Alliance One Guide Line

Statement of Company Policy

It is the global policy of Alliance One International, Inc. (“AOI”) and its subsidiaries (the "Company") that the Company and its employees, representatives and agents --- wherever located --- comply with all applicable laws, rules, and regulations in the conduct of our business.  Part of this obligation is compliance with the anti-competition and trade regulation laws, which are designed to preserve the free enterprise system.

We are accustomed to minimizing and controlling acceptable ‘business risks,’ which necessarily involves an evaluation of potential benefits and costs of proposed transactions. The likely cost of a violation of policy or law must never even be considered as a potentially acceptable business risk.  If you have any doubt about the lawfulness of a course of action by yourself or others in the Company, you are to discuss your concerns with your supervisor or the Company's Compliance Officer, before you engage in any conduct that may be questionable.  Those who deliberately violate this policy will be subject to disciplinary action, including termination.

The Company's policy, simply stated, is compliance with applicable laws.  Consistent with that policy we have prepared this material to enable you to become familiar with the basic requirements of the anti-competition and trade regulation laws, so that the Company can avoid violations. 

Robert E. Harrison
Chairman, Chief Executive Officer and President

I.   INTRODUCTION

A. What are anti-competition laws?

Anti-competition laws are designed to promote competition and free enterprise.  The concept behind these laws is that competition in any industry or business will lead to maximum efficiency and the lowest possible prices for consumers.

Most countries around the world have laws and regulations concerning anti-competitive business practices.  In the United States, such laws and regulations are generally referred to as ‘antitrust laws.’  Many countries’ laws apply to conduct that occurs beyond their borders, if the conduct affects competition within their borders.

B.Who enforces anti-competition laws?

The anti-competition laws in the United States and the European Union are enforced by both national and state or provincial agencies, as well as private parties.  In most countries, violation of anti-competition law is a felony.

Many mistakenly believe that price fixing is only a technical violation which does not injure anyone and, therefore, is not to be taken seriously.  This mistaken belief must be corrected, for it is clear that price fixing and other anti-competition violations are taken quite seriously by most governments.

C.   What are the penalties for violating anti-competition laws?

Violations of the anti-competition laws may result in criminal liability, civil liability, or both.  Because criminal anti-competition offenses are generally classified as felonies, penalties for violations are severe.

Individuals usually receive prison sentences; pay fines; lose civil rights; and incur substantial legal expenses.
  
Corporations are usually assessed large fines in multiples of their pecuniary gain or the pecuniary loss of the victim(s); incur substantial litigation expenses; suffer disruption of business and damage to reputation and image with both customers and investors; and forfeit business opportunities with certain customers.

II.  PROHIBITED JOINT ACTIVITY

Some types of joint action are inherently unreasonable and, therefore, automatically illegal.  ‘Joint action’ refers to any activity undertaken collectively by any Company employee or agent with any person or entityother than someone working for the Company.  These ‘joint action’ offenses must be known and understood.  They are as follows:

A.    Price-fixing between competitors (horizontal price-fixing):  Agreements that restrict price competition are illegal.  This typically covers agreements between competitors on the prices which they will charge their buyers, or which they will pay to suppliers.  The agreement need not be on a specific price.  The following activities are generally considered to constitute price fixing: agreements on maximums or minimums; agreements concerning terms or conditions of sale (such as credit terms or delivery charges); and, exchange of price information, if there is a stabilizing effect on prices.  An agreement may be inferred from a course of conduct, or from a history of communications or meetings between competitors followed by uniform price action or non-action. 

B.    Dividing territory:  Competitors may not agree to designate geographic areas in which each will or will not sell.

C.    Dividing customers:  Competitors may not agree that each will sell to a particular customer or class of customers and not to another, nor may they agree on which will make a specific sale.

D.    Dividing products or services:  Competitors may not agree that one will sell one type of product or service to a customer while the other will sell another type of product or service to that customer.

E.    Boycotting:  Two or more companies or persons (whether or not competitors) may not agree among themselves not to sell to a particular buyer, or not to buy from a particular manufacturer, producer, or seller.

F.    Guidelines for Avoiding Prohibited Joint Activity:

    1.    Avoid conversations or communications with competitors concerning prices, terms and conditions of sale, territories, customers, suppliers, production levels, or other elements of competition.  If one of these subjects comes up in your presence, either see that the subject is dropped or leave the discussion immediately.  Advise those present that it is against the Company's policy for you to engage in such discussions or to be present at such discussions.

    2.    Do not discuss with anyone from outside the Company, particularly other tobacco dealers, whether to do business with a third party.  Likewise, do not discuss with one customer whether the Company will do business with, or continue to sell to, another customer.  Your response in such circumstances should be to state firmly that the Company unilaterally chooses the customers and suppliers with whom it wishes to deal and never discusses such decisions with others. 

III.     QUESTIONABLE JOINT ACTIVITY

There are other types of restraints that the courts have found permissible in appropriate circumstances and illegal in other circumstances.  The key factor in each instance is whether the restraint, on balance, reduces competition.  Any agreement or understanding that has that effect can be found illegal.  Examples include:

A.    Reciprocal Dealing and Exclusive Dealing:  Reciprocal dealing occurs when a seller uses his purchasing power to promote sales to his suppliers, e.g., I will buy X from you if you will buy Y from me.  If reciprocal dealing has an adverse effect on competition, it may be illegal.  Exclusive dealing typically involves an agreement by which a buyer agrees to purchase all of its needs for a particular product from a single seller.  Reciprocal dealing and exclusive dealing arrangements are quite often lawful and appropriate so long as there is no adverse effect on competition in a relevant market. 

B.    Tying Arrangements:  These occur when a seller conditions the sale of one product or service on the buyer's purchase of a second product.  This can be illegal if the seller possesses market power in the tying product market.

C.    Choosing Customers:  The anti-competition laws permit the Company to choose the customers with which it deals.  It is important, however, that the Company's decisions on dealing with or refusing to deal with a particular customer be made independently and unilaterally and without communication with competitors, customers or other parties.

D.    Territorial and Customer Restrictions:  As a general rule, it is permissible for the Company to designate the geographical area, or customers to whom, a buyer (dealer or distributor) may sell.  Likewise, it is generally permissible to designate the locations from which dealers or distributors will sell.

Because conduct of the type described in III(A)-(D) above may or may not be illegal depending its effect on competition, you should not undertake such conduct without first obtaining clearance from the Company's Compliance Officer.

IV.   MONOPOLIZATION

The foregoing discussion covers anti-competition violations that require the participation of two separate entities.  Other conduct, referred to as monopolization, is illegal even if only one company is involved.  Monopolization or attempted monopolization, in plain words, involves the abuse of market power.  ‘Market power’ is defined as the power to control prices or exclude competition.  It generally involves being the dominant supplier of a product or service in a given geographic area.

If a company is shown to have market power, its conduct may be closely scrutinized to determine how it has acquired that power and how it is using it.  To avoid being subjected to such scrutiny you should avoid even the appearance of exercising market power.  Avoid boasting about the Company's market position or size.  Avoid language that would infer overwhelming power, such as "crush the competition."  In markets where the Company may be especially strong, consult with the Company's Compliance Officer, before engaging in any conduct with the purpose or effect of preying upon a competitor's weaknesses, and avoid taking action for the purpose of putting a competitor out of business.  Always seek to compete on the basis of the merits of the Company's products, services, and prices, rather than its market position.

There are also certain types of joint activity that may constitute monopolization.  For example, the creation of a joint venture by several firms in order to gain economies of scale can lead to monopolization claims if the result is a dangerous probability of an adverse effect on competition in a relevant market.  Accordingly, any such deals should be reviewed and approved by the Company's Compliance Officer.

V.    UNFAIR PRACTICES AND BUSINESS TORTS

Other related trade regulation statutes prohibit unfair methods of competition and unfair or deceptive acts or practices.  These laws are aimed at practices that may injure competition, but are more broad in their application.  You should be sensitive to situations that raise questions of unfairness or deceptiveness and consult with the Company's Compliance Officer, when they arise.  In particular, misleading offers should be avoided.

Similarly, business torts or ‘unfair competition’ encompasses a broad spectrum of conduct including tortious interference with business and contractual arrangements, theft of another’s business information, false characterization of the quality of another’s product, defamation, and the like.  Such acts can result in civil claims against the Company.  Therefore, it is important that you be above-board and truthful in your business dealings.

VI.   PRICE DISCRIMINATION

Federal price discrimination law makes it illegal to sell comparable goods at different prices at about the same time to buyers that compete with each other, if the price difference hurts the disfavored customer's ability to compete.  The grant of promotional allowances on unequal terms is also prohibited if it harms the ability of the disfavored customer to compete.  Price differences can be justified in certain circumstances if they are cost justified, or are offered to meet (but not beat) a competitor's price.  You should never, however, seek to compare prices with a competitor for this purpose.

VII.  RELATED STATUTES AND CAUSES OF ACTION

Criminal charges of mail and wire fraud are often included with anti-competition charges, if these means of communication are used to carry out anti-competition schemes.  Most anti-competition violators use the telephone or the mail and expose themselves to such charges.  A conviction on such charges can substantially increase the severity of fines or other punishment.

VIII. TRADE ASSOCIATIONS

Joint activities are not insulated because they take place through trade associations.  In fact, trade association activity can be dangerous, for the association creates an opportunity for competitors to meet and discuss various topics of mutual interest.

Action by an association itself that violates the anti-competition laws may create liability even for members not directly participating.  Thus, you should exercise extreme caution, paying particular attention to the guidelines set forth above for talking to competitors.

Trade associations are often used as vehicles for statistical exchange programs, whereby data concerning costs, production volumes, prices, inventories, and the like are published to contribute to an understanding of the economics of an industry.  Such programs are legal so long as certain guidelines and precautions are followed.  Before becoming involved in one of these programs, you should consult with the Company's Compliance Officer.

IX.  FOREIGN COMMERCE

A.  U.S. Anti-competition Law:  The Sherman Act applies to U.S. export and import trade, as well as to domestic commerce.  Anti-competitive activities of foreign companies exporting to the United States may violate the U.S. anti-competition laws, even if they take place entirely outside of the U.S., provided such activities have a sufficient effect on U.S. commerce.  Export activities of U.S. companies are subject to the U.S. anti-competition laws if they have a direct, substantial, and reasonably foreseeable effect on U.S. trade or commerce, including competing U.S. exporters.  In the export sphere, therefore, the Sherman Act is designed primarily to protect the U.S. domestic market and competing U.S. exporters -- not foreign buyers of U.S. exports. 

B.  Foreign Anti-competition Laws:  Many foreign countries and the European Union have anti-competition laws similar to those in the U.S..  Moreover, as with U.S. law, foreign anti-competition laws can apply to conduct that occurs outside the foreign jurisdiction, if it has anticompetitive effects within the jurisdiction.  Therefore, many of the same kinds of rules that exist in the U. S. may apply to the Company’s business activities in foreign markets. 

C.  The Foreign Corrupt Practices Act (FCPA):  The FCPA prohibits U.S. companies and their officers, employees, agents, or stockholders from giving or offering to give anything of value to a foreign official for the purpose of influencing that person to misuse his official position to assist the payer in obtaining or retaining business or directing it to another person. 

The term ‘foreign official’ is broadly defined.  It includes any officer or employee of a foreign government, or of a department, agency or instrumentality of a foreign government, including a state-owned company.  A ‘foreign official’ may also be any person acting in an official capacity or on behalf of any such government or department, agency, or instrumentality.

The FCPA similarly prohibits payments or offers of anything of value to any foreign political party or party official, or to any candidate for foreign political office.

The FCPA also prohibits payments to any person that you know will give or offer any portion of the payment, directly or indirectly, to a foreign official in order to obtain or retain business.  If you are aware of a high probability that the recipient of a payment is engaging in the bribery of foreign officials, you will be considered to have knowledge, for purposes of establishing an FCPA violation, of any subsequent illegal payments such person may make. 

Certain ‘facilitating or expediting’ payments for ‘routine governmental action’ are not restricted by the FCPA.  These include, for example, obtaining permits or licenses, processing visas, and providing police protection or utility service.  ‘Routine governmental action,’ however, does not include a decision or action to influence a decision, by a foreign official, as to whether or on what terms to award new business or to continue doing business with a particular person.

The FCPA also requires companies to maintain books and accounts that accurately reflect all transactions and dispositions of the assets of the company.  This is intended to prevent the establishment of ‘slush funds’ for the payment of illegal bribes to foreign officials.  The record-keeping requirement applies to all transactions and expenditures, both domestic and foreign.

Penalties for violating the FCPA are severe.  Criminal penalties for a violation of the FCPA's antibribery provisions include fines of up to $2 million against a business, and fines of up to $100,000 and imprisonment for up to five years against an individual officer, director, employee, agent or stockholder acting on behalf of the business.  Civil fines of up to $10,000 also are available against businesses and individuals.  In addition, criminal penalties may be imposed for intentional failure to maintain the required books and records or for deliberate falsification of the Company's records.  Activity that violates the FCPA may also be prosecuted under other federal statutes such as the Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO.

D.  Antiboycott Laws:  The antiboycott provisions of the Export Administration Act prohibit U.S. persons and firms from participating in foreign countries' boycotts of other nations, unless such boycotts are approved by the United States.  These antiboycott laws are administered under the Export Administration Regulations and enforced by the U.S. Department of Commerce.

The antiboycott laws affect U.S. businesses in two ways.  First, all U.S. companies and their global subsidiaries and affiliates are prohibited from engaging in any business dealings with boycotting countries that have the effect of aiding or furthering an unauthorized boycott.  A company may not, for example, refuse to do business with a boycotted country or with a company that has been "blacklisted" for failing to honor the boycott.  In response to a customer request, an employee or agent of the Company is prohibited from providing any information about its business relationships with a specific boycotted country or with blacklisted companies or about the race, religion, sex or nationality of any person, regardless of the accuracy of the information.  Second, all U.S. companies are required to report to the Department of Commerce any requests they receive to comply with, further or support an unauthorized foreign boycott.

The penalties for violations of the antiboycott laws can be quite severe:  fines of up to $10,000 per violation (including a mere failure to report a request) and denial or suspension of export privileges.  In some cases violation also can result in criminal fines or prison sentences. 

E.    Trade Sanctions:  The U.S. maintains trade sanctions against certain countries for foreign policy and other reasons.  Recently, such countries have included Iran, Iraq, Cuba, North Korea, and Libya, among others.  Generally, U.S. trade sanctions prohibit any U.S. corporation and their foreign subsidiaries or U.S. national from participating in business transactions with sanctioned countries, including selling products to or purchasing products from those countries, re-exporting U.S. products to those countries from third countries, and dealing with any entity owned by the government of a sanctioned country.  Substantial criminal and civil penalties can be imposed for violations.  Trading with certain countries may also be illegal under the laws of foreign countries, particularly if international sanctions have been approved by the United Nations.

X.   MONITORING AND ENFORCEMENT

A.  Monitoring:  The Company's compliance efforts are designed to insure prompt detection of any potential problems.  Thus, from time-to-time unannounced audits may be conducted by the Compliance Officer, or his designees.  These audits may include both the review of selected files and random interviews with supervisory and field personnel.  The purpose of audits and other monitoring is to detect problems at their inception, to prevent violations, and to minimize the Company's exposure to civil liability.  Your full cooperation is essential to the success of the compliance program generally, and audits and other monitoring efforts in particular.

B.  What To Do If You Spot A Problem:  In addition to its ongoing monitoring and periodic audits, the Company relies on you to uncover and report to management and the Compliance Officer, any potential anti-competition problems.  If you have a concern or a problem you believe may implicate the anti-competition laws or any other matter discussed in this booklet, please discuss the problem immediately with the Company’s Compliance Officer.

The reporting of an anti-competition concern will never result in any negative action directed toward you simply because you filed a report.  On the contrary, the failure to report a violation may result in disciplinary action being taken against you, because prompt reporting and resolution of anti-competition problems can save the Company substantial sums.  In short, the Company's anti-competition compliance policy and program requires the active participation of all its employees.

C.  Enforcement:  The Company is committed to compliance with the laws discussed in this booklet.  As part of our efforts to insure compliance by all personnel the Company's Compliance Officer, will be making periodic reports to the Company's Board of Directors regarding the effectiveness of the program, any problems that may occur, steps taken to prevent problems, and the like.

XI.   DOCUMENTS AND DOCUMENT RETENTION

A.    Documents and Anti-competition Litigation:  Poorly written documents are often a decisive factor in litigation, especially on potentially critical issues such as intent.  You should be aware of the significance of the words you choose in writing memoranda, correspondence, and other documents that will be retained in the Company's files.  Careless words can be extremely difficult to defend.  An excellent guide is to avoid saying or writing anything which you would not be willing to repeat before, and explain to, a judge and jury.

B.    Words and Phrases to Avoid:  A wide variety of words and phrases may have adverse and unintended anti-competition implications in the context of corporate documents:

    1.    ‘Guilt complex’ expressions -- e.g., "destroy after reading;" "for your eyes only;" and "do not duplicate."

    2.    ‘Power’ words -- e.g., "dominate;" "control;" "monopolize;" "stabilize;" and "capture."

    3.    Expressions of anticompetitive intent -- e.g., "aim to destroy competition;" "signal our competitors;" "avoid destructive or disruptive marketing and sales policies;" "stabilize the market;" "industry-wide price movement;" and similar statements.

    4.    Conclusory words on anti-competition subjects -- e.g., "monopoly;" "package deal;" "market;" and "market share."  The terms ‘market’ and ‘market share’ are particularly bothersome, because the outcome of anti-competition litigation frequently turns on how broadly or narrowly the ‘relevant market’ is defined.  Therefore, casual use of the terms ‘market’ and ‘market share’ may lock the Company into an unfavorable market definition that does not reflect actual economic conditions.  Accordingly, whenever possible, the terms ‘trade area,’ ‘business,’ ‘territory’ or ‘sales’ should be used instead of ‘market.’

    5.    ‘Non-competitive’ words -- e.g., "agree;" "promise;" "go along with competitors;” "matching competitor's bid;” "unethical competition;” and "captive" customers or markets.

    6.    ‘Overly competitive’ expressions -- e.g., "exploit a competitor's weakness" or "cut him off at the knees."  Be especially wary of words and images from sports and the military.

    7.    Words disparaging competitors -- e.g., “puny competitors;" "ineffective;" or "weak."  Similarly, words exaggerating the Company's success should be avoided.

C.    Document Retention:   In the normal course of business, the Company regularly purges files.  This is a very sound practice.  There are occasions, however, when regular document retention procedures should be put on hold.

    1.    The Company should not destroy documents once it is served with a subpoena, document request, civil investigative demand or other formal request for documents in a government investigation or judicial proceeding, or if the Company agrees to cooperate voluntarily with governmental authorities.

    2.    If the Company learns, either directly or indirectly, that it is under investigation by a grand jury or a governmental agency, or is about to become involved in litigation, it should immediately suspend record disposal in any areas of the business that may be subject to the investigation or litigation and consult legal counsel immediately.

Before destroying any documents relevant to an investigation or actual or potential litigation, you should first consult with the Company's Compliance Officer.  Willful destruction of documents that have been subpoenaed or called for by other compulsory process could result in criminal liability or otherwise adversely affect the Company.

XII.  GOVERNMENT INVESTIGATIONS 

It is the Company's policy to cooperate with every reasonable request of federal, state and local investigators.  At the same time, the Company and its employees are entitled to representation by counsel from the outset of any investigation. 

Any law enforcement official or other government representative seeking an interview, data or documents should be told that the Company will cooperate, but that first the Company's legal counsel must be consulted, and that the Company's legal counsel is to be present at any interview or production of information.

You should not engage in substantive conversations with government enforcement officials under any circumstances until the Company's legal counsel can be present.  A law enforcement official should only be able to demand immediate access to documents or other records under the authority of a court order (i.e., under a search warrant).  If a government investigator does obtain documents from you under such circumstances, you have a right to make copies or an index of everything taken.  Even in these circumstances, you should make every effort to consult the Company's Compliance Officer, especially if confidential Company records are involved.

XIII. COMPLIANCE OFFICER

The Company's Compliance Officer has overall responsibility for ensuring compliance with Company policy, including compliance with anti-competition, trade regulation, and other laws.  Information on possible violations of Company policy or applicable laws should be reported to them.  Company employees have an affirmative duty to make such reports, and both the identity of the reporting employees and the substance of any reports will treated as confidential and subject to the Company’s attorney-client privilege.

XIV. CONCLUSION

Compliance with all applicable anti-competition and trade regulation laws is mandatory.  If in doubt about the legality of any proposed course of conduct, seek guidance from the Compliance Officer.