT FOR PERSISTENT FAILURE TO
MEET SPECIFICATIONS. Notwithstanding any other remedy available to BATUS Japan
under this Agreement, BATUS Japan shall be entitled (but not required) to
terminate the entire Agreement for cause without allowing the cure period
provided for other material breaches of contract as provided in Sub-Section
4.2(c)(iv) if, over any twelve (12) month period, pursuant to the remedies
available under Sub-Section 3.4, BATUS Japan rejects and RJRTC is required to
replace twenty percent (20%) or more of the total Product volume manufactured
under this Agreement based on the failure of such Products to meet the required
Specifications. After the effective date of such termination, and without being
subject to the right of first refusal provided in Sub-Section 4.4, BATUS Japan
may have Products manufactured by any other Person, free from RJRTC's exclusive
manufacturing rights stated in Sub-Section 2.1.

                                      -19-


BATUS Japan must invoke its termination rights under this Sub-Section 2.17
(d)(iii) by written notice to RJRTC within thirty (30) calendar days of the
accrual of such right or such right of termination shall be waived with respect
to the applicable material breach. Further, after notice of termination is
given, the Agreement's termination shall become effective not less than three
(3) months, nor more than twelve (12) months, from the date of BATUS Japan's
notice as designated by BATUS Japan in such notice (the "Workout Period").
During such Workout Period, BATUS Japan shall continue to order Products
exclusively from RJRTC, but shall be allowed to have test Products manufactured
by alternative sources for purposes of qualifying such alternative
manufacturers.

Notwithstanding anything contained in the foregoing, during the Workout Period,
RJRTC shall not be required to make any capital expenditures or incur any costs
which would reduce RJRTC's profit margin on the Products manufactured under the
Agreement below five percent (5%) during such Workout Period in order to provide
Products which meet the applicable Specifications. Such capital expenditures or
excess costs shall be borne by BATUS Japan.

            (iv) TERMINATION OF THE ENTIRE AGREEMENT FOR FAILURE TO MEET
REQUIRED ON TIME/IN FULL DELIVERY PERCENTAGE. RJRTC must maintain at least an
eighty percent (80%) On Time/In Full Delivery Percentage based on a rolling
twelve (12) month assessment period. RJRTC's failure to maintain at least an
eighty percent (80%) On Time/In Full Delivery Percentage based on a rolling
twelve (12) month assessment period shall constitute material breach of contract
by RJRTC, entitling (but not requiring) BATUS Japan to terminate the entire
Agreement for cause without allowing the cure period provided for other material
breaches of contract as provided in Sub-Section 4.2 (c)(v). After the effective
date of such termination, and without being subject to the right of first
refusal provided in Sub-Section 4.4. BATUS Japan may have Products manufactured
by any other Person, free from RJRTC's exclusive manufacturing rights stated is
Sub-Section 2.1.

BATUS Japan must invoke Its termination rights under mis Sub-Section 2.17(d)(iv)
by written notice to RJRTC within ninety (90) calendar days of the accrual of
such right or such right of termination shall be waived with respect to the
applicable material breach. Further, after notice of termination is given, the
Agreement's termination shall become effective one (1) year from the date of
BATUS Japan's notice. During such one (1) year period, BATUS Japan shall
continue to order Products exclusively from RJRTC, but shall be allowed to have
test Products manufactured by alternative sources for purposes of qualifying
such alternative manufacturers.

2.18 CONTINGENCY MANUFACTURING PLANS; ALTERNATIVE SOURCE OF SUPPLY. Immediately
after the Effective Date of this Agreement, or as soon thereafter as practical,
RJRTC shall disclose to BATUS Japan any contingency manufacturing plans which
have been prepared or entered by RJRTC to ensure that Products can be
manufactured and supplied to BATUS Japan in accordance with this Agreement
should RJRTC suffer a loss or damage to its manufacturing facilities or any
other interruption to, or interference with, RJRTC's ability to manufacture
Products. Further, in the event that during the Term of

                                      -20-



this Agreement RJRTC becomes unable to provide Product to BATUS Japan in
accordance with the terms and conditions of this Agreement and in accordance
with the volumes placed by BATUS Japan through its Purchase Orders, then RJRTC
shall cooperate with BATUS Japan towards arranging an alternative supply of
Product for BATUS Japan, as quickly as possible and always in compliance with
applicable Trade Restrictions (if any).

2.19 TITLE AND RISK. In accordance with Sub-Section 2.17(a), risk of loss to
Products shall pass to BATUS Japan once the Products pass Outside the
Jurisdiction of the U.S.A. Title to Products shall likewise transfer to BATUS
Japan once the Products pass Outside the Jurisdiction of the U.S.A. and BATUS
Japan shall own the Products free and dear of any liens, claims, security
interest or other encumbrances of any nature.

2.20 ADDITIONAL SERVICES. Upon written request by BATUS Japan, RJRTC may, at
RJRTC'S sole discretion, provide certain additional services subject to
compliance with applicable laws, including Trade Restrictions (if any). The
Parties shall negotiate in good faith towards arriving at a separate agreement
setting forth terms and conditions by which RJRTC shall provide such services
for BATUS Japan, and by which BATUS Japan shall pay RJRTC for such services.

                                    SECTION 3
                                COMMERCIAL TERMS

3.1 PRICING:

            (a) PRODUCT BASE PRICING FOR CONTRACT YEAR 2004. For Products
manufactured pursuant to Purchase Orders issued by BATUS Japan between the
Effective Date and the end of Contract Year 2004, RJRTC shall charge and BATUS
Japan shall pay the Product Base Prices established in Schedule "A." In
addition, RJRTC shall be allowed to recover and BATUS Japan shall pay the actual
costs incurred by RJRTC resulting from any new fees, duties, taxes, and/or
levies that are not in existence or imposed as of the Effective Date of this
Agreement by any Governmental Authority applicable to RJRTC's manufacture in the
U.S.A. and/or export of Product to the Territory.

            (b) Product PRICING INCREASES AND DECREASES FOR CONTRACT YEAR 2005
THROUGH CONTRACT YEAR 2009. For Contract Year 2005 through Contract Year 2009,
the prices chargeable for Products manufactured under this Agreement shall
increase or decrease, as the case may be, over or under the prices chargeable in
the immediately preceding Contract Year by the percentage change in: (i) the PPI
in effect for September of the immediately preceding Contract Year over (ii) the
PPI in effect for September of the Contract Year prior to the immediately
preceding Contract Year. Notwithstanding the foregoing, and regardless of the
actual change in PPI over the applicable period, Product price increases or
decreases shall be capped at six percent (6.0%) from those charged in the
immediately preceding Contract Year. By way of example only, and subject to the
six percent (6.0%) cap stated above, the Product prices chargeable for

                                      -21-


Contract Year 2006 shall increase or decrease from the prices in effect for
Contract Year 2005 by the percentage increase or decrease in PPI between
September 2004 and September 2005.

In addition to the foregoing, RJRTC shall be allowed to recover and BATUS Japan
shall pay the actual costs incurred by RJRTC resulting from any new fees,
duties, taxes, arid/or levies that are not in existence or imposed as of the
Effective Date of this Agreement by any Governmental Authority applicable to
RJRTC's manufacture in the U.S.A. and/or export of Product to the Territory.

Once Product pricing is established for a Contract Year, RJRTC shall prepare and
the Parties shall mutually execute a revised Schedule "A" governing the Product
pricing for the Contract Year in question which shall automatically be
incorporated into this Agreement without further action by the Parties.

      (c) PRODUCT PRICING FOR EACH CONTRACT YEAR DURING THE REMAINDER OF THE
TERM. Product pricing applicable for Contract Year 2010 and for each Contract
Year thereafter shall be equal to RJRTC's costs of manufacturing the Products
subject to this Agreement in the immediately preceding Contract Year, plus a
profit margin of ten percent (10%). Product manufacturing costs shall be
calculated for each Product SKU and shall be based on the manufacturing costing
methodology which is attached hereto as Schedule "E".

Discussions regarding Product pricing shall commence no later than September 1
st of the Contract Year immediately preceding the Contract Year at issue. At
that time, BATUS Japan shall be provided with RJRTC's calculation and analysis
of Product manufacturing costs for the immediately preceding Contract Year and
BATUS Japan shall be provided access to all data, records, and information upon
which RJRTC's calculation of Product costs are based. Subject to the standard
manufacturing costing methodology, the Parties shall act in good faith to agree
upon Product pricing for the next Contract Year. If Product pricing cannot be
agreed upon prior to the commencement of the Contract Year at issue, the prices
applicable during the immediately preceding Contract Year shall remain in place
until agreement on modified pricing can be finalized. Notwithstanding the
foregoing, if revised Product pricing cannot be agreed on prior to March 1st of
the Contract Year at issue, if not already invoked, the issue shall be submitted
to the dispute resolution procedures provided in Sub-Section 7.7.

Once Product pricing is established for a Contract Year, RJRTC shall prepare and
the Parties shall mutually execute a revised Schedule "A" governing the Product
pricing for the Contract Year in question which shall automatically be
incorporated into this Agreement without further action by the Parties. Unless
otherwise mutually agreed, such revised Product pricing will be retroactive to
all Products manufactured pursuant to Purchase Orders issued since January 1st
of the Contract Year at issue. The Parties shall reconcile all payments made for
Purchase Orders issued between January 1st of the Contract Year in question and
the date of execution of the revised Schedule "A" and any

                                      -22-



required payment will be made by the paying Party to the other Party within
thirty (30) calendar days of the completion of such reconciliation.

3.2 INVOICE. RJRTC shall invoice BATUS Japan (or, where applicable, RFEBV)
monthly for all Products shipped by RJRTC during the applicable month. BATUS
Japan's obligation to make payment shall accrue once title and risk of loss to
the applicable Products pass to BATUS Japan. Such invoices shall be due and
payable by BATUS Japan (or RFEBV) by the last calendar day of the month
following the month of shipment from RJRTC's manufacturing facilities.

3.3 PAYMENTS. All payments to RJRTC shall be by wire transfer of funds to
RJRTC's bank account (or accounts) as clearly designated from time to time in
RJRTC's invoice, or as otherwise specified by RJRTC and agreed upon by the
Parties. RJRTC's current payment instructions are set forth in Schedule "F" of
this Agreement. All payments made to RJRTC shall be in U.S.A. Dollars. Payments
to RJRTC in accordance with Sub-Section 3.2 are without prejudice to any rights
BATUS Japan may have for any reason whatsoever, and any liability of RJRTC for
breach of this Agreement shall not be terminated or reduced by reason of such
payment.

3.4 REJECTED PRODUCTS. RJRTC shall ensure that the Products it manufactures for
BATUS Japan comply with the Specifications of BATUS Japan as have been confirmed
between the Parties and with all Packaging, Carton and Case marking requirements
as provided hereunder. BATUS Japan may reject any Product that, as of the time
the Product passes "across the ship's rail," does not comply with the applicable
Specifications and/or Packaging, Carton or Case marking requirements as are
current upon manufacture within one hundred and twenty (120) calendar days after
arrival of the Products in the Territory. In such case, BATUS Japan's written
notice of rejection to RJRTC shall state in commercially reasonable detail the
Products which BATUS Japan deems non-compliant, the Purchase Order pursuant to
which those Products were manufactured and the Specification defects and/or
Packaging, Carton or Case marking requirements which BATUS Japan believes were
not fulfilled. BATUS Japan shall bear the burden to demonstrate Product
non-compliance as of the time the Product passes "across the ship's rail."
Within ten (10) business days of receipt of a notice of rejection, RJRTC may
contest such rejection and provide documentation and other evidence relating to
the quality assurance measures taken with respect to the rejected Products and
any other matters relating to the compliance of the Products at issue.
Thereafter, the Parties shall confer in good faith to resolve the controversy.

If any Product is finally deemed to be non-compliant, such non-compliant Product
will be, at RJRTC's option and expense, either returned to RJRTC or destroyed.
If returned to RJRTC in the U.S.A., BATUS Japan shall provide necessary
reference information to allow RJRTC to receive such returned Product without
being required to incur the expense of applicable U.S.A. customs duties or
U.S.A. excise taxes.

In the event of any such rejection, RJRTC shall replace such non-complying
Products with complying Products as soon as possible at no additional charge to
BATUS Japan.

                                      -23-



RJRTC shall bear all reasonable costs inclined by BATUS Japan in inspecting and
deposing of or returning the non-complying Products, as well as the full costs
of shipping complying Products to the Territory via air freight shipment,
including applicable insurance. If non-complying Product returned to RJRTC is
destroyed by RJRTC, RJRTC will provide documentary evidence of such destruction
to BATUS Japan.

3.5 ADJUST RIGHTS OF BATUS JAPAN. RJRTC shall maintain accurate and complete
records including, but not limited to, correspondence, instructions, receipts,
quality assurances records, Specifications, Purchase Orders, Non-Tobacco
Component and Tobacco Material procurement records, warehousing records and cost
data, export records, transportation records and cost data, other manufacturing
cost records and data, and similar documents and data relating to BATUS Japan's
order and receipt of Products from RJRTC and RJRTC's production and delivery of
Products for BATUS Japan, RJRTC shall keep such records in sufficient detail to
enable BATUS Japan to determine or verify raw materials inventories, process
conditions and quality controls for Products supplied pursuant to each Purchase
Order. BATUS Japan shall likewise have the right to review and audit RJRTC's
records relating to projected and actual Product costing increases or decreases
derived from changes in Specifications made pursuant to the procedures set forth
above in Sub-Section 2.3. Further, commencing with Contract Year 2009, BATUS
Japan shall have the right to review and audit such records so as to analyze and
verify all manufacturing costing calculations generated by RJRTC with respect to
the determination of Product pricing for Contract Year 2010 and for each
Contract Year thereafter.

RJRTC shall keep such records for a period of time as determined by its normal
document retention policies, but in any event not less than eighteen (18) months
after the date of the transaction to which those records relate, or longer if
required by law, RJRTC shall permit BATUS Japan to examine RJRTC's records and
its facilities from time to time (during regular business hours and upon not
less than five (5) business days written notice) to the extent necessary for
BATUS Japan to make the foregoing determinations and verifications, and such
examination shall be made at the expense of BATUS Japan either by its employees
(or those of its Affiliates) or by an independent auditor appointed by BATUS
Japan who shall report to BATUS Japan those matters associated with such
examination.

3.6 AUDIT RIGHTS OF RJRTC. BATUS Japan shall maintain (or cause to be
maintained) accurate and complete records including, but not limited to, those
relating to the ordering, exportation, transport, handling, importation,
receipt, inspection, storage and distribution of Products manufactured under
this Agreement. BATUS Japan shall keep such records in sufficient detail to
enable RJRTC to evaluate, determine or verify any claim by BATUS Japan that
Products do not meet Specifications or are not delivered On Time/In Full. BATUS
Japan shall keep such records for a period of time as determined by its normal
document retention policies, but in any event not less than eighteen (18) months
after the date of the transaction to which those records relate, or longer if
required by law. BATUS Japan shall permit RJRTC to examine BATUS

                                      -24-



Japan's records from time to time (during regular business hours and upon not
less than five (5) business days written notice) to the extent necessary for
RJRTC to make the foregoing evaluations, determinations and verifications, and
such examination shall be made at the expense of RJRTC either by its employees
(or those of its Affiliates) or by an independent auditor appointed by RJRTC who
shall report to RJRTC those matters associated with such examination.

3.7 INSURANCE AND TRANSPORTATION COSTS. Costs of insurance and transport shall
be paid in accordance with Sub-Section 2.17. Further, BATUS Japan shall be
responsible for all customs duties, excise taxes, and like fees and expenses due
as a result of import; of Products to the appropriate jurisdiction within the
Territory.

                                    SECTION 4
               TERM, GENERAL TERMINATION, RIGHT OF FIRST REFUSAL

4.1 TERM OF THE AGREEMENT. This Agreement shall be effective upon the Effective
Date and shall remain in effect until terminated by either Party pursuant to its
terms and conditions- With not less than thirty-six (36) months' prior written
notice, BATUS Japan may terminate this Agreement without cause and at its
discretion as of December 31, 2014, or upon any December 31 st thereafter.
Notwithstanding the foregoing, the Term of this Agreement with regard to
Products manufactured for distribution in Restricted Countries shall be subject
to the additional provisions stated in Schedule "C" and the definition of
"Restricted Countries Renewal Term" provided therein.

4.2 GENERAL TERMINATION.

      (a) MUTUAL. The Parties may mutually agree in writing at any time to
terminate this Agreement.

      (b) BY BATUS JAPAN. BATUS Japan shall have those rights of partial and
complete termination for cause as provided in Sub-Section 2.17(d) (i), (ii),
(iii)and (iv).

      (c) BY EITHER PARTY. Either Party may terminate this Agreement at any time
upon written, notice to the other if:

            (i) Voluntary bankruptcy or a petition for involuntary bankruptcy of
the other Party is not dismissed within a period of sixty (60) calendar days of
its filing, in which case the termination shall become effective immediately
upon the non-terminating Party's receipt of notice of termination from the
terminating Party or at such later date as specified in the termination notice;

            (ii) The other Party ceases to pay its debts as they mature in the
ordinary course of business, or makes an assignment for the benefit of its
creditors, in which case the termination shall become effective immediately upon
the non-terminating Party's receipt of notice of termination from the
terminating Party or at such later date as specified in the termination notice;

                                      -25-



            (iii) A receiver is appointed for the other Party or its property,
in which case the termination shall become effective immediately upon the
non-terminating Party's receipt of notice of termination from the terminating
Party or at such later date as specified in the termination notice; or

            (iv) The other Party is in material breach of any material term of
this Agreement and the breaching Party fails to cure such breach within thirty
(30) calendar days of receipt of notice of breach from the other Party, or if
such breach is not reasonably capable of cure within such thirty (30) calendar
day period, such breaching Party fails to cure the breach within ninety (90)
calendar days of receipt of notice of breach from the other Party. The
terminating Party must invoke its rights of termination under this Sub-Section
4.2)(c)(iv) by written notice to the breaching Party within thirty (30) calendar
days of the accrual of such right or such right of termination shall be waived
with respect to the applicable material breach. Further, after notice of
termination is given, termination of the Agreement shall become effective one
(1) year after the date of the terminating Party's notice of termination. During
such period, BATUS Japan shall continue to order Products exclusively from
RJRTC, but shall be allowed to have test Products manufactured by alternative
sources for purposes of qualifying such alternative manufacturers.

4.3 EFFECT OF TERMINATIONS

      (a) ACRIONS BY RJRTC. Upon termination of this Agreement, RJRTC shall:

            (i) Deliver to BATUS Japan or its designee all raw materials,
finished Products, and/or specialized manufacturing equipment that have been, or
must be, paid for by BATUS Japan in accordance with this Agreement;

            (ii) Execute all documents and take all actions reasonably necessary
to enable BATUS Japan to carry out its obligations to customers, and make
commercially reasonable efforts to cooperate with BATUS Japan in making the
necessary transition;

            (iii) Make commercially reasonable efforts to cooperate with BATUS
Japan, in the preparation of a final accounting; and

            (iv) Stop producing Product, except as the Parties may agree at the
time in writing.

      (b) ACTIONS BY BATUS JAPAN. Upon the effective date of termination of this
Agreement, BATUS Japan shall promptly pay RJRTC for such Products in accordance
with Sub-Section 3.1,. together with any other amounts that are due and owing by
BATUS Japan to RJRTC, BATUS Japan also shall promptly pay RJRTC for such unique
raw materials that RJRTC has purchased to produce Products for BATUS Japan and
such raw materials shall be shipped to BATUS Japan or its designee at BATUS
Japan's expense. If a written agreement for reimbursement of identified capital
costs exists between the Parties, BATUS Japan also shall promptly pay RJRTC for
such identified capital

                                      -26-



expenditures and commitments that RJRTC has made on behalf of BATUS Japan and
for which RJRTC has not been paid as of the effective date of termination. Upon
such payment, title to any equipment which has been paid for by BATUS Japan
shall transfer to BATUS Japan and shall be shipped to BATUS Japan or its
designee at BATUS Japan's expense.

      (c) WIND-UP PAYMENT BY BATUS JAPAN. Upon the effective date of any
termination of this Agreement by BATUS Japan, then RJRTC shall be reimbursed by
BATUS Japan for all reasonable costs incurred and non-cancelable commitments
made in the performance of this Agreement for which BATUS Japan has expressly
agreed in writing to be responsible. In such an event, RJRTC shall take steps to
minimize any amount for which BATUS Japan may be responsible.

4.4 RIGHT OF FIRST REFUSAL.

      (a) GRANT OF RIGHT OF FIRST REFUSAL. Upon the effective date of any
termination of this Agreement by either Party pursuant to this Section 4, and
for so long as B&W or any of its Affiliates maintain at least a twenty-five
percent (25%) ownership interest in RAI or any entity which owns RAI, should
BATUS Japan wish to distribute or sell American-blend Cigarettes in Japan (other
than Cigarettes bearing the brands names CARTIER, VOGUE, DUNHILL or STATE
EXPRESS 555 which are not subject to PJRTC's rights hereunder), RJRTC shall have
a right of first refusal to manufacture the requested American-blend Cigarettes
pursuant to the procedures provided in Sub-Section 4.4(b) below. For clarity,
such right of first refusal shall not apply should this Agreement be terminated
pursuant to BATUS Japan's rights of partial or full termination as provided
in Sub-Section 2.17(d) above.

      (b) PROCEDURES GOVERNING RIGHT OF FIRST REFUSAL. Should BATUS Japan wish
to distribute or sell such American-blend Cigarettes in Japan (other than
Cigarettes bearing the brands names CARTIER, VOGUE, DUNHILL or STATE EXPRESS
555); RJRTC's right of first refusal shall be as follows:

            (i) BATUS Japan first shall offer RJRTC the opportunity to
manufacture such American-blend Cigarettes by providing RJRTC with a written
proposal setting forth, at a minimum: (1) the Specifications for the
American-blend Cigarettes and Packaging; (2) the anticipated quantities of the
American-blend Cigarettes to be ordered during the then-present calendar year
and the next calendar year; and (3) the anticipated dates on which Purchase
Orders would be placed for such American-blend Cigarettes during the first six
(6) months of manufacture and the anticipated quantities for each such Purchase
Order.

            (ii) Within fifteen (15) calendar days of RJRTC's receipt of BATUS
Japan's written proposal, RJRTC shall indicate whether its wishes to enter
negotiations regarding such manufacture of the American-blend Cigarettes at
issue, if RJRTC declines to enter negotiations for the manufacture of such
American-blend Cigarettes, BATUS Japan may have such American-blend Cigarettes
manufactured by any third

                                      -27-



Person, free from RJRTC's right of first refusal. If RJRTC indicates a desire to
negotiate, the Parties shall enter an exclusive negotiation period of sixty (60)
calendar days from the first negotiation session regarding the manufacture of
the American-blend Cigarettes. Such exclusive period of negotiations may be
extended by mutual written agreement of the Parties. The Parties shall negotiate
in good faith at reasonable times and with reasonable frequency in
Winston-Salem, North Carolina or in another mutually agreeable location.,

            (iii) If the Parties cannot reach agreement during the exclusive
negotiation period, BATUS Japan shall be free to negotiate with any third Person
regarding manufacture of such American-blend Cigarettes.

            (iv) If BATUS Japan reaches a tentative agreement with such third
Person, before entering a binding agreement, BATUS Japan shall provide a copy of
the tentative agreement to RJRTC and, if the terms referred to in Sub-Section
4.4(b)(i)-(ii) above shall not have changed, RJRTC shall have fifteen (15)
calendar days from its receipt of the tentative agreement to indicate whether it
is willing to enter into an agreement identical in all material respects to the
tentative agreement, or, if the terms referred to in Sub-Section 4.4(b)(i)-(ii)
above have changed, RJRTC shall have thirty (30) calendar days from its receipt
of the tentative agreement to indicate whether it is willing enter into an
agreement identical in all material respects to the tentative agreement.

            (v) If RJRTC chooses not to enter an agreement for the manufacture
of the American-blend Cigarettes at issue as stated in Sub-Section 4.4(b)(iv),
BATUS Japan may enter the binding agreement with the third Person. If BATUS
Japan enters into a binding agreement with such third Person, BATUS Japan shall
not agree to any material amendment of that agreement for a period of two (2)
years from the effective date of the agreement.

            (vi) Upon the expiration or termination of any binding agreement
entered with a third Person pursuant to the procedures stated above, BATUS Japan
shall be free to enter subsequent agreements for the manufacture of the
Cigarettes at issue with that third Person free from RJRTC's rights of first
refusal granted under this Sub-Section 4.4, However, upon such expiration or
termination, should BATUS Japan wish to seek an alternative third Person to
manufacture the American-blend Cigarettes, RJRTC's right of first refusal shall
again be initiated and the procedures set forth above will again be followed.

4.5 OTHER AGREEMENTS. Non-renewal or termination of this Agreement for any
reason shall have no legal effect upon other projects, activities,
collaborations, commercial arrangements or service arrangements that the Parties
may have with one another.

4.6 EFFECT of NON-RENEWAL OR TERMINATION. Subject to the provisions of
Sub-Section 4.7 and Schedule "C," if either BATUS Japan or RJRTC terminates this
Agreement as provided in this Section 4, this Agreement will be of no further
force and

                                      -28-



effect, and except as set forth in Sub-Sections 4.3 and 4.4, there will be no
liability or obligation on the part of either Party to the other. Non-renewal or
termination of this Agreement does not impair or extinguish any accrued right,
obligation or liability that a Party hereto may have under this Agreement at
the time it terminated.

4.7 SURVIVAL. The provisions of Sections and Sub-Sections 3.5, 3.6, 4.4, 5, 6.2,
6.3, 6.4, 6.5, 6.6, 6.8, 6.9, 7.5, 7.6, 7.7 and 7.11 will continue in effect
after expiration or termination of this Agreement.

                                    SECTION 5
                                 CONFIDENTIALITY

5.1 CONFIDENTIALITY OBLIGATION. During the Term of this Agreement and for a
period of five (5) years thereafter, each Party receiving Confidential
Information as a "Receiving Party" shall maintain in confidence all Confidential
Information disclosed to it by the other Party, as a "Disclosing Party."
Notwithstanding the foregoing, subject to Sub-Section 5.2, each of the Party's
respective obligations of confidentiality with respect to the other Party's
Trade Secrets, including BATUS Japan's and its Affiliates, Specifications, shall
be perpetual. Neither Party will use, disclose or grant the use of such
Confidential Information except as expressly authorized by this Agreement. To
the extent that disclosure is authorized by this Agreement, the Receiving Party
shall obtain prior agreement from its employees, representatives and contracting
parties to whom disclosure is to be made to hold in confidence and not make use
of such information for any purpose other than those purposes permitted by this
Agreement. Each Party, as a Receiving Party, will use at least the same standard
of care (but not less than a reasonable standard of care) as it uses to protect
its own proprietary and Trade Secret information to ensure that such employees,
representatives and contracting parties do not disclose or make any unauthorized
use of such Confidential Information. Each Party, as a Receiving Party will
promptly notify the other upon discovery of any unauthorized use or disclosure
of Confidential Information, The Receiving Party shall be responsible to the
Disclosing Party for any loss of Confidential Information of the Disclosing
Party or breach of the provisions of this Sub-Section 5.1 by any employee,
representative or contracting party of the Receiving Party.

5.2 EXCEPTIONS. The obligations of confidentiality contained in Sub-Section 5.1
will not apply to the extent that it can be established by the Receiving Party
by competent proof that such Confidential Information:

      (a) Was already known to the Receiving Party, other than under an
obligation of confidentiality, at the time of receipt from the Disclosing
Party,

      (b) Was generally available to the public or otherwise part of the public
domain at the time of its receipt from the Disclosing Party;

                                      -29-



      (c) Becomes generally available to the public or otherwise part of the
public domain after its disclosure and other than through any act or omission of
the Receiving Party in breach of this Agreement;

      (d) Was received by the Receiving Party, other than under an obligation of
confidentiality, by a third Person lawfully in possession of the information; or

      (e) Was independently developed by the Receiving Party, without reference
or access to any Confidential Information of the Disclosing Party.

5.3 AUTHORIZED DISCLOSURE. Each Party (and third Persons as applicable) may
disclose Confidential Information to the extent such disclosure is reasonably
necessary in filing or prosecuting patent applications, prosecuting or defending
litigation, complying with court orders, or complying with applicable
governmental regulations, provided that if such Party is required to make any
such disclosure of Confidential Information it will to the extent practicable
give reasonable advance notice to the other Party of such disclosure requirement
and, except to the extent inappropriate in the case of patent applications, will
use its best efforts to secure confidential treatment of such information
required to be disclosed.

                                    SECTION 6
              WARRANTIES. REPRESENTATIONS, COVENANTS AND INDEMNITY

6.1 WARRANTIES AND DISCLAIMER OF WARRANTIES. RJRTC WARRANTS THAT PRODUCTS
MANUFACTURED AND PACKAGED PURSUANT TO THIS AGREEMENT SHALL BE FREE FROM DEFECTS
IN MATERIALS AND WORKMANSHIP, AND SUCH PRODUCTS SHALL BE MANUFACTURED, PACKAGED
AND SHIPPED IN CONFORMITY WITH BATUS JAPAN'S SPECIFICATIONS AND THE PACKAGING
AND SHIPPING REQUIREMENTS OF THIS AGREEMENT. ANY MEASURES TAKEN TO REMEDY
NON-CONFORMANCE WITH THIS WARRANTY WILL BE AT RJRTC'S SOLE COST AND EXPENSE.
SUBJECT TO THE FOREGOING, PRODUCTS SUPPLIED BY RJRTC ARE PROVIDED "AS IS" AND
WITHOUT ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR ANY
PARTICULAR PURPOSE.

6.2 LIMITATION OF REMEDIES, LIABILITY AND DAMAGES. A PARTY'S LIABILITY FOR
DAMAGES FOR BREACH OF ITS OBLIGATIONS UNDER THIS AGREEMENT SHALL BE LIMITED TO
DIRECT ACTUAL DAMAGES ONLY; SUCH DIRECT ACTUAL DAMAGES SHALL BE THE SOLE AND
EXCLUSIVE REMEDY, AND ALL OTHER REMEDIES OR DAMAGES AT LAW ARE WAIVED. NEITHER
PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, .INCIDENTAL, PUNITIVE,
EXEMPLARY OR INDIRECT DAMAGES, LOST PROFITS OR OTHER BUSINESS INTERRUPTION
DAMAGES, BY STATUTE, IN TORT OR BY CONTRACT.

                                      -30-



6.3 U.S.A. STATUTES AND REGULATIONS. BATUS Japan represents and warrants that
it is aware of: (a) U.S. Trade Restrictions controlling exports from the U.S.A.
and reexports from third countries of U.S. origin goods, software, and
technology, including foreign made goods, software and technology with more than
de minimus U.S. content, Jo Prohibited and Restricted Countries and to
Restricted Parties, as well as the restrictions and prohibitions under U.S.
trade sanctions on dealings by U.S. persons with such countries and persons, and
is further aware that the lists of Prohibited Countries, Restricted Countries,
and Restricted Parries may change from rime to time; (b) Antiboycott Laws; and
(c) the Foreign Corrupt Practices Act.

6.3 COMPLIANCE WITH LAWS. In performance of their respective obligations under
this Agreement, RJRTC and BATUS Japan each shall comply with, and shall ensure
that their respective employees and Affiliates shall comply with, all laws,
regulations, agreements, licenses and consents applicable to or otherwise
relating to the subject matter of this Agreement, including those referenced in
Sub-Section 6.3. Without limitation to the foregoing, the Parties represent and
warrant that they shall not transfer, provide, resell, export, re-export,
distribute, or dispose of any Product or component thereof or any related
technology or technical data, directly or indirectly, without first obtaining
ail necessary written consents, permits and authorizations and completing such
formalities as may be required by any applicable laws, rules and regulations.
BATUS Japan shall not sell or otherwise provide Products to any Person that
BATUS Japan knows, believes or has reason to believe will take any action which,
if done by BATUS Japan, would constitute a violation of any of the terms and
conditions of this Agreement.

6.5 PRODUCT FOR EXPORT ONLY. Except for limited quantities of Product
manufactured for testing purposes only, the Parries each represent and warrant
that Products produced by RJRTC for BATUS Japan in accordance with this
Agreement are intended to be manufactured in the U.S.A. solely for lawful export
from the U.S.A. and for sale only within the Territory in accordance with the
laws of the Governmental Authority within each relevant country within the
Territory. RJRTC will not provide Product manufactured for BATUS Japan to any
third Person, without BATUS Japan's prior written consent BATUS Japan will not
in any way transport, or cause to be transported, Product to any country outside
of the Territory for use, distribution or sale.

6.6 EXPORT LAWS. No equipment, computer software, technology or information
obtained by one Party from the other, and no Product or component thereof, will
be made available or re-exported, directly or indirectly, except in compliance
with all applicable export laws and regulations.

6.7 BATUS JAPAN'S DUTY TO INSPECT. BATUS Japan or its designees shall be solely
responsible for inspecting all Specifications of Products to be produced by
RJRTC in order to ensure that each such Product is in compliance with all
applicable laws of the relevant Governmental Authority of the Territory into
which the Product is intended to be shipped or sold. BATUS Japan or its
designees shall be solely responsible for giving RJRTC full and complete
instructions to ensure that all Packaging, Cartons and Cases are

                                      -31-



appropriately marked with relevant health warnings (if applicable) and other
relevant markings mandated by relevant Governmental Authority, whether within
the U.S.A., the Territory or elsewhere.

6.8 BATUS JAPAN'S INDEMNITY OBLIGATIONS.

      (a) IN GENERAL. BATUS Japan will indemnify, defend and hold harmless
RJRTC, its Affiliates and their respective current and former officers,
directors, employees, representatives and agents (each an "RJRTC Indemnified
Party") from and against any and all losses, damages, claims, liabilities,
demands, assessments, judgments, settlements, compromises and related costs and
expenses (including without limitation reasonable attorneys' fees and costs)
(collectively, "Damages") resulting from demands, actions, suits or proceedings
initiated by any third Person (including any Governmental Authority) and arising
out of:

            (i) A material breach of the obligations of BATUS Japan under this
Agreement; or

            (ii) The marketing, advertising, distribution or sale by BATUS Japan
or its Affiliates of any Products, including any Damages which relate to any
claimed adverse health effects or health risks relating to the use of such
Products.

      (b) EXCEPTIONS. Notwithstanding Sub-Section 6.8(a), BATUS Japan shall not
be required to indemnify any RJRTC Indemnified Party for any portion of Damages
to which such RJRTC Indemnified Party may become subject to the extent (but only
to the extent) they relate to, result from or arise out of:

            (i) The failure of RJRTC to comply with its obligations under this
Agreement;

            (ii) The negligence or willful misconduct or willful failure to act
of RJRTC; or

            (iii) RJRTC's failure to produce Products meeting the required
Specifications and/or to comply with the Packaging and shipment requirements of
this Agreement.

      (c) NOTICE. RJRTC shall give BATUS Japan prompt written notice of any
claim or suit that may be brought directly against RJRTC or any other RJRTC
Indemnified Party by a third Person, and BATUS Japan shall thereafter be
entitled to employ counsel, control the defense of, and settle or compromise,
such claim or suit

6.9 RJRTC'S INDEMNITY OBLIGATIONS.

      (a) IN GENERAL. Subject to Sub-Section 6.1, RJRTC will indemnify, defend
and hold harmless BATUS Japan, its Affiliates and their respective current and
former

                                      -32-



officers, directors, employees, representatives and agents (each a "BATUS Japan
Indemnified Party") from and against all Damages resulting from demands,
actions, suits, or proceedings initiated by any third Person (including any
Governmental Authority) and arising out of material breach of the obligations of
RJRTC under this Agreement including, but not limited to, RJRTC's failure to
produce Products meeting the required Specifications and/or to comply with the
Packaging and shipment requirements of this Agreement.

      (b) EXCEPTIONS. Notwithstanding Sub-Section 6.9(a). RJRTC shall not be
required to indemnify any BATUS Japan Indemnified Party for any portion of
Damages to which such BATUS Japan Indemnified Party may become subject, to the
extent (but only to the extent) they relate to, result from or arise out of:

            (i) The failure of BATUS Japan to comply with its obligations under
this Agreement; or

            (ii) The negligence or willful misconduct or willful failure to act
of BATUS Japan.

      (c) NOTICE. BATUS Japan shall give RJRTC prompt written notice of any such
claim or suit that may be brought directly against BATUS Japan or any other
BATUS Japan Indemnified Party by a third Person, and RJRTC shall thereafter be
entitled to employ counsel, control the defense of, and settle or compromise,
such claim or suit.

6.10 BATUS JAPAN'S EXCLUSIVE SUPPLIER FOR PRODUCT. BATUS Japan represents and
warrants that as of the Effective Date, it has not entered into any agreement
with any third Person that obligates BATUS Japan to purchase any Product subject
to this Agreement from any third Person, which Product is subject to BATUS
Japan's obligations to RJRTC regarding BATUS Japan's appointment of RJRTC to
exclusively provide BATUS Japan's requirements of American-blend Cigarettes
during the Term of this Agreement.

6.11 BATUS JAPAN'S RIGHT TO INTELLECTUAL PROPERTY. BATUS Japan represents and
warrants that it (or its Affiliate, RFEBV) has the right to use all Intellectual
Property associated with the Products, including Trademarks, in the relevant
countries in the Territory. RJRTC shall obtain no rights with respect to
Intellectual Property owned by BATUS Japan or its Affiliates as a result of
this Agreement.

                                    SECTION 7
                                  MISCELLANEOUS

7.1 FURTHER ASSURANCES. Each Party agrees to enter into or execute, or procure
the entering into or execution, of such agreements, assignments or further
assurances, or do such other acts as the other Party may reasonably request to
carry out the terms and conditions of this Agreement.

                                      -33-



7.2 WAIVER. No waiver by either Party of any of the provisions of this Agreement
will be effective unless explicitly set forth in writing and executed by that
Party. Any waiver by either Party of a breach of this Agreement will not operate
or be construed as a waiver of any subsequent breach.

7.3 RELATIONSHIP OF THE PARTIES. RJRTC and BATUS Japan shall be and shall remain
independent contractors, and this Agreement shall not be construed as
establishing a general agency, employment, partnership, or joint venture
relationship between BATUS Japan and RJRTC. Neither Party shall have the
authority to make any statements, representations or commitments of any kind
(whether express or implied), or to take any action, which shall be binding on
the other or create any liability or obligation on behalf of the other, without
the prior written authorization of the other Party to do so.

7.4 FORCE MAJEURE. Notwithstanding anything to the contrary herein, neither
Party shall be liable to the other for loss, injury, delay, damage or other
casualty suffered by such other Party due to any inability to perform any
obligation hereunder, and neither Party shall be deemed to have defaulted under
or breached this Agreement for failure or delay in fulfilling or performing any
term or provision of this Agreement (other than payment of monies due), when
such failure or delay is caused by or results from causes beyond the control of
the affected Party including, but not limited to, acts of God, fire, flood,
storm, earthquake, explosion, epidemic, embargo, war, acts of war (whether war
be declared or not), acts of terrorism, insurrection, riot, civil commotion,
labor disputes and strikes suffered by third-party suppliers, sub-contractors,
or services providers not working in or on RJRTC's facilities, or acts,
omissions or delays in acting by any Governmental Authority (including
legislative, administrative, judicial, police or any other official governmental
acts). Notwithstanding the foregoing, nothing set forth in this Sub-Section 7.4
shall relieve RJRTC of its obligation to initiate its contingency manufacturing
plans as identified pursuant to Sub-Section 2.18.

7.5 GOVERNING LAW. The validity, construction and performance of this Agreement
shall be governed and interpreted in accordance with the substantive laws of the
State of New York, without giving effect to principles of conflicts of laws
thereof.

7.6 JURISDICTION. The Parties hereto agree that any suit, action or proceeding
seeking to enforce any provision of, or based on any matter arising out of or in
connection with, this Agreement or the transactions contemplated hereby shall be
brought only in: (a) the Federal District Court having jurisdiction in Forsyth
County, North Carolina or (b) the State Superior Court of Forsyth County, North
Carolina, with a request that the case be assigned to The Special Superior Court
Judge For Complex Business Cases, and each of the Parties hereby irrevocably
consents to the exclusive jurisdiction of such courts (and of the appropriate
appellate courts therefrom) in any such suit, action or proceeding and
irrevocably waives, to the fullest extent permitted by law, any objection which
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding in any such court or that any such suit, action or proceeding
which is brought in any such court has been brought in an inconvenient forum.
Notwithstanding the foregoing, nether

                                      -34-



Party waives its rights of removal from the North Carolina State Court
identified above to the Federal District Court identified above as permitted
under governing law. Process in any such suit, action or proceeding may be
served on any Party anywhere in the world, whether within or without the
jurisdiction of any such court. The method of service of process may be by any
method provided by law or by certified mail to the Parties' addresses provided
below in Sub-Section 7.10.

7,7 ALTERNATIVE DISPUTE RESOLUTION. Any dispute arising out of or relating to
this Agreement shall be resolved in accordance with the procedures specified in
this Sub-Section 7.7, which shall be the sole and exclusive procedures for the
resolution of any such disputes:

      (a) ESCALATION TO THE PARTIES' EXECUTIVES. To the extent that
controversies arising from this Agreement cannot be resolved by the respective
personnel of each Party responsible for the administration of this Agreement,
the Parties shall attempt in good faith to resolve any such dispute by
negotiation between their respective senior executive officers who have
authority to settle the controversy and who are at a higher level of management
than those employees who administer this Agreement on a day to day basis. Any
Party may give the other Party written notice of any dispute which has not been
resolved in the ordinary course of business. Within ten (10) calendar days of
receipt of such notice, the receiving Party shall submit a written response to
such notice. The notice and response shall include: (i) a detailed description
of the dispute; (ii) a statement of the Party's position which respect to such
dispute; and (iii) the name and title of the senior executive officer who will
negotiate on behalf of such Party. Within thirty (30) calendar days of delivery
of the initial notice, or within a time mutually agreed by the Parties, the
designated senior executive officers will meet or otherwise confer in an
attempt to resolve the dispute. Such negotiations shall continue either until
the controversy is resolved or until one of the Parties initiates the mediation
procedure set forth below in Sub-Section 7.7(b). During the negotiation process,
all reasonable requests for information and documents from one Party to the
other shall be honored.

      (b)MEDIATION. If a dispute cannot be resolved pursuant to the negotiation
procedures set forth above in Sub-Section 7.7(a), then the controversy shall be
submitted to non-binding mediation. Neither Party may initiate mediation until
at least sixty (60) calendar days after the initial notice of dispute is
submitted by one Party to the other as provided in Sub-Section 7.7(a). If a
Party wishes to initiate mediation, notice of demand for mediation shall be
submitted to the other Party in writing. Such mediation shall be conducted in
accordance with the American Arbitration Association's then-current Model
Mediation Procedures and will be conducted by a single mediator. Unless
otherwise agreed between the Parties, the mediator will be nominated by the
American Arbitration Association and the mediation shall be conducted in
Winston-Salem, North Carolina. Each Party shall bear its own costs and expenses
of mediation. Further, ail mediation expenses, including the filing fees and
fees and costs of the mediator, will be equally shared between the Parties. Such
mediation will be scheduled as soon as possible by agreement of the Parties and
the mediator.

                                      -35-



      (c) LITIGATION. Neither Party may initiate litigation against the other
Party relating to any dispute under this Agreement until the mediation required
under Sub-Section 7.7(b) has been completed. However, subject to Sub-Sections
7.5 and 7.6. notwithstanding the foregoing, either Party may initiate litigation
to seek immediate injunctive relief against the other Party for any violation or
threatened violation of the Parties' respect obligations under this Agreement
including, but not limited to, the Parties' obligations of confidentiality under
Section 5.

7.8 SEVERABILITY. If any provision of this Agreement shall be held to be invalid
or unlawful, the same shall be deemed to be deleted from this Agreement, but
this Agreement shall remain in full force and effect as if the deleted provision
had never been contained in it. The Parties shall negotiate hi good faith as to
the terms of a mutually acceptable and satisfactory provision in place of any
deleted provision, and if such terms shall be agreed, this Agreement shall be
amended accordingly.

7.9 AMENDMENTS. This Agreement may be amended, or any term hereof modified, only
by a written instrument duly executed by both Parties hereto. In the event of
any conflict between this Agreement and the terms of a Purchase Order, the terms
of this Agreement shall govern.

7.10 NOTICES. Unless otherwise provided in this Agreement, day to day commercial
communications may be exchanged by any reasonable means. All material notices,
requests, claims, demands and other communications under this Agreement shall be
in writing and shall be deemed given upon receipt by the Parties at the
following addresses (or at such other address for a Party as shall be specified
by like notice):

      If to RJRTC, to:      R. J. Reynolds Tobacco
                            Company
                            401 North Main Street
                            Winston-Salem, North Carolina
                            27101
                            Attn: General Counsel

      If to BATUS Japan, to: BATUS Japan, Inc.
                             401 South Fourth
                             Street
                             Suite 1200
                             Louisville, Kentucky
                             40202
                             Attn: President

      With a Copy to:       Jeffrey P. Clemente,
                            Esq.
                            Tozai Sogo Law
                            Office Kioicho
                            K Bldg. 3-28 Kioicho,
                            Chiyoda-Ku
                            Tokyo, Japan 102-0094

7.11 ENTIRE AGREEMENT. This Agreement contains the entire agreement and
understanding between the Parties regarding the subject matter hereof, and
supercedes

                                      -36-



any prior agreement and negotiations between the Parties with respect to the
subject matter hereof, including those set forth in Exhibit "K" to the BCA.

7.12 ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit
of the Parties hereto and their respective legal successors and assigns. This
Agreement may not be assigned or otherwise transferred, nor, except as
expressly provided hereunder, may any right or obligation hereunder be assigned,
subcontracted, licensed or transferred by either Party without the other Party's
prior written consent, which consent shall not be unreasonably withheld, delayed
or conditioned; provided, however, that either Party may, without the other
Party's prior consent, assign this Agreement and its rights and obligations
hereunder to a wholly owned subsidiary or entity under common control with such
assigning Party through 100% ownership of the equity interests therein, Any
permitted assignee shall assume all the rights and obligations of its assignor
under this Agreement, Any assignment in violation of the foregoing shall be null
and void.

7.13 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to and shall
not be construed to give any Person (other than the Parties signatory hereto and
to the extent provided herein, their respective Affiliates), including any
employee or former employee, any interest or rights (including, without
limitation, any third-party beneficiary rights) with respect to or in connection
with any agreement or provision contained herein or contemplated hereby,

7.14 Counterparts. This Agreement and any amendment may be executed in multiple
counterparts, each of which is an original and all which constitute one
agreement or amendment, as the case may be, notwithstanding that all of the
Parties are not signatories to the original or the same counterpart, or that
signature pages from different counterparts are combined, and the signature of
any Party to any counterpart is a signature to and may be appended to any other
counterpart.

      IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
by their duly authorized representatives effective as of the Effective Date set
forth in the Preamble above.

BATUS JAPAN, INC.

By: /s/ Timothy J. Hazlett
    ----------------------------

Print Name: Timothy J. Hazlett

Title: Secretary

Date: July 30, 2004
      ("BATUS Japan")

                                      -37-



R. J. REYNOLDS TOBACCO COMPANY

By. /s/ Charles A. Blixt
    ------------------------------------------

Print Name: Charles A. Blixt

Title:      Executive Vice President
            and General Counsel

Date:       July 30, 2004
           ("RJRTC")

Schedules, to the Agreement:

"A" - Product Base Prices (including International Order Policies & Customer
Responsibilities)

"B" - Identification of the Territory

"C" - Supplies to Restricted Countries

"D" - BATUS Japan's Standard Consumer Product Testing Protocols

"E" - Manufacturing Costing Methodology

"F" - RJRTC Payment Instructions

                                      -38-