0001140361-20-013508.txt : 20200610 0001140361-20-013508.hdr.sgml : 20200610 20200610161028 ACCESSION NUMBER: 0001140361-20-013508 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20200610 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant ITEM INFORMATION: Regulation FD Disclosure ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20200610 DATE AS OF CHANGE: 20200610 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Turning Point Brands, Inc. CENTRAL INDEX KEY: 0001290677 STANDARD INDUSTRIAL CLASSIFICATION: TOBACCO PRODUCTS [2100] IRS NUMBER: 133961898 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-37763 FILM NUMBER: 20954808 BUSINESS ADDRESS: STREET 1: 5201 INTERCHANGE WAY CITY: LOUISVILLE STATE: KY ZIP: 40229 BUSINESS PHONE: (502) 778-4421 MAIL ADDRESS: STREET 1: 5201 INTERCHANGE WAY CITY: LOUISVILLE STATE: KY ZIP: 40229 FORMER COMPANY: FORMER CONFORMED NAME: North Atlantic Holding Company, Inc. DATE OF NAME CHANGE: 20040517 8-K 1 nt10011977x4_8k.htm 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d)
of The Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): June 10, 2020

TURNING POINT BRANDS, INC.
 (Exact name of registrant as specified in its charter)
 
DELAWARE
001-37763
20-0709285
(State or other jurisdiction
of incorporation)
(Commission
file number)
(I.R.S. employer
identification no.)

5201 Interchange Way,
Louisville, KY
40229
(Address of principal executive offices)
(Zip code)

(502) 778-4421
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report.)

 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class
 
Trading
Symbol(s)
 
Name of each exchange
on which registered
Common stock (Par Value $0.01)
 
TPB
 
New York Stock Exchange (NYSE)

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (17 CFR §230.405) or Rule 12b-2 of the Securities Exchange Act of 1934 (17 CFR §240.12b-2).

Emerging growth company ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☑
Item 1.01 Entry into a Material Definitive Agreement.

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

Item 2.01. Completion of Acquisition or Disposition of Assets.

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

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

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

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

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

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

On June 10, 2020, in connection with the closing of the Transactions, Intrepid Brands, LLC, a wholly-owned subsidiary of TPB (“Intrepid”), entered into an exclusive hemp supply agreement (“Hemp Supply Agreement”) with LSR HC, LLC, an affiliate of Durfort and BWUSA (“LSR”).  Under the terms of the Hemp Supply Agreement, LSR will supply certain hemp cigar wraps and hemp cigar cones under one or more of Intrepid’s trademarks.  The Hemp Supply Agreement provides for an initial 5-year term, and automatically renews for additional 5-year terms thereafter.
Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement.

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

Item 7.01. Regulation FD Disclosure.

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

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

Item 9.01 Financial Statements and Exhibits.

(a)
Not applicable.
(b)
Not applicable.
(c)
Not applicable.
(d)
Exhibits:

Exhibit No.
Description
Press release dated June 10, 2020 announcing the closing of the Acquisition
SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 
TURNING POINT BRANDS, INC.
   
Date: June 10, 2020
By:  
/s/ James Dobbins
 

Name:
 James Dobbins
 

Title:
 Senior Vice President, General Counsel and Secretary

EX-99.1 2 nt10011977x4_ex99-1.htm EXHIBIT 99.1
Exhibit 99.1

Turning Point Brands Announces Acquisition of Assets from Durfort Holdings

LOUISVILLE, KY. (June 10, 2020) - Turning Point Brands, Inc. (“TPB”) (NYSE: TPB), a leading provider of Other Tobacco Products (“OTP”) and adult consumer alternatives, today announced the acquisition of certain tobacco assets and distribution rights from Durfort Holdings S.R.L. (“Durfort”) and Blunt Wrap USA for a total consideration of $46 million.

Durfort is the long-time supplier of TPB’s Make-Your-Own (“MYO”) cigar wrap products. The transaction combines Durfort’s and Blunt Wrap USA’s world-class intellectual property and manufacturing know-how with TPB’s market leading Zig-Zag® MYO cigar wraps brand and national distribution.

“We are pleased to enter into this transaction with our business partner,” said Larry Wexler, TPB President and CEO. “In addition to the immediately accretive financial benefits, the transaction secures long-term control of our Zig-Zag MYO cigar wrap products and provides us access to a deep portfolio of tobacco products with significant immediate and future strategic value. This solidifies our current market position and provides a base for accelerated expansion with novel and leading-edge products.”

Through this transaction, TPB acquires co-ownership in the intellectual property rights of all Durfort’s and Blunt Wrap’s Homogenized Tobacco Leaf (“HTL”) cigar wraps and cones. The acquisition eliminates current royalty related expenses on HTL cigar wraps and cones, providing for expanded margins. TPB will also enter into an exclusive Master Distribution Agreement to market and sell the original Blunt Wrap® cigar wraps brand in the USA. The Master Distribution Agreement is expected to be effective in the next 120 days, adding complementary access to difficult to reach alternative channels.

“This partnership between Durfort and Turning Point Brands has been highly successful in introducing innovative products to the Other Tobacco Products space,” said Danny Sinclair, founder of Durfort and Blunt Wrap USA. “Durfort looks forward to continuing to work with TPB in bringing exciting new alternative products to adult consumers and in expanding distribution of the Blunt Wrap brand through TPB’s nationwide distribution network.”

The purchase price of $46 million will be satisfied through $36 million in cash at closing and a $10 million promissory note. The transaction is expected to add approximately $5 million of net sales and $7 million of EBITDA on a pro forma annualized basis, due to consolidating adjustments and reduction of royalty fees in costs of goods sold.

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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

About Turning Point Brands, Inc.

Louisville, Kentucky-based Turning Point Brands, Inc. (NYSE: TPB) is a leading U.S. provider of Other Tobacco Products and adult consumer alternatives. TPB, through its focus brands generates solid cash flow which it uses to finance acquisitions, increase brand support and strengthen its capital structure. TPB does not sell cigarettes. More information about the company is available at its corporate website, www.turningpointbrands.com.

About Durfort Holdings S.R.L.

Durfort is an industry leader in alternative cigar and cigar wrap manufacturing and distribution.

About Blunt Wrap USA

Blunt Wrap USA has been an innovator of new products in the smoking alternatives market since 1997 and has secured patents in the USA and internationally for novel smoking wrappers and cones.

Non-GAAP Financial Measures

Within this press release, TPB includes certain forward-looking non-GAAP financial measures including EBITDA. These forward-looking non-GAAP financial measures reflect management’s current expectations and beliefs regarding the potential benefits of the transaction. TPB is not able to reconcile forward-looking non-GAAP measures to meaningful comparative GAAP financial measures without unreasonable efforts because it is not possible to predict with a reasonable degree of certainty the actual impact or exact timing of items that may impact comparability. These non-GAAP measures should be considered in addition to, not as a substitute for, or superior to, net earnings or other measures of financial performance prepared in accordance with GAAP as more fully discussed in TPB’s financial statements and filings with the SEC.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements may generally be identified by the use of words such as “anticipate,” “believe,” “expect,” “intend,” “plan” and “will” or, in each case, their negative, or other variations or comparable terminology.  These forward-looking statements include all matters that are not historical facts.  By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future.  As a result, actual events may differ materially from those expressed in or suggested by the forward-looking statements.  Any forward-looking statement made by TPB in this press release speaks only as of the date hereof.  New risks and uncertainties come up from time to time, and it is impossible for TPB to predict these events or how they may affect it. TPB has no obligation, and does not intend, to update any forward-looking statements after the date hereof, except as required by federal securities laws.  Factors that could cause these differences include, but are not limited to:

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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238

•
declining sales of tobacco products, and expected continuing decline of sales, in the tobacco industry overall;
•
our dependence on a small number of third-party suppliers and producers;
•
the possibility that we will be unable to identify or contract with new suppliers or producers in the event of a supply or product disruption;
•
our business may be damaged by events outside of our suppliers’ control, such as the impact of epidemics (e.g., coronavirus), pollical upheavals, or natural disasters;
•
the possibility that our licenses to use certain brands or trademarks will be terminated, challenged or restricted;
•
failure to maintain consumer brand recognition and loyalty of our customers;
•
substantial and increasing U.S. regulation;
•
regulation of our products by the FDA, which has broad regulatory powers;
•
our products are subject to developing and unpredictable regulation, for example, current court action moving forward certain substantial Pre Market Tobacco Application obligations;
•
some of our products contain nicotine which is considered to be a highly addictive substance;
•
uncertainty related to the regulation and taxation of our NewGen products;
•
possible significant increases in federal, state and local municipal tobacco- and vapor-related taxes;
•
possible increasing international control and regulation;
•
our reliance on relationships with several large retailers and national chains for distribution of our products;
•
our amount of indebtedness;
•
the terms of our credit facilities, which may restrict our current and future operations;
•
intense competition and our ability to compete effectively;
•
uncertainty and continued evolution of markets containing our NewGen products;
•
significant product liability litigation;
•
the scientific community’s lack of information regarding the long-term health effects of electronic cigarettes, vaporizer and e-liquid use;
•
requirement to maintain compliance with master settlement agreement escrow account;
•
competition from illicit sources;
•
our reliance on information technology;
•
security and privacy breaches;
•
contamination of our tobacco supply or products;
•
infringement on our intellectual property;
•
third-party claims that we infringe on their intellectual property;
•
failure to manage our growth;

3
Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
•
failure to successfully integrate our acquisitions or otherwise be unable to benefit from pursuing acquisitions;
•
fluctuations in our results;
•
exchange rate fluctuations;
•
adverse U.S. and global economic conditions;
•
sensitivity of end-customers to increased sales taxes and economic conditions;
•
failure to comply with certain regulations;
•
departure of key management personnel or our inability to attract and retain talent;
•
imposition of significant tariffs on imports into the U.S.;
•
reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors, potentially decreasing our stock price;
•
failure to maintain our status as an emerging growth company before the five-year maximum time period a company may retain such status;
•
our principal stockholders will be able to exert significant influence over matters submitted to our stockholders and may take certain actions to prevent takeovers;
•
our certificate of incorporation and bylaws, as well as Delaware law and certain regulations, could discourage or prohibit acquisition bids or merger proposals, which may adversely affect the market price of our common stock;
•
our certificate of incorporation limits the ownership of our common stock by individuals and entities that are Restricted Investors. These restrictions may affect the liquidity of our common stock and may result in Restricted Investors being required to sell or redeem their shares at a loss or relinquish their voting, dividend and distribution rights;
•
future sales of our common stock in the public market could reduce our stock price, and any additional capital raised by us through the sale of equity or convertible securities may dilute your ownership in us;
•
we may issue preferred stock whose terms could adversely affect the voting power or value of our common stock; and
•
our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price.

Contact:
Robert Lavan, Senior Vice President, CFO
ir@tpbi.com  (502) 774-9238

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Turning Point Brands, Inc. | www.turningpointbrands.com | ir@tpbi.com | 502.774.9238
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