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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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): April 18, 1997
Caribbean Cigar Company
(Exact name of Registrant as Specified in its Charter)
Florida 0-21081 65-0613303
(State or other jurisdiction (Commission (IRS Employer
of incorporation File No.) Identification No.)
6265 SW 8Th Street, Miami, Florida 33144
(Address of Principal Executive Office)
Registrant's telephone number, including area code: (305) 267-3911.
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ITEM 5. OTHER EVENTS.
On April 18, 1997, pursuant to an agreement dated as of April 1, 1997 (the
"Asset Purchase Agreement") by and among the Registrant, Caribbean AWC
Corporation, a wholly-owned subsidiary of the Registrant (the "Purchaser"), and
American Case & Luggage Co. d/b/a American Western Cigar Co. (the "AWC"),
Lawrence D. Frutkin ("Frutkin") and Alfred J. Berger, Jr. ("Berger")
(collectively, the "Sellers"), the Purchaser acquired AWC's tobacco and cigar
inventory, cigar molds, trademark rights, intellectual property and contractual
rights and obligations. Contracts assigned to the Purchaser pursuant to the
Asset Purchase Agreement included an exclusive supply agreement between AWC and
a cigar manufacturer based in Yogyakarta, Indonesia. The purchase price of the
acquired assets was $237,000, representing the net book value of the assets.
In addition, on April 18, 1997, the Registrant entered into two individual
consulting agreements with Berger and Frutkin, pursuant to which Berger and
Frutkin each shall receive $100,000 fixed compensation per annum
and performance based incentives. In April 1997, the Registrant's board of
directors elected Berger as a director.
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ITEM 7. EXHIBITS.
(c) Exhibits
2.1 The Asset Purchase Agreement.
2.2 The Consulting Agreement, dated as of April 1, 1997, by and
among the Registrant and Lawrence D. Frutkin.*
2.3 The Consulting Agreement, dated as of April 1, 1997, by and
among the Registrant and Alfred J. Berger, Jr.*
* Portions of these exhibits have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARIBBEAN CIGAR COMPANY
/s/ Kevin Doyle
----------------------------------
Date: May 2, 1997 Kevin Doyle
President
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EXHIBIT INDEX
TO FORM 8-K
<TABLE>
<CAPTION>
Exhibit Description of Exhibit
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<S> <C>
2.1 The Asset Purchase Agreement.
2.2 The Consulting Agreement, dated as of April
1, 1997, by and among the Registrant and
Lawrence D. Frutkin.*
2.3 The Consulting Agreement, dated as of April
1, 1997, by and among the Registrant and
Alfred J. Berger, Jr.*
</TABLE>
* Portions of these exhibits have been omitted and filed
separately with the Securities and Exchange Commission pursuant to a request for
confidential treatment.
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ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT ("Agreement"), dated as of April 1, 1997,
by and among Caribbean Cigar Company, a Florida corporation ("Cigar"); Caribbean
AWC Corporation, a Delaware corporation wholly-owned by Cigar (the "Purchaser");
American Case & Luggage Co. d/b/a American Western Cigar Co., an Ohio
corporation (the "Company"); Lawrence D. Frutkin ("Frutkin"); and Alfred J.
Berger, Jr. ("Berger").
WHEREAS, the Company is engaged in the business of marketing and
selling certain cigars (the "Cigar Business"); and
WHEREAS, the Purchaser desires to purchase the assets used by the
Company in the Cigar Business and to assume those of the Company's ongoing
obligations relating to the Cigar Business as are expressly set forth in this
Agreement; and
WHEREAS, the Company desires to sell the assets relating to the
Cigar Business to the Purchaser as provided in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter contained, the parties to this Agreement hereby agree as
follows:
ARTICLE I
SALE AND PURCHASE OF ASSETS
1.1 Sale and Purchase of Assets. On the terms and subject to the
conditions set forth in this Agreement, the Company shall sell, convey, assign,
transfer and deliver to the Purchaser at the Closing, the Cigar Business Assets,
as defined in Section 1.2 of this Agreement, in exchange for the Purchase Price,
as defined in Section 1.4 of this Agreement and the assumption of the
Liabilities as defined in Section 1.3 of this Agreement.
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1.2 Cigar Business Assets. For purposes of this Agreement, the term "Cigar
Business Assets" shall mean only those assets of the Company which are owned by
the Company as of the Closing Date and are specifically set forth on Exhibit A
to this Agreement.
1.3 Liabilities. For purposes of this Agreement, the term "Liabilities"
shall mean only those liabilities and obligations of the Company as are
specifically set forth on Exhibit B to this Agreement.
1.4 Purchase Price . The total purchase price (the "Purchase Price") for
the acquisition of the Cigar Business Assets shall be Two Hundred Thirty-Seven
Thousand Dollars ($237,000), of which One Hundred Eight-Seven Thousand Dollars
($187,000) shall be paid by certified check at the Closing and Fifty Thousand
Dollars ($50,000) shall be paid in the form of a demand promissory note, in the
form attached hereto as Exhibit C.
1.5 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Esanu Katsky Korins
& Siger in New York City, New York, at 10:00 a.m. local time on April 17, 1997,
or such other date as the parties shall mutually agree (April 18, 1997 or such
mutually agreeable later date referred to in this Agreement as, the "Closing
Date").
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY,
FRUTKIN AND BERGER
The Company, Frutkin and Berger each represent and warrant to the
Purchaser that the statements contained in this Article II are true and correct
as of the date of this Agreement, except as set forth in the disclosure schedule
attached hereto (the "Disclosure Schedule"). The representations and warranties
of the Company, Frutkin and Berger contained herein shall survive the Closing
and the consummation of the transactions contemplated hereby and shall not be
affected by any examination made by or on behalf of the Purchaser or the
knowledge of any of the Purchaser's officers, directors, stockholders, employees
or agent. The Disclosure Schedule shall be initialed by each of Frutkin and
Berger, individually and on behalf of the Company, and by officers of Cigar and
the Purchaser, and shall be arranged in paragraphs corresponding to the numbered
and lettered paragraphs contained in this Article II, and the disclosures in any
paragraph of the Disclosure Schedule shall qualify only the corresponding
paragraph of this Article II.
2.1 Title to Assets. The Company is the owner of all right, title and
interest (legal and beneficial) in and to the Cigar Business Assets, free and
clear of all Liens. As used in this Agreement, the term "Liens" shall mean any
security interests, liens, pledges, claims, charges, escrows, encumbrances,
options, rights of first refusal, mortgages, indentures, and security or other
agreements, arrangements, contracts, commitments, understandings or obligations,
no matter how arising, whether written or oral, relating in any way to credit or
the borrowing of money and any claim of right arising out of any marital
relationship.
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2.2 Capacity, Validity and Organization.
(a) The Company is a corporation, duly organized, validly existing
and in good standing under the laws of the state of Ohio and has full power and
authority to carry on its business and to own or lease all of its properties and
assets as and in the places such business is now conducted.
(b) The Company has the full power, capacity and authority necessary
to enter into and perform its obligations under this Agreement and any related
agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and any related
agreement to which the Company is a party will be, when executed and delivered,
duly executed and delivered by the Company. This Agreement constitutes, and each
related agreement will constitute when executed and delivered, the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms and all necessary shareholder and director approval,
relating to the execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement has been duly and validly taken.
(c) All of the issued and outstanding shares of capital stock of the
Company are owned by Dolores Frutkin and Gail Berger (collectively, the
"Shareholders"), are not subject to any Liens, and are duly and validly
authorized and issued, fully-paid and non-assessable.
(d) The Company is not insolvent, and neither the execution of this
Agreement nor the performance of its terms will render the Company insolvent.
2.3 Qualification. The Company is duly qualified or licensed to transact
business as a foreign corporation in good standing in the jurisdictions listed
in Section 2.3 of the Disclosure
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Schedule, and the character of its assets or the nature of its business do not
require such qualification or licensing in any other jurisdiction, except where
the failure to be so qualified would not have a material adverse effect on the
business and financial condition of the Company. Complete and correct copies of
the Articles of Incorporation, and all amendments thereto, (certified by the
Secretary of State of the State of Ohio) are attached hereto as part of Section
2.3 of the Disclosure Schedule.
2.4 Noncontravention. The execution and delivery by the Company of this
Agreement and the agreements and instruments provided for herein and the
consummation by the Company of the transactions contemplated hereby and thereby
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to the
Company; (b) violate the provisions of the Articles of Incorporation or
Regulations of the Company; (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator applicable to the Company; or (d) (i)
conflict with or result in the breach or termination of any term or provision
of, (ii) constitute a default under, (iii) require any consent under, (iv) cause
any acceleration under, or (v) cause the creation of any Lien upon the Company's
assets pursuant to, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party or by which the Company or any of its
assets is bound.
2.5 Tax Matters.
(a) The Company has filed all Tax Returns (as defined below) that it
has at any time been required to file prior to December 31, 1996, all such Tax
Returns were correct and complete in all material respects when filed and the
Company has paid all Taxes (as defined below) that are shown to be due on any
such Tax Return. The Company has no actual or potential liability
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for any obligation with respect to Taxes of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Company during a prior period) other than the Company. All Taxes that the
Company is or was required by law to withhold or collect have been duly withheld
or collected and, to the extent required, have been paid to the proper
governmental entity, or are being contested by appropriate proceedings with
appropriate reserves or deposits having been made. For purposes of this
Agreement, the term "Taxes" shall mean all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States of America or any such state, local or foreign government (each of the
United States of America, any state, local or foreign government, and any agency
or other political subdivision of the United States of America or any state,
local or foreign government referred to in this Agreement as a "Governmental
Entity"), and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any Taxes or any
contest or dispute thereof. For purposes of this Agreement, the term "Tax
Returns" shall mean all reports, returns, declarations, statements, or other
information required to be reported to or filed with a taxing authority in
connection with Taxes.
(b) The Company has delivered to the Purchaser complete and correct
copies of all (i) federal income Tax Returns, (ii) examination reports and (iii)
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1993. No examination or audit of any Tax Return of the Company by
any Governmental Entity is currently in progress or, to the
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knowledge of the Company, pending, or threatened. The Company has not waived any
statute of limitations with respect to Taxes or agreed to an extension of time
with respect to any Tax assessment or deficiency.
(c) The Company is not a "consenting company" withing the meaning of
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
and none of the assets of the Company are subject to an election under Section
341(f) of the Code. The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The
Company is not a party to any allocation or sharing agreement relating to Taxes.
(d) The Company has never been a member of an "affiliated group" of
corporations (within the meaning of Section 1504 of the Code). The Company has
not made an election under Treasury Regulation Section 1.1502-20(g). The Company
has not been required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).]
2.6 Intellectual Property.
(a) The Company owns or has the right to use all Intellectual
Property (as defined below) necessary for the operation of its business as
presently conducted or which is material and used in the operation of its
business. Each item of Intellectual Property owned by or used in the operation
of the business of the Company is set forth on Schedule 2.6(d) to this Agreement
and is a Cigar Business Asset. After the closing, each item of Intellectual
Property will be owned or available for use by the Purchaser on identical terms
and conditions applicable to the Company immediately preceding the Closing. The
Company has taken all reasonable measures to protect the
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proprietary nature of each material item of Intellectual Property, and to
maintain in confidence all trade secrets and confidential information, that it
owns or uses. To the knowledge of the Company, no other person or entity has any
rights to any material item of Intellectual Property owned or used by the
Company and no other person or entity is infringing, violating or
misappropriating any material item of the Intellectual Property that the Company
owns or uses. The Company has made available to the Purchaser complete and
correct copies of all other written documentation evidencing ownership of, and
any claims or disputes relating to, each material item of Intellectual Property.
For purposes of this Agreement the term "Intellectual Property" means all (i)
patents, patent applications, patent disclosures and all related continuation,
continuation-in-part, divisional, reissue, reexamination, utility, model,
certificate of invention and design patents, patent applications, registrations
and applications for registrations; (ii) copyrights, trademarks, service marks,
trade names and registrations and applications for registration thereof; (iii)
mask works and registrations and applications for registration thereof; (iv)
computer software, data and documentation; (v) trade secrets and confidential
business information, whether patentable or unpatentable and whether or not
reduced to practice, (vi) proprietary know-how, manufacturing and production
processes and techniques, research and development information, copyrightable
works, financial, marketing and business data, pricing and cost information,
business and marketing plans and customer and supplier lists and information;
and (vii) other proprietary rights relating to any of the foregoing.
(b) The Company has not received any complaint, claim or notice
alleging that the ownership or use of the Intellectual Property by the Company
is an infringement, violation or misappropriation of the Intellectual Property
or that the Company has abandoned use or any rights at any time to the
Intellectual Property.
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(c) The Company has not licensed, sublicensed or granted any rights
to any third party with respect to any of the Company's interests in the
Intellectual Property.
(d) Section 2.6(d) of the Disclosure Schedule identifies each
material item of Intellectual Property used as of the date hereof in the
operation of the business of the Company that is owned by a party other than the
Company, and the license or agreement pursuant to which the Company uses such
Intellectual Property.
(e) The Company has supplied the Purchaser with correct and complete
copies of all licenses or agreements referred to in Section 2.6(d) of the
Disclosure Schedule. Each such license or agreement is legal, valid, binding,
enforceable and in full force and effect; each such license or agreement may be
assigned to the Purchaser pursuant to the terms of this Agreement without
constituting a breach of such license or agreement; each such license or
agreement will continue to be legal, valid, binding, enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect prior to the Closing; and, to the Company's knowledge, no
party to any such license or agreement is in material breach or default, and no
event has occurred which with notice or lapse of time or both would constitute a
material breach or default or permit termination, modification or acceleration
thereunder.
2.7 Accounts Receivable. All of the accounts receivable of the Company as
of the Closing Date were created in the ordinary course of the Company's
business, and to the best knowledge of the Company, are collectible in the face
amount thereof within 90 days of the date of invoice.
2.8 Liabilities. All of the Liabilities were incurred in the ordinary
course of the Company's business, and the Company received fair value in
exchange therefor.
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2.9 Contracts.
(a) Section 2.9 of the Disclosure Schedule lists each contract,
agreement or commitment (written or oral) that has not previously been
terminated in accordance with the terms thereof and to which the Company is a
party as of the date hereof that is material to the Company or its business,
including without limitation (i) any contract, agreement or commitment providing
for (or which could provide for) the payment by the Company of an aggregate
amount in excess of $25,000; (ii) any contract, agreement or commitment
concerning confidentiality or non-competition; (iii) any contract, agreement or
commitment with any stockholder or employee of the Company; (iv) any lease or
sublease of real estate; (v) any contract, agreement or commitment with any
distributors or resellers of the Company's products; (vi) any arrangement
involving any holder of Company securities; and (vii) any arrangement under
which the consequences of default or termination could have a material adverse
effect on the assets, business, financial condition or results of operations of
the Company (collectively, the "Contracts").
(b) The Company has previously delivered to the Purchaser a complete
and accurate copy of each Contract. Each Contract is a valid and binding
agreement between the Company and the other party or parties thereto and the
rights and obligations of each such Contract may be assigned by the Company to
the Purchaser, and assumed by the Purchaser, without causing a default or breach
of any thereof. No material default or breach by the Company or, to the
Company's knowledge, any other party thereto exists under any of the Contracts
and none will arise solely by virtue of the transactions contemplated by this
Agreement.
(c) The Company has no outstanding contracts or commitments with its
officers, employees, agents, consultants, advisors, salesmen, sales
representatives, distributors or dealers that
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are not cancelable by the Company on notice of not longer than 30 days and
without liability, penalty or premium.
(d) The Company has no collective bargaining or employment
agreement, or agreements with any labor union or organization, nor any
agreements that contain any severance, retirement or termination pay liabilities
or obligations and the Company has not been formally or informally advised of
any proposed attempts to organize any of the Company's employees.
(e) The Company has no bonus, deferred compensation, profit sharing,
stock purchase, stock option or retirement arrangement, whether legally binding
or not, and the Company is not presently paying any pension, deferred
compensation or retirement allowance to anyone. The Company has no employee
benefit plans, as that term is defined in Section 3(3) of the Employee
Retirement Security Act of 1974, as amended.
(f) The Company has made no payments or commissions or provided any
benefits to others in connection with any sales or proposed sales by the
Company, except to employees of the Company or sales representatives or
distributors regularly engaged by the Company to promote the sale of its
products and services. None of such employees or sales representatives or
distributors are employed or engaged as a consultant, advisor, purchasing
representative, employee, officer, director or otherwise, whether paid or
unpaid, by any customer or proposed customer or by any government or
governmental agency or body of any kind and description or by any other person,
firm or corporation or hold political office or position (whether or not paid)
with any government or governmental agency or body or receive remuneration for
services rendered from any person, firm or corporation other than the Company.
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(g) The Company has not given any power of attorney to any person,
firm or corporation for any purpose whatsoever.
(h) The Company is not restricted by any agreement from carrying on
its business in any location.
(i) The Disclosure Schedule sets forth a list of all insurance
policies and bonds currently in force with respect to the Company and its
business, property and assets, copies of which have previously been delivered to
the Purchaser. Such policies and bonds are maintained in such amounts and
against such risks as prudent business management would deem advisable to
protect its assets and properties.
2.10 Claims and Legal Proceedings. There are no claims, actions, suits,
arbitrations, proceedings or investigations pending (or, to the knowledge of the
Company, threatened) against the Company, and there are no outstanding court
orders, court decrees, or court stipulations to which the Company is a party or
by which any of its assets are bound, any of which would (a) impair this
Agreement or affect the transactions contemplated hereby, (b) materially
restrict the present business properties, operations, prospects, assets,
revenues or condition (financial or otherwise) of the Company, or (c)
individually or in the aggregate, have a material adverse effect or materially
impair or preclude the Company's ability to consummate the transactions
contemplated by this Agreement. The Company has no reason to believe that any
such claim, action, suit, arbitration, proceeding or investigation may be
brought against the Company.
2.11 Legal Compliance. To the Company's knowledge, the Company and the
conduct and operations of its business, are in compliance with all of the laws
(including rules and regulations thereunder) of any governmental entity which
are applicable to the Company's business.
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2.12 Brokers' Fees. The Company has no liability or obligation to pay any
fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
2.13 Disclosure. No representation or warranty by the Company, Frutkin or
Berger contained in this Agreement, and no statement contained in the Disclosure
Schedule or any other document, certificate or other instrument delivered by or
to be delivered by or on behalf of the Company, Frutkin or Berger pursuant to
this Agreement, contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND CIGAR
The Purchaser and Cigar each represent and warrant to the Company that:
3.1 Organization. The Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with the
corporate power and authority to carry on its business and to own, lease and
operate its assets. Cigar is a corporation duly organized, validly existing and
in good standing under the laws of the State of Florida, with the corporate
power and authority to carry on its business and to own, lease and operate its
assets.
3.2 Authorization. The execution and delivery by the Purchaser and Cigar
of this Agreement and the agreements and the instruments provided for herein and
the consummation by the Purchaser and Cigar of the transactions contemplated
hereby and thereby, have been duly authorized by all necessary corporate action
on the part of the Purchaser and Cigar. This Agreement
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and such agreements and instruments constitute the valid and binding obligations
of the Purchaser and Cigar, enforceable against the Purchaser and Cigar in
accordance with their terms.
3.3 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
execution and delivery by the Purchaser and Cigar of this Agreement and the
agreements and instruments provided for herein and the consummation by the
Purchaser and Cigar of the transactions contemplated hereby and thereby, will
not, with or without the giving of notice or the passage of time or both, (a)
violate the provisions of any law, rule or regulation applicable to the
Purchaser and Cigar; (b) violate the provisions of the charter or By-laws of the
Purchaser or Cigar; (c) violate any judgment, decree, order or award of any
court, governmental body or arbitrator applicable to the Purchaser or Cigar; or
(d) (i) conflict with or result in the breach or termination of any term or
provision of, (ii) constitute a default under, (iii) require any consent under,
(iv) cause any acceleration under, or (v) cause the creation of any lien, charge
or encumbrance upon the Purchaser's or Cigar's assets pursuant to, any
indenture, mortgage, deed of trust or other agreement to which the Purchaser or
Cigar, as the case may be, is a party or by which the Purchaser or Cigar or any
of their assets are bound.
3.4 Statements True and Correct. No representation or warranty made by the
Purchaser or Cigar, nor any statement, certificate or instrument furnished or to
be furnished to the Company pursuant to this Agreement or any other document,
agreement or instrument referred to herein or therein, taken as a whole,
contains or will contain any untrue statement of fact or omits or will omit to
state a fact necessary to make the statements contained therein, taken as a
whole, not misleading.
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ARTICLE IV
COVENANTS
4.1 Commercially Reasonable Efforts. Each of the parties shall use
commercially reasonable efforts to take all actions and to do all things
necessary, proper or advisable to consummate the transactions contemplated by
this Agreement.
4.2 Waivers, etc. Each of the parties shall use commercially reasonable
efforts to obtain, at its expense, and to reasonably cooperate with the other
parties hereto to obtain all such waivers, permits, consents, approvals or other
authorizations from third parties and Governmental Entities as may be necessary
or desirable in connection with the consummation by it or them, as the case may
be, of the transactions contemplated by this Agreement.
4.3 Operation of Business. Except as specifically provided in this
Agreement, during the period from the date of this Agreement to the closing
date, the Company shall conduct its operations in the ordinary course of
business and in compliance with all applicable laws and regulations and, to the
extent consistent therewith, use all reasonable efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with the Company to the end that its goodwill and ongoing business
shall not be impaired in any material respect. Without limiting the generality
of the foregoing, prior to the Closing Date, the Company shall not, without the
written consent of the Purchaser:
(a) Enter into any agreements to purchase or sell any capital assets
or enter into agreements or commitments with respect to the purchase or sale of
capital equipment;
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(b) Incur any Liens (whether consensual or involuntary) with respect
to the Cigar Business Assets;
(c) Fail to take such action as may be necessary to insure
compliance with the provisions of the laws of the state of Ohio or any other
jurisdiction in which the Company does business;
(d) Acquire, sell, lease, encumber or dispose of any assets, other
than purchases, sales and leases of assets in the ordinary course of business;
(e) Pay any material obligation or liability other than in the
ordinary course of business;
(f) Except for tobacco inventory loans to Taru Martani, enter into,
assume or become bound or obligated by any agreement, contract or commitment,
whether or not reduced to writing (each a "Company Agreement") or extend or
modify the terms of any presently existing Company Agreement which directly or
indirectly (i) involves (or could involve) the payment of more than $25,000,
(ii) increases the compensation of any employee of the Company except in the
ordinary course of business and consistent with past practice, or (iii) involves
any payment or obligation to any affiliate of the Company of more than $5,000;
(g) Sell, assign, transfer or license any material Intellectual
Property; or
(i) Take or omit to take any action that would constitute a material
violation of or default under, or waive any material rights under, any Contract.
4.4 Full Access. The Company, Frutkin and Berger shall cause the Company
to permit representatives of the Purchaser to have full access at all reasonable
times to all premises, properties, financial, tax and accounting records,
contracts, other records and documents (including without
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limitation those relating to capital stock, corporate minute books, employee
benefit plans and intellectual property rights), and personnel, of or pertaining
to the Company and to make copies and extracts of all such writings.
4.5 Notice of Breach.
(a) The Company, Frutkin and Berger shall deliver to the Purchaser
written notice of any event or development promptly after discovery thereof that
would (i) render any statement, representation or warranty of the Company,
Frutkin or Berger in this Agreement (including the Disclosure Schedule)
inaccurate or incomplete in any material respect, or (ii) constitute or result
in a breach by the Company, Frutkin or Berger of, or a failure by any of them to
comply with, any agreement or covenant in this Agreement applicable to such
party.
(b) The Purchaser shall deliver to the Company written notice of any
event or development promptly after discovery thereof that would (i) render any
statement, representation or warranty of the Purchaser or Cigar in this
Agreement inaccurate or incomplete in any material respect, or (ii) constitute
or result in a breach by the Purchaser or Cigar of, or a failure by the
Purchaser or Cigar to comply with, any agreement or covenant in this Agreement
applicable to such party.
(c) No such disclosure under this Section 4.5 shall be deemed to
avoid or cure any such misrepresentation or breach.
4.6 Exclusivity. The Company shall cause the Company, its officers,
directors, employees, representatives and agents not to, directly or indirectly,
(a) encourage, solicit, initiate, engage or participate in discussions or
negotiations with any person or entity (other than the Purchaser or Cigar)
concerning any merger, consolidation, sale of material assets, tender offer,
-17-
<PAGE> 18
recapitalization, accumulation of capital stock of the Company, proxy
solicitation or other business combination (collectively, "Business
Combination") involving the Company or (b) provide any non-public information
concerning the business, properties or assets of the Company to any person or
entity (other than the Purchaser or Cigar) in connection with any proposed
Business Combination. The Company shall immediately notify the Purchaser of, and
shall disclose to the Purchaser the details of, any inquiries or discussions of
the nature described in the preceding sentence.
4.7 Transaction Expenses. Each of the Purchaser and the Company shall be
solely responsible for the costs and expenses, including, without limitation,
legal fees and expenses and accounting fees and expenses, incurred by it in
connection with the transactions contemplated by this Agreement.
4.8 Taru Martani to Purchase Molds; Berger to Guarantee Purchase. It is
the intention of the parties that Taru Martani will purchase the cigar molds set
forth in Exhibit A from the Purchaser for a price equal to the price paid by the
Purchaser to the Company for the cigar molds and that the Purchaser will use its
best efforts to enter into an agreement with Taru Martani to that effect. If
Taru Martani does not so purchase the cigar molds from the Purchaser within one
year from the date of this Agreement, Berger shall purchase the cigar molds from
the Purchaser for a price equal to the price paid by the Purchaser for such
cigar molds, including the cost of freight and any duties incurred in shipping
the Cigar Molds to Taru Martani.
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<PAGE> 19
ARTICLE V
CONDITIONS TO CONSUMMATION OF SALE
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the transactions contemplated by this Agreement are
subject to the satisfaction of the following conditions:
(a) No action, suit or proceeding shall be pending wherein an
unfavorable judgment, order, decree, stipulation or injunction would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation or (iii) affect adversely the right of the Purchaser to
own, operate or control any of the assets and operations of the Company
following the Closing Date, and no such judgment, order, decree, stipulation or
injunction shall be in effect.
(b) Each party shall have obtained all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, necessary to their respective performance of
this Agreement and the transactions contemplated hereby, except (i) for any
waivers, permits, consents, approvals, other authorizations, registrations,
filings or notices which if not obtained or effected would not have a material
adverse effect on the ability of the Purchaser to use the Cigar Business Assets
in substantially the same manner as they were used prior to the date hereof and
(ii) for the contract between the Company and Taru Martani (the "Taru Martani
Contract") attached hereto as Exhibit 5.1(b); provided however, that the
Company, Frutkin and Berger shall each use their best efforts to cause Taru
Martani to agree to an assignment of the Company's rights and obligations under
the Taru Martani Contract to the Purchaser as promptly as practicable following
the execution of this Agreement.
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<PAGE> 20
5.2 Conditions to Obligations of the Purchaser and Cigar. The obligation
of the Purchaser and Cigar to consummate the transactions contemplated by this
Agreement is subject to the satisfaction of the following additional conditions:
(a) the representations and warranties of the Company, Frutkin and
Berger set forth in Article II shall be true and correct when made on the date
hereof and as of the Closing Date;
(b) the Company shall have performed or complied with the agreements
and covenants required to be performed or complied with by it under this
Agreement as of or prior to the Closing Date;
(c) the Company shall have delivered to the Purchaser a certificate
to the effect that each of the conditions specified in clauses (a) and (b) of
Section 5.1 and clauses (a) and (b) of this Section 5.2 are satisfied; and
(d) the Purchaser and Cigar shall have received from Keating,
Muething & Klekamp, P.L.L., counsel to the Company, Frutkin and Berger, an
opinion in the form attached hereto as Exhibit D, addressed to the Purchaser and
Cigar, dated as of the Closing Date and in form and substance reasonably
satisfactory to the Purchaser and Cigar.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the transactions contemplated by this Agreement is subject
to the satisfaction of the following additional conditions:
(a) the representations and warranties of the Purchaser and Cigar
set forth in Article III shall be true and correct when made on the date hereof
and as of the Closing Date;
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<PAGE> 21
(b) the Purchaser and Cigar shall have performed or complied with
its agreements and covenants required to be performed or complied with under
this Agreement as of or prior to the Closing Date;
(c) the Purchaser and Cigar shall have delivered to the Company a
certificate to the effect that each of the conditions specified in clauses (a)
and (b) (insofar as it relates to actions, suits or proceedings pending against
the Purchaser or Cigar) of Section 5.1 and clauses (a) and (b) of this Section
5.3 is satisfied;
(d) the Company shall have received from Esanu Katsky Korins &
Siger, counsel to the Purchaser, an opinion with respect to the matters set
forth in Exhibit E attached hereto, addressed to the Company, dated as of the
Closing Date and in form and substance reasonably satisfactory to the Company.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company, Frutkin and Berger. Each of the
Company, Frutkin and Berger (the Company, Frutkin and Berger referred to
collectively as, the "Indemnitors") shall indemnify the Purchaser and Cigar in
respect of, and hold the Purchaser and Cigar harmless against, any and all
liabilities, monetary damages, fines, fees, penalties, losses and expenses
(including without limitation amounts paid in settlement, interest, court costs,
reasonable costs of investigators, reasonable fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation) incurred or suffered by the Purchaser or Cigar, as the case may be
(such liabilities, monetary damages, fines, fees, penalties, losses and expenses
referred to as "Damages"):
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<PAGE> 22
(a) Resulting from any misrepresentation or breach of warranty of
the Company, Frutkin or Berger contained in this Agreement;
(b) Resulting from any failure of the Company to have contractual or
legal authority to enter into this Agreement, or any omission by the Company,
Frutkin or Berger that would render this Agreement invalid or not binding on the
Company, Frutkin or Berger, as the case may be.
6.2 Indemnification by the Purchaser and Cigar
Each of the Purchaser and Cigar shall indemnify the Company, Frutkin
and Berger in respect of and hold the Company, Frutkin and Berger harmless
against, any and all Damages:
(a) Resulting from any misrepresentation or breach of warranty by
the Purchaser or Cigar contained in this Agreement; or
(b) Resulting from any failure of the Purchaser or Cigar to have
contractual or legal authority to enter into this Agreement, or any omission by
them that would render this Agreement invalid or not binding on the Purchaser or
Cigar, as the case may be.
6.3 Method of Asserting Claims
(a) If a third party asserts that the Purchaser or Cigar is liable
to such third party for a monetary or other obligation which may result in
Damages for which the Purchaser may be entitled to indemnification pursuant to
this Article VI, and the Purchaser or Cigar, as the case may be, reasonably
determines that it has a valid business reason to fulfill such obligation, then
(i) the Purchaser or Cigar, as the case may be, shall be entitled to satisfy
such obligation, after prior notice to and consent from the Indemnitors, (ii)
the Purchaser or Cigar, as the case may be, may make a claim for indemnification
pursuant to this Article VI, and (iii) the Indemnitors shall reimburse the
-22-
<PAGE> 23
Purchaser or Cigar, as the case may be, for any such Damages for which it is
entitled to indemnification pursuant to this Article VI.
(b) The Purchaser or Cigar on the one hand, or the Company, Frutkin
and Berger on the other hand shall give prompt written notice to the
indemnifying parties of the commencement of any action, suit or proceeding
relating to a third party claim for which indemnification pursuant to this
Article VI may be sought. Within 20 days after delivery of such notification,
the indemnifying parties may, upon written notice thereof to each of the
indemnified parties, assume control of the defense of such action, suit or
proceeding with counsel reasonably satisfactory to the indemnified parties,
provided that the indemnifying parties acknowledge in writing to each of the
indemnified parties that any Damages that may be assessed against the
indemnified parties in connection with such action, suit or proceeding
constitute Damages for which the indemnified parties are entitled to
indemnification pursuant to this Article VI. If the indemnifying parties do not
so assume control of such defense, the indemnified parties shall control such
defense. The party not controlling such defense may participate therein at its
own expense; provided that if the indemnifying parties assume control of such
defense and independent counsel to the indemnified parties renders a written
opinion to the effect that any of the indemnifying parties and the indemnified
parties have conflicting interests with respect to the defense of such action,
suit or proceeding, the reasonable fees and expenses of counsel to the
indemnified parties shall be considered "Damages" for purposes of this
Agreement. The party controlling such defense shall keep the other party advised
of the status of such action, suit or proceeding and the defense thereof and
shall consider in good faith recommendations made by the other party with
respect thereto. The parties controlling defense of the action shall not agree
to any settlement of such action, suit or
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<PAGE> 24
proceeding without the prior written consent of the other parties, which consent
shall not be unreasonably withheld.
ARTICLE VII
TERMINATION
7.1 Termination of Agreement. This Agreement and the transactions
contemplated by this Agreement may be terminated at any time prior to the
Closing Date by any of the parties hereto in its sole discretion.
7.2 Effect of Termination. If any party terminates this Agreement pursuant
to Section 7.1, all obligations of the parties hereunder shall terminate without
any liability of any party to any other party (except (i) with respect to the
Purchaser or Cigar, any willful breach of this Agreement by the Purchaser or
Cigar and (ii) with respect to the Company, Frutkin and Berger, any willful
breach of this Agreement by the Company, Frutkin or Berger).
ARTICLE VIII
MISCELLANEOUS
8.1 Press Releases and Announcements. Neither the Purchaser or Cigar on
the one hand nor the Company, Berger or Frutkin, on the other, shall issue or
approve any press release or any public disclosure or announcement, whether oral
or written, relating to the subject matter of this Agreement without the prior
written approval of the other; provided, however, that Cigar may make any public
disclosure it believes in good faith is required by law or regulation.
8.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the parties and their respective
successors and permitted assigns.
-24-
<PAGE> 25
8.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Purchaser, Cigar and the
Company concerning the subject matter hereof and supersedes any prior
understandings, agreements or representations among the parties, written or
oral, that may have related in any way to the subject matter hereof.
8.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the parties named herein and their respective successors
and permitted assigns. No party may assign either this Agreement or any of such
party's rights, interests, or obligations hereunder without the prior written
approval of the other parties.
8.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, demand, claim, or
other communication hereunder shall be deemed duly delivered two business days
after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent via a reputable nationwide
overnight courier service, in each case to the intended recipient as set forth
below:
If to the Company, Frutkin or Berger:
195 East McMillan Street
Cincinnati, Ohio 45219
Attn: Alfred J. Berger, Jr.
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<PAGE> 26
with a copy to:
Kenneth P. Kreider, Esq.
Keating, Muething & Klekamp, P.L.L.
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
If to the Purchaser or Cigar:
Caribbean Cigar Company
6265 S.W. 8th Street
Miami, Florida 33144
Attn: Thomas R. Dilk
with a copy to:
Eric Kamisher, Esq.
Esanu Katsky Korins & Siger
605 Third Avenue
New York, New York 10158
Any party may give any notice, request, demand, claim, or other communication
hereunder using any other means (including personal delivery, expedited courier,
messenger service, telecopy, telex, ordinary mail, or electronic mail), but no
such notice, request, demand, claim, or other communication shall be deemed to
have been duly given unless and until it actually is received by the party for
whom it is intended. Any party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other parties notice in the manner herein set forth.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws (and not the law of conflicts) of the State of
Florida.
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<PAGE> 27
8.9 Amendments and Waivers. The parties may mutually amend any provision
of this Agreement at any time prior to the Closing; provided, however, that any
amendment shall be subject to the restrictions contained under applicable state
corporate law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by each of the parties. No waiver
by any party of any default, misrepresentation, or breach of warranty or
covenant hereunder, whether intentional or not, shall be deemed to extend to any
prior or subsequent default, misrepresentation, or breach of warranty or
covenant hereunder or affect in any way any rights arising by virtue of any
prior or subsequent such occurrence.
8.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the parties agree that the court making the determination of
invalidity or unenforceability shall have the power to reduce the scope,
duration, or area of the term or provision, to delete specific words or phrases,
or to replace any invalid or unenforceable term or provision with a term or
provision that is valid and enforceable and that comes closest to expressing the
intention of the invalid or unenforceable term or provision, and this Agreement
shall be enforceable as so modified after the expiration of the time within
which the judgment may be appealed.
8.11 Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
AMERICAN CASE & LUGGAGE CO.
D/B/A AMERICAN WESTERN CIGAR CO.
By: /s/ Lawrence D. Frutkin
---------------------------------
Name: Lawrence D. Frutkin
Title: Vice President
/s/ Lawrence D. Frutkin
--------------------------------------
Larry D. Frutkin
/s/ Alfred J. Berger, Jr.
--------------------------------------
Alfred J. Berger, Jr.
CARIBBEAN AWC CORPORATION
By: /s/ Thomas Dilk
----------------------------------
Name: Thomas R. Dilk
Title: Secretary and Treasurer
CARIBBEAN CIGAR COMPANY
By: /s/ Thomas Dilk
-----------------------------------
Name: Thomas R. Dilk
Title: Chief Financial Officer
-28-
<PAGE> 29
EXHIBIT A
Tobacco Inventory at Taru Martani
<TABLE>
<S> <C> <C>
- -Nicaraguan $ 42,400.00
- -Connecticut 72,800.00
-----------
Total $115,200.00
Less: Adjustment 37,000.00
-----------
Total 78,200.00
Cigar Molds (Indemnity for Mold from Fred) 72,000.00
CU Cigar Bands 2,900.00
Trademark 18,800.00
Cash Advance on Discounted Invoices 16,400.00
Cigar Inventory (in Cincinnati) 48,700.00
-----------
Total Due $237,000.00
</TABLE>
/s/ Lawrence D. Frutkin
<PAGE> 30
EXHIBIT B
Liabilities and Obligations of American Case & Luggage Co.
d/b/a American Western Cigar Co.
NONE.
/s/ Lawrence D. Frutkin
<PAGE> 31
EXHIBIT C
Demand Promissory Note
Attached hereto is a Form of Demand Promissory Note
/s/ Lawrence D. Frutkin
<PAGE> 32
NA- $50,000
Miami, Florida
April 17, 1997
CARIBBEAN CIGAR COMPANY
Promissory Note
FOR VALUE RECEIVED, Caribbean Cigar Company, a Florida corporation (the
"Company"), hereby promises to pay to the order of _________________________
(the "Holder"), on or after June 30, 1997, on demand, the principal sum of fifty
thousand dollars ($50,000), along with interest accrued thereon subsequent to
June 30, 1997. Interest on the unpaid principal amount of this Note (subsequent
to June 30, 1997) shall be calculated at the rate of ten percent (10%) per annum
and shall be computed on the basis of a 360-day year and 30-day month. Interest
shall be paid quarterly, on the last day of each September, December, March, and
June of each year, commencing on September 30, 1997. If any payment is due on a
date on which banks in the State of New York are authorized to be closed, such
payment shall be due on the next day which is not a date on which such banks are
authorized to be closed. No demand rights shall be available under this Note
prior to June 30, 1997. No interest shall accrue under this Note prior to June
30, 1997; provided, however, that, upon demand by the Holder, as provided
herein, if the Company fails to pay this Note in full within five (5) business
days, then interest shall be due from the date hereof.
Payments of principal and interest shall be made in lawful money of the
United States of American against presentment of this Note. This Note shall be
transferable and negotiable at any time by the holder of this Note.
The Company may prepay this Note at any time or from time to time without
payment of any penalty or premium, provided that accrued interest is paid to the
date of such prepayment; and provided, further, that no partial prepayment shall
be in an amount less than twenty percent (20%) of the initial principal amount
of this Note.
This Note shall be governed by the laws of the State of New York
applicable to agreements executed and to be performed wholly within such State.
The Company consents to the exclusive jurisdiction of the United States District
Court for the Southern District of New York and Supreme Court of the State of
New York in the County of New York in any action relating to or arising out of
this Note.
IN WITNESS WHEREOF, the Company has executed this Note on the date and
year first aforesaid.
CARIBBEAN CIGAR COMPANY
By:__________________________________
Thomas R. Dilk, Chief Financial Officer
<PAGE> 33
EXHIBIT D
Opinion of Keating, Muething & Klekamp, P.L.L.
Attached hereto is a Form of Opinion Letter
/s/ Lawrence D. Frutkin
<PAGE> 34
Letterhead of Keating, Muething & Klekamp, P.L.L.
April 17, 1997
Caribbean AWC Corporation
6265 S.W. 8th Street
Miami, Florida 33144
Caribbean Cigar Company
6265 S.W. 8th Street
Miami, Florida 33144
Gentlemen:
We have acted as counsel for American Case & Luggage Corp., an Ohio
corporation ("Seller"), in connection with the negotiation, execution and
delivery of the Asset Purchase Agreement dated as of April 1, 1997 (the
"Purchase Agreement") among Seller, Caribbean Cigar Company ("Cigar"), Caribbean
AWC Corporation ("Purchaser"), Lawrence D. Frutkin ("Frutkin") and Alfred J.
Berger, Jr. ("Berger"), providing for the purchase of certain assets of the
Seller. This opinion is being delivered to you pursuant to Section 5.2(d) of the
Purchase Agreement. Capitalized terms not otherwise defined herein shall have
the meanings respectively ascribed thereto in the Purchase Agreement.
In rendering the opinions set forth herein, we have examined the
following documents (collectively the "Transaction Documents"):
1. The Purchase Agreement;
2. The Consulting Agreement dated as of April 1, 1997 between Cigar
and Berger; and
3. The Consulting Agreement dated as of April 1, 1997 between Cigar
and Frutkin.
We have also examined originals or copies, certified or otherwise
identified to our satisfaction, of such documents, corporate records,
instruments and public records, have made such inquiries of the officers and
representatives of Seller and have investigated such matters of law as we have
deemed relevant or necessary as the basis for such opinions.
<PAGE> 35
Caribbean AWC Corporation
Caribbean Cigar Company
Page 2
April 17, 1997
We have (without any investigation or independent confirmation)
relied upon, and assumed the accuracy of, the responses to such inquiries and
such certificates, corporate records and other documents with respect to factual
matters. In addition, we have assumed the genuineness and authenticity of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to authentic original documents of all documents submitted to us as
copies, the accuracy, completeness and authenticity of certificates of public
officials, and the due authorization, execution and delivery of all documents by
the Purchaser and Cigar. We have also assumed that the documents to which
Purchaser and/or Cigar are parties are binding upon and enforceable against each
of them.
Whenever this opinion refers to matters within our "knowledge,"
"known to us" or of which we "know," such reference is limited to (1) the actual
knowledge of the attorneys in our firm who have been actively involved in the
representation of Seller in connection with the Transaction Documents and
Related Documents (defined below), and (2) facts represented to us in
certificates of officers of Seller (the "Certificates").
Wherever we have stated that we have assumed any matter, it is
intended to indicate that we assume such matter without making any factual,
legal or other inquiry or investigation concerning such matter. Nothing has come
to our attention that would lead us to believe that our assumptions are not
justified.
We are admitted to practice only in the State of Ohio and do not
hold ourselves out as being conversant with, and therefore express no opinion
with respect to, the laws of any jurisdiction other than the federal laws of the
United States of America and the laws of the State of Ohio.
Based solely on the review described above and the foregoing
limitations and qualifications, it is our opinion that:
1. Seller is a corporation organized, validly existing and in good
standing under the laws of the State of Ohio. To the best of our knowledge,
Seller is duly qualified to do business and is in good standing as a foreign
corporation in each state or other jurisdiction in which failure to be so
licensed or qualified would have a material adverse effect.
2. Seller has the corporate power, authority and legal right to own
its properties, to carry on its business as now being conducted, and to execute,
deliver and perform its obligations under the Transaction Documents and under
any agreements related thereto or required to be executed and delivered by
Seller pursuant to the terms of the Transaction Documents or such related
documents (the "Related Documents"). The execution, delivery and performance of
the Transaction Documents and Related Documents by Seller have been duly
authorized by all necessary corporate action of Seller and each Transaction
Document and each Related Document has been duly executed and delivered and
constitutes the legal, valid and binding obligation of Seller enforceable
against Seller in accordance with its terms.
<PAGE> 36
Caribbean AWC Corporation
Caribbean Cigar Company
Page 3
April 17, 1997
3. Seller has the right and power to sell, convey, assign, transfer
and deliver the Cigar Business Assets as provided in the Purchase Agreement and,
to the best of our knowledge, there is no mortgage, pledge, lease, lien,
security interest, charge title retention or other security arrangement or any
other encumbrance upon or affecting the Cigar Business Assets, except as set
forth on the Disclosure Schedules.
4. The execution, delivery and performance by Seller of the
Transaction Documents and the Related Documents and the consummation of the
transactions contemplated thereby, will not result in any violation of the
Articles of Incorporation or Code of Regulations of Seller, any applicable
statute, law or regulation, or order or decree of any court or governmental
authority, or, to the best of our knowledge, conflict with, result in a breach
or termination of, constitute a default under, or result in the creation of any
lien, charge, encumbrance or restriction on any of the Cigar Business Assets
under any material agreement or other instrument to which Seller is a party.
5. To the best of our knowledge, there is no action, proceeding,
suit or investigation pending or threatened against Seller which may have a
material adverse effect on Seller's ability to convey the Cigar Business Assets
to the Buyer.
Each of the foregoing opinions is subject to the following
qualifications:
(a) All opinions, to the extent that they relate to the
enforceability of any agreement or obligation or to the legality, validity and
enforceability of any rights and remedies provided in the Transaction Documents
or the Related Documents are subject and qualified by exceptions provided by
bankruptcy, insolvency, reorganization, receivership, moratorium, assignment for
the benefit of creditors' laws or similar laws now or hereafter in effect
affecting the validity, legality and binding effect and enforceability of
creditors' rights generally, including, without limitation, the effect of
statutory or other laws regarding fraudulent conveyances or preferential
transfers.
(b) The availability of any equitable remedies for the enforcement
of any provision of the Transaction Documents or Related Documents may be
subject to the discretion of the court before which any proceeding for the
enforcement of such provision may be brought.
(c) We express no opinion as to the enforceability of any provision
of the Transaction Documents or the Related Documents providing for the recovery
of attorneys' fees or other costs of collection.
(d) We express no opinion as to the enforceability of any provision
for indemnification insofar as such indemnification would violate public policy
or federal or state securities laws.
(e) We express no opinion with respect to any provisions for
submission to jurisdiction and the related waivers of defense to such
jurisdiction or with respect to liquidated damages provisions.
<PAGE> 37
Caribbean AWC Corporation
Caribbean Cigar Company
Page 4
April 17, 1997
This opinion letter speaks only as of its date, and we specifically
disclaim any obligation to update or revise this opinion as circumstances of
fact or law change. Our opinions set forth herein are strictly limited to the
matters expressly set forth, and no other opinions are to be implied.
This opinion letter is given for your benefit and may not be relied
upon by any other person or entity without our prior written consent.
Very truly yours,
KEATING, MUETHING & KLEKAMP, P.L.L.
By:_____________________________________
Edward E. Steiner
jsm
<PAGE> 38
EXHIBIT E
Form of Opinion of Esanu Katsky Korins & Siger
Attached hereto is a Form of Opinion Letter
/s/ Lawrence D. Frutkin
<PAGE> 39
Letterhead of Esanu Katsky Korins & Siger
April 17, 1997
American Case & Luggage Co. 03059-004
d/b/a American Western Cigar Co.
195 East McMillan Street
Cincinnati, Ohio 45219
Re: Caribbean Cigar Company
Gentlemen:
We have acted as counsel to Caribbean Cigar Company, a Florida
corporation ("CCC"), in connection with the Asset Purchase Agreement by and
among CCC; Caribbean AWC Corporation, a Delaware corporation wholly-owned by CCC
("AWC"); American Case & Luggage Co. d/b/a/ American Western Cigar Co., an Ohio
corporation; Lawrence D. Frutkin ("Frutkin"); and Alfred J. Berger, Jr.
("Berger"), dated as of April 1, 1997 (the "Asset Purchase Agreement"). The
transaction contemplated by the Asset Purchase Agreement (including the
Consulting Agreement dated as of April 1, 1997 between CCC and Berger (the
"Berger Consulting Agreement") and the Consulting Agreement dated as of April 1,
1997 between CCC and Frutkin (the "Frutkin Consulting Agreement")) shall be
referred to herein as the "Transaction".
In this connection, we have examined:
(i) The Asset Purchase Agreement;
(ii) The Berger Consulting Agreement;
(iii) The Frutkin Consulting Agreement;
(iv) The $50,000 Note to be issued in connection with the closing under
the Transaction;
(v) The form of Warrant associated with the Berger Consulting Agreement
and the Frutkin Consulting Agreement (the "Form of Warrant");
<PAGE> 40
American Case and Luggage Co.
d/b/a American Western Cigar Co.
April 17, 1997
Page 2
(vi) Certified copies of (A) the Amended and Restated Articles of
Incorporation of CCC and (B) the Certificate of Incorporation of
AWC;
(vii) A good standing certificate from the Secretary of State of Florida
as to CCC, dated April 11, 1997;
(viii) A good standing certificate from the Secretary of State of Delaware
as to AWC, dated April 14, 1997;
(ix) Copies of the by-laws and corporate resolutions of CCC certified by
the Secretary of CCC; and
(x) Copies of the by-laws and corporate resolutions of AWC certified by
the Secretary of AWC.
The Asset Purchase Agreement, the Berger Consulting Agreement, and the
Frutkin Consulting Agreement are referred to herein as the "Transaction
Documents".
This Opinion is governed by and shall be interpreted in accordance with
the Legal Opinion Accord (the "Accord") of the ABA Section of Business Law
(1991). As a consequence, it is subject to a number of qualifications,
exceptions, definitions, limitations on coverage and other limitations, all as
more particularly described in the Accord, and this Opinion should be read in
conjunction therewith. The terms "knowledge of" or "known to" and words of like
import, as used in this Opinion, shall mean "Actual Knowledge" as such term is
used in the Accord.
In our examination, we have, with your consent, assumed the genuineness of
all signatures, the authenticity of all documents submitted to us as originals,
the conformity to originals of all documents submitted to us as certified,
photocopies (including telecopies) or conformed copies, the authenticity of the
originals of such copies, and the due execution and delivery of all documents
where due execution is a prerequisite to the effectiveness thereof. We have been
furnished with, and with your consent relied upon, certificates of, and/or other
information provided by, CCC and AWC as to certain factual matters. In addition,
we have relied, without independent investigation, upon certificates from public
officials as to the matters set forth in such certificates.
Based upon the foregoing, and subject to the qualifications hereinafter
set forth, we are of the opinion that:
1. CCC is a corporation duly organized, validly existing and in good
standing under the laws of the State of Florida; AWC is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware.
<PAGE> 41
April 17, 1997
Page 3
2. CCC and AWC have all requisite power and authority to own their
properties; to carry on their businesses as now being conducted; to
execute and deliver the Transaction Documents and other documents
relating to the Transaction; and to consummate the transactions
contemplated by the Transaction Documents.
3. The execution and delivery of the Transaction Documents and other
documents specifically referred to therein relating to the
Transaction, and the consummation of the transactions contemplated
thereby, have been duly authorized by all requisite corporate action
on the part of CCC and AWC.
4. The Transaction Documents and other documents specifically referred
to therein relating to the Transaction have been duly executed and
delivered by CCC and/or AWC, as the case may be, and constitute the
valid and binding obligations of CCC and/or AWC, as the case may be,
enforceable against each of them in accordance with their respective
terms.
5. The Form of Warrants, if and when issued pursuant to the terms of
the Berger Consulting Agreement and the Frutkin Consulting
Agreement, if duly executed and delivered by CCC, will constitute
the valid and binding obligations of CCC, enforceable against it in
accordance with their respective terms.
The foregoing opinions are qualified by the following:
A. We are admitted to practice in the State of New York and are not
opining as to the law of any other jurisdiction except for (i) CCC's
organization under the Florida Business Corporation Act and (ii)
AWC's organization under the Delaware General Corporation Law. For
purposes of the opinion set forth in the first sentence of paragraph
(1), we are relying entirely upon the good standing certificate
identified as item (vii) on the second page of this opinion; for
purposes of the opinion set forth in the second sentence of
paragraph (1), as to existence and good standing, we are relying
entirely upon the good standing certificate identified as item
(viii) on the second page of this opinion. For purposes of
paragraphs (3) and (4) of this Opinion we are assuming that the
governing law applicable to such instruments is identical to the
laws of the State of New York in all material respects. We express
no opinion as to the enforcement or interpretation by any court,
administrative agency, arbitrator, or other authority of any other
state with respect to the construction, interpretation, legality or
validity of any agreements or as to matters involving choices or
conflicts of law.
B. The enforceability of the rights and remedies of any party to any
agreement against any other party thereto may be subject to
customary principles governing equitable relief
<PAGE> 42
American Case and Luggage Co.
d/b/a American Western Cigar Co.
April 17, 1997
Page 4
generally and to any applicable bankruptcy, insolvency, moratorium,
fraudulent conveyance or other laws affecting creditors' rights and
their enforcement generally.
C. No opinion is expressed as to whether any particular provisions of
any agreement will be enforceable by a decree of specific
performance or other equitable relief, or that the enforcement
thereof may not be limited by defenses such as estoppel, waiver and
other equitable considerations.
The opinions expressed in this Opinion are based upon applicable laws,
rules and regulations in effect as of the date hereof, and any change in such
laws, rules or regulations may affect our opinion. We assume no obligation to
advise you of any changes concerning matters discussed herein, whether or not
deemed material, of which we may hereafter become aware. We have not been asked
and we do not render any opinion with respect to any matters except as expressly
set forth above.
This Opinion is being delivered to you pursuant to the Asset Purchase
Agreement, and neither this Opinion nor any part of this Opinion may be
delivered to, used, quoted, or relied upon by any other person or entity or for
any other purpose without, in each instance, our express prior written consent,
except that this Opinion may be included in a list of closing documents and a
closing binder.
Eric S. Kamisher, Esq., who is of counsel to this firm, is a director,
secretary, shareholder, and option holder of CCC.
Very truly yours,
Esanu Katsky Korins & Siger
<PAGE> 43
DISCLOSURE SCHEDULES
TO ASSET PURCHASE AGREEMENT
BY AND AMONG
CARIBBEAN CIGAR COMPANY ("CIGAR"),
CARIBBEAN AWC, CORPORATION ("PURCHASER"),
AMERICAN CASE & LUGGAGE CORP. D/B/A
AMERICAN WESTERN CIGAR (THE "COMPANY"),
LAWRENCE D. FRUTKIN ("FRUTKIN")
AND
ALFRED J. BERGER, JR. ("BERGER")
DATED APRIL 17, 1997
THE DISCLOSURE SCHEDULES ATTACHED HERETO ARE SUBJECT TO THE
FOLLOWING TERMS AND CONDITIONS:
1. THE INTRODUCTORY LANGUAGE AND HEADINGS TO EACH OF THE
DISCLOSURE SCHEDULES ARE INSERTED FOR CONVENIENCE ONLY AND SHALL
NOT CREATE A DIFFERENT STANDARD FOR DISCLOSURE THAN THE LANGUAGE
SET FORTH IN THE ASSET PURCHASE AGREEMENT.
2. THE INCLUSION OF ANY ITEM ON A SCHEDULE, WHICH SCHEDULE REQUIRES A LISTING
OF A "MATERIAL" ITEM OR AN ACTION "NOT IN THE ORDINARY COURSE OF
BUSINESS", IS NOT DEEMED TO BE AN ADMISSION OR REPRESENTATION THAT THE
INCLUDED ITEM IS "MATERIAL" OR IS "NOT IN THE ORDINARY COURSE OF
BUSINESS."
3 . ALL CAPITALIZED TERMS USED HEREIN AND NOT OTHERWISE DEFINED SHALL
HAVE THE MEANING GIVEN TO SUCH TERM IN THE ASSET PURCHASE
AGREEMENT.
4. ANY MATTER DISCLOSED IN ANY SCHEDULE SHALL BE DEEMED DISCLOSED FOR
PURPOSES OF ANY OTHER SCHEDULE IN WHICH IT MAY BE RELEVANT.
<PAGE> 44
SCHEDULE 2.1
TITLE TO ASSETS
Except as set forth below, the Company is the owner of all right, title
and interest (legal and beneficial) in and to the Cigar Business Assets, free
and clear of all Liens.
NONE.
<PAGE> 45
SCHEDULE 2.2
ORGANIZATION AND QUALIFICATION
(a) The Company is a corporation, duly organized, validly existing and in
good standing under the laws of the state of Ohio and has full power and
authority to carry on its business and to own or lease all of its properties and
assets as and in the places such business is now conducted.
(b) The Company has the full power, capacity and authority necessary to
enter into and perform its obligations under this Agreement and any related
agreements to which it is a party and to consummate the transactions
contemplated hereby and thereby. This Agreement has been, and any related
agreement to which the Company is a party, will be when executed and delivered,
duly executed and delivered by the Company. This Agreement constitutes, and each
related agreement will constitute when executed and delivered, the legal, valid
and binding obligation of the Company, enforceable against the Company in
accordance with its terms and all necessary shareholder and director approval,
relating to the execution and delivery of this Agreement and the consummation of
the transactions contemplated by this Agreement has been duly and validly taken.
(c) Except as set forth below, all of the issued and outstanding shares of
capital stock of the Company are owned by the Shareholders, are not subject to
any Liens, and are duly and validly authorized and issued, fully-paid and
non-assessable.
NONE.
(d) The Company is not insolvent, and neither the execution of this
Agreement nor the performance of its terms will render the Company insolvent.
<PAGE> 46
SCHEDULE 2.3
QUALIFICATION
The Company is duly qualified or licensed to transact business as a
foreign corporation in good standing in the jurisdictions listed below, and the
character of its assets or the nature of its business do not require such
qualification or licensing in any other jurisdiction, except where the failure
to be so qualified would not have a material adverse effect on the business and
financial condition of the Company.
State Date of Qualification
----- ---------------------
NONE. N/A
Complete and correct copies of the Articles of Incorporation, and all
amendments thereto, (certified by the Secretary of State of the State of Ohio)
are attached hereto.
SEE ATTACHED CERTIFIED ARTICLES OF INCORPORATION
<PAGE> 47
UNITED STATES OF AMERICA,
STATE OF OHIO
OFFICE OF THE SECRETARY OF STATE.
I, Bob Taft, do hereby certify that I am the duly elected, qualified and
present acting Secretary of State for the State of Ohio, and as such have
custody of the records of Ohio and Foreign corporations and miscellaneous
filings; that said records show ARTICLES OF INCORPORATION of AMERICAN CASE &
LUGGAGE CO., an Ohio Corporation, Charter No. 567788, were filed on January 20,
1981 recorded on the Records of Incorporation. THE FOREGOING STATEMENT
CONSTITUTES A COMPLETE LIST OF ALL CHARTER DOCUMENTS ON FILE WITH THIS OFFICE.
Said corporation AMERICAN CASE & LUGGAGE CO., an Ohio Corporation, Charter No.
567788, principal location in Cincinnati, County of Hamilton, incorporated on
January 20, 1981, is currently in GOOD STANDING upon the records of this office.
THE SEAL OF THE WITNESS my hand and official
SECRETARY OF STATE seal at Columbus, Ohio this
OF OHIO 13th day of March, A.D. 1997.
/S/ Bob Taft
Bob Taft
Secretary of State
<PAGE> 48
ARTICLES OF INCORPORATION
OF
AMERICAN CASE & LUGGAGE CO.
The undersigned, desiring to form a corporation for profit under Chapter
1701 of the Revised Code of Ohio, does hereby certify:
FIRST The name of said corporation shall be American Case & Luggage Co.
SECOND The place in Ohio where its principal office is to be located is 25
W. 12th Street, Cincinnati, Ohio, 45210, Hamilton County.
THIRD The purpose for which the corporation is formed is to engage in any
lawful act or activity for which corporations may be formed under
Chapter 1701 of the Ohio Revised Code.
FOURTH The number of shares which the corporation is authorized to have
outstanding is Seven Hundred Fifty (750) Shares of Common Capital
Stock without par value.
FIFTH The amount of stated capital with which the corporation shall begin
business is Five Hundred Dollars ($500.00).
SIXTH The corporation may purchase its own shares when authorized to do so
from time to time by its Board of Directors.
SEVENTH Any meeting of the shareholders may be held within or without the
State of Ohio.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 14th day of
January, 1981.
/s/ Roberta A. Hess
-------------------------------------------------
Roberta A. Hess, Incorporator
<PAGE> 49
AMERICAN CASE & LUGGAGE CO.
APPOINTMENT OF STATUTORY AGENT
The undersigned Incorporator of American Case & Luggage Co., hereby
appoints Roberta A. Hess, a natural person resident of the State of Ohio, upon
whom any process, notice of demand required or permitted by statute to be served
upon the corporation may be served. His complete address is 216 Dixie Terminal
Building, Cincinnati, Ohio 45202.
/s/ Roberta A. Hess
--------------------------------------------
Roberta A. Hess Incorporator
ACCEPTANCE
Gentlemen:
I hereby accept appointment as agent of your corporation upon whom
process, tax notices or demands may be served.
/s/ Roberta A. Hess
--------------------------------------------
Roberta A. Hess Statutory Agent
<PAGE> 50
SCHEDULE 2.4
NONCONTRAVENTION
Except as set forth below, the execution and delivery by the Company of
this Agreement and the agreements and instruments provided for herein and the
consummation by the Company of the transactions contemplated hereby and thereby
will not, with or without the giving of notice or the passage of time or both,
(a) violate the provisions of any law, rule or regulation applicable to the
Company; (b) violate the provisions of the Articles of Incorporation or
Regulations of the Company; (c) violate any judgment, decree, order or award of
any court, governmental body or arbitrator applicable to the Company; or (d) (i)
conflict with or result in the breach or termination of any term or provision
of, (ii) constitute a default under, (iii) require any consent under, (iv) cause
any acceleration under, or (v) cause the creation of any Lien upon the Company's
assets pursuant to, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company is a party or by which the Company or any of its
assets is bound.
NONE.
<PAGE> 51
SCHEDULE 2.5
TAX MATTERS
(a) Except as set forth below, the Company has filed all Tax Returns that
it has at any time been required to file prior to December 31, 1996, all such
Tax Returns were correct and complete in all material respects when filed and
the Company has paid all Taxes that are shown to be due on any such Tax Return.
Except as set forth below, the Company has no actual or potential liability for
any obligation with respect to Taxes of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Company during a prior period) other than the Company. Except as set forth
below, all taxes that the Company is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper governmental entity, or are being contested by
appropriate proceedings with appropriate reserves or deposits having been made.
NO EXCEPTIONS.
(b) The Company has delivered to the Purchaser complete and correct copies
of all (i) federal income Tax Returns (ii) examination reports, and (iii)
statements of deficiencies assessed against or agreed to by the Company since
December 31, 1993. Except as set forth below, no examination or audit of any Tax
Return of the Company by any Governmental Entity is currently in progress or, to
the knowledge of the Company, pending, or threatened. Except as set forth below,
the Company has not waived any statute of limitations with respect to Taxes or
agreed to an extension of time with respect to any Tax assessment or deficiency.
NO EXCEPTIONS.
(c) The Company is not a "consenting company" within the meaning of
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code"),
and none of the assets of the Company are subject to an election under Section
341(f) of the Code. The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The
Company is not a party to any allocation or sharing agreement relating to Taxes.
(d) The Company has never been a member of an "affiliated group" of
corporations (within the meaning of Section 1504 of the Code). The Company has
not made an election under Treasury Regulation Section 1.1502-20(g). The Company
has not been required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation Section 1.337(d)-2(b).
<PAGE> 52
SCHEDULE 2.6
INTELLECTUAL PROPERTY
(a) Except as set forth below, the Company owns or has the right to use
all Intellectual Property necessary for the operation of its business as
presently conducted or which is material and used in the operation of its
business. Each item of Intellectual Property owned by or used in the operation
of the business of the Company is set forth below and on Exhibit A to the Asset
Purchase Agreement and is a Cigar Business Asset. Except as set forth below,
after the Closing, each item of Intellectual Property will be owned or available
for use by the Purchaser on identical terms and conditions applicable to the
Company immediately preceding the Closing. The Company has taken all reasonable
measures to protect the proprietary nature of each material item of Intellectual
Property, and to maintain in confidence all trade secrets and confidential
information, that it owns or uses. Except as set forth below, to the knowledge
of the Company, no other person or entity has any rights to any material item of
Intellectual Property owned or used by the Company and no other person or entity
is infringing, violating or misappropriating any material item of the
Intellectual Property that the Company owns or uses. The Company has made
available to the Purchaser complete and correct copies of all other written
documentation evidencing ownership of, and any claims or disputes relating to,
each material item of Intellectual Property.
A. THE COMPANY OWNS OR USES THE FOLLOWING INTELLECTUAL PROPERTY:
1. "CELESTINO VEGA", SN NO. 74-713921, FEDERAL TRADEMARK APPLICATION
PUBLISHED FEBRUARY 25,1997; FILED AMENDMENT TO ALLEGED USE UNDER 37 C.F.R. 2.76
THAT WAS RECEIVED BY TRADEMARK OFFICE ON FEBRUARY 28, 1997; NOTICE OF ACCEPTANCE
NOT YET ISSUED BUT NO PROBLEMS ANTICIPATED TO ISSUANCE OF REGISTRATION.
2. "CV", SN NO. 74-713904, FEDERAL TRADEMARK APPLICATION ALLOWED
AUGUST 20, 1996, PUBLISHED MAY 28, 1996, AND NOTICE OF ALLOWANCE OF STATEMENT OF
USE ISSUED APRIL 1, 1997; NO PROBLEMS ANTICIPATED TO ISSUANCE OF REGISTRATION.
3. "CELESTINO VEGA (WITH TRIANGULAR DESIGN)", SN NO. 75-078744,
FEDERAL TRADEMARK APPLICATION AMENDED BY EXAMINER ON FEBRUARY 13, 1997; FILED
AMENDMENT TO ALLEGED USE UNDER 37 C.F.R. 2.76 THAT WAS RECEIVED BY TRADEMARK
OFFICE ON FEBRUARY 28, 1997; NOTICE OF ACCEPTANCE OF AMENDMENT TO USE ISSUED ON
APRIL 11, 1997; AWAITING FORMAL ALLOWANCE AND PUBLICATION, NO PROBLEMS
ANTICIPATED TO ISSUANCE OF REGISTRATION.
B. MR. CELESTINO VEGA IS A NATURAL PERSON WHO HAS THE RIGHT TO USE HIS OWN
NAME GENERALLY. MR. VEGA HAS CONSENTED IN WRITING TO THE COMPANY'S RIGHT TO USE
HIS NAME.
(b) Except as set forth below, the Company has not received any complaint,
claim or notice alleging that the ownership or use of the Intellectual Property
by the Company is an
<PAGE> 53
infringement, violation or misappropriation of the Intellectual Property or that
the Company has abandoned use or any rights at any time to the Intellectual
Property
GROUP WILLIAMS, A CORPORATION WITH AN ADDRESS OF 1 WIBLING ROAD, DANBURY,
CONNECTICUT 06810 CLAIMED ON JULY 13, 1995 OWNERSHIP OF THE GRAPHIC DESIGN FOR
CELESTINO VEGA AND ON JULY 14, 1995 FILED A U.S. TRADEMARK APPLICATION FOR THE
MARK CELESTINO VEGA WHICH WAS SUBSEQUENTLY ABANDONED.
(c) Except as set forth below, the Company has not licensed, sublicensed
or granted any rights to any third party with respect to any of the Company's
interests in the Intellectual Property.
NONE.
(d) Set forth below is each material item of Intellectual Property used as
of the date hereof in the operation of the business of the Company that is owned
by a party other than the Company, and the license or agreement pursuant to
which the Company uses such Intellectual Property.
MR. CELESTINO VEGA IS A NATURAL PERSON WHO HAS THE RIGHT TO USE HIS OWN NAME
GENERALLY. MR. VEGA HAS CONSENTED IN WRITING TO THE COMPANY'S RIGHT TO USE HIS
NAME.
(e) The Company has supplied the Purchaser with correct and complete
copies of all licenses or agreements referred to in Section 2.6(d) of the
Disclosure Schedule. Except as set forth below, each such license or agreement
is legal, valid, binding, enforceable and in full force and effect; each such
license or agreement may be assigned to the Purchaser pursuant to the terms of
this Agreement without constituting a breach of such license or agreement; each
such license or agreement will continue to be legal, valid, binding, enforceable
and in full force and effect immediately following the Closing in accordance
with the terms thereof as in effect prior to the Closing; and except as set
forth below, to the Company's knowledge, no party to any such license or
agreement is in material breach or default, and no event has occurred which with
notice or lapse of time or both would constitute a material breach or default or
permit termination, modification or acceleration thereunder.
NO EXCEPTIONS.
<PAGE> 54
SCHEDULE 2.7
ACCOUNTS RECEIVABLE
Except as set forth below, all of the accounts receivable of the Company
as of the Closing Date were created in the ordinary course of the Company's
business, and to the best knowledge of the Company, are collectible in the face
amount thereof within 90 days of the date of invoice.
NONE.
<PAGE> 55
SCHEDULE 2.8
LIABILITIES
Except as set forth below, all of the Liabilities were incurred in the
ordinary course of the Company's business, and the Company received fair value
in exchange therefor.
NONE.
<PAGE> 56
SCHEDULE 2.9
CONTRACTS
(a) Set forth below is each contract, agreement or commitment (written or
oral) that has not previously been terminated in accordance with the terms
thereof and to which the Company is a party as of the date hereof that is
material to the Company or its business, including without limitation (i) any
contract, agreement or commitment providing for (or which could provide for) the
payment by the Company of an aggregate amount in excess of $25,000; (ii) any
contract, agreement or commitment concerning confidentiality or non-competition;
(iii) any contract, agreement or commitment with any stockholder or employee of
the Company; (iv) any lease or sublease of real estate, (v) any contract,
agreement or commitment with any distributors or resellers of the Company's
products; (vi) any arrangement involving any holder of Company securities; and
(vii) any arrangement under which the consequences of default or termination
could have a material adverse effect on the assets, business, financial
condition or results of operations of the Company.
- EXCLUSIVE SUPPLY AGREEMENT DATED AUGUST 30, 1996 WITH P.D. TARU
MARTANI D.I., YOGYAKARTA, INDONESIA
- DISTRIBUTION AGREEMENT DATED AUGUST 13, 1996 WITH CARIBBEAN CIGAR
COMPANY.
(b) The Company has previously delivered to the Purchaser a complete and
accurate copy of each Contract. Except as set forth below, each Contract is a
valid and binding agreement between the Company and the other party or parties
thereto and the rights and obligations of each such Contract may be assigned by
the Company to the Purchaser, and assumed by the Purchaser, without causing a
default or breach of any thereof. Except as set forth below, no material default
or breach by the Company or, to the Company's knowledge, any other party thereto
exists under any of the Contracts and none will arise solely by virtue of the
transactions contemplated by this Agreement.
NO EXCEPTIONS.
(c) Except as set forth below, the Company has no outstanding contracts or
commitments with its officers, employees, agents, consultants, advisors,
salesmen, sales representatives, distributors or dealers that are not cancelable
by the Company on notice of no longer than 30 days and without liability,
penalty or premium.
NONE.
(d) Except as set forth below, the Company has no collective bargaining or
employment agreement, or agreements with any labor union or organization, nor
any
<PAGE> 57
agreements that contain any severance, retirement or termination pay liabilities
or obligations and the Company has not been formally or informally advised of
any proposed attempts to organize any of the Company's employees.
NONE.
(e) Except as set forth below, the Company has no bonus, deferred
compensation, profit sharing, stock purchase, stock option or retirement
arrangement, whether legally binding or not, and the Company is not presently
paying any pension, deferred compensation or retirement allowance to anyone. The
Company has no employee benefit plans, as that term is defined in Section 3(3)
of the Employee Retirement Security Act of 1974, as amended.
NONE.
(f) Except as set forth below, the Company has made no payments or
commissions or provided any benefits to others in connection with any sales or
proposed sales by the Company, except to employees of the Company or sales
representatives or distributors regularly engaged by the Company to promote the
sale of its products and services. Except as set forth below, none of such
employees or sales representatives or distributors are employed or engaged as a
consultant, advisor, purchasing representative, employee, officer, director or
otherwise, whether paid or unpaid, by any customer or proposed customer or by
any government or governmental agency or body of any kind and description or by
any other person, firm or corporation or hold political office or position
(whether or not paid) with any government or governmental agency or body or
receive remuneration for services rendered from any person, firm or corporation
other than the Company.
CHRISTMAS BONUSES PAID TO FACTORY WORKERS, EMPLOYEES OF TARU MARTANI, (NOT
COMPANY) IN YOGYAKARTA, INDONESIA
(g) Except as set forth below, the Company has not given any power of
attorney to any person, firm or corporation for any purpose whatsoever.
NONE.
(h) Except as set forth below, the Company is not restricted by any
agreement from carrying on its business in any location.
NONE.
(i) Set forth below is a list of all insurance policies and bonds
currently in force with respect to the Company and its business, property and
assets, copies of which have previously been delivered to the Purchaser. Except
as set forth below, such policies and bonds are maintained in such amounts and
against such risks as prudent business management
<PAGE> 58
would deem advisable to protect its assets and properties.
NONE.
<PAGE> 59
SCHEDULE 2.10
CLAIMS AND LEGAL PROCEEDINGS
Except as set forth below, there are no claims, actions, suits,
arbitrations, proceedings or investigations pending (or, to the knowledge of the
Company, threatened) against the Company, and there are no outstanding court
orders, court decrees, or court stipulations to which the Company is a party or
by which any of its assets are bound, any of which should (a) impair this
Agreement or affect the transactions contemplated hereby, (b) materially
restrict the present business properties, operations, prospects, assets,
revenues or condition (financial or otherwise) of the Company or (c)
individually or in the aggregate, have a material adverse effect or materially
impair or preclude the Company's ability to consummate the transactions
contemplated by this Agreement. Except as set forth below, the Company has no
reason to believe that any such claim, action, suit, arbitration, proceeding or
investigation may be brought against the Company.
NONE.
<PAGE> 60
SCHEDULE 2.11
LEGAL COMPLIANCE
Except as set forth below, to the Company's knowledge, the Company and the
conduct and operations of its business, are in compliance with all of the laws
(including rules and regulations thereunder) of any governmental entity which
are applicable to the Company's business.
NO EXCEPTIONS.
<PAGE> 61
SCHEDULE 2.12
BROKER'S FEES
Except as set forth below, the Company has no liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
NONE.
<PAGE> 62
SCHEDULE 2.13
DISCLOSURE
No representation or warranty by the Company, Frutkin or Berger contained
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered by or to be delivered
by or on behalf of the Company, Frutkin or Berger pursuant to this Agreement,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
<PAGE> 1
* Portions of this document have been omitted and filed separately with the
Securities and Exchange Commission pursuant to a request for confidential
treatment.
CONSULTING AGREEMENT
CONSULTING AGREEMENT ("Agreement") dated as of April 1, 1997 (the
"Effective Date"), by and between Caribbean Cigar Company, a Florida corporation
with its principal office at 6265 S.W. 8th Street, Miami, FL 33144 (the
"Company"), and Lawrence D. Frutkin ("Consultant"), with an address at 5101
Madison Avenue, Suite 2, Indianapolis, Indiana 46227.
W I T N E S S E T H:
WHEREAS, Consultant has extensive experience in and know how with
respect to the cigar industry, including, without limitation, experience
relating to the domestic and international distribution of cigars, the
organization and operation of cigar manufacturing facilities and the development
of premium and handmade cigar brands; and
WHEREAS, Consultant is engaged in the business of providing management,
sales and consulting services to cigar businesses; and
WHEREAS, Consultant desires to provide management, sales and consulting
services on an ongoing basis to the Company; and
WHEREAS, the Company desires to engage Consultant to provide
management, sales and consulting services to it, and Consultant is willing to
provide such services, all on and subject to the terms of this Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1 Engagement of Consultant; Services to be Rendered.
(a) The Company hereby engages Consultant to perform Services,
as hereinafter defined, during the Term of this Agreement.
(b) The services to be performed by Consultant shall include,
but not be limited to, such management, marketing, sales, product development,
administrative and other consulting services as the Company may deem appropriate
in connection with the Company's business ("Services"). The Services shall be
performed personally by Consultant at such locations as the Company shall deem
appropriate, provided, that, in no event shall Consultant be required to move
his personal residence from its current location. Consultant shall be provided
with notice of all meetings of the Board of Directors of the Company at the same
time and in the same manner as notice of such meetings is provided to the
directors of the Company and Consultant shall be entitled to attend all of such
meetings; provided, that, nothing contained
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in this sentence shall be construed as an obligation on the part of the Company
to elect or appoint Consultant as a Director of the Company. In the event that
Alfred J. Berger, Jr. ("Berger") shall cease for any reason to serve as a member
of the Board of Directors of the Company at any time during the term of this
Agreement, Consultant shall be elected to serve as a director of the Company by
the Board of Directors of the Company, effective as of the date of termination
of Berger's service as a director of the Company. In such event, Consultant
shall receive no consideration in addition to the consideration set forth in
this Agreement; provided, however, that Consultant shall be entitled to the same
extent as provided to other directors of the Company, to reimbursement for
travel and lodging expenses incurred as a result of attendance at meetings of
the Board of Directors of the Company, to directors fees for attendance at such
meetings, and to indemnification against damages and advancement of expenses
incurred in connection with any action, suit or proceeding brought against
Consultant solely in Consultant's capacity as a director of the Company, all in
accordance with the Articles of Incorporation and By-Laws of the Company and the
laws of the State of Florida.
(c) Unless terminated earlier as provided in Paragraph 4 of
this Agreement, the Term of this Agreement for the provision of Services by
Consultant shall be for an initial period commencing as of April 1, 1997 and
expiring on March 31, 2000.
(d) Consultant hereby accepts the engagement contemplated by
this Agreement. During the Term, Consultant shall perform his duties diligently,
in good faith and in a manner consistent with the best interests of the Company.
Consultant shall devote substantially all of his time to the performance of his
duties as set forth in Paragraph 1(b) of this Agreement.
2. Compensation and Other Benefits.
(a) Base Compensation. For the Services performed and to be
performed pursuant to this Agreement, the Company shall pay Consultant
compensation ("Base Compensation"), in cash, at the annual rate of one hundred
thousand dollars ($100,000), payable in equal monthly installments on the last
day of each month.
(b) Performance Compensation. In addition to Base
Compensation, Consultant shall receive additional compensation ("Performance
Compensation") in the form of cash and shares of the Company's common stock (the
"Common Stock") during the Term of this Agreement based upon the attainment of
certain performance goals relating to the sale of the cigars set forth on
Exhibit A of this Agreement (all of such cigars are referred to collectively in
this Agreement as "Cigars"). The terms and conditions for payment of the
Performance Compensation shall be as follows:
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(i) For the Twelve-Month Period commencing on April
1, 1997 and ending on March 31, 1998 (the "First Twelve-Month Period"). (A) The
Company shall pay Consultant * in cash
(the "1997 Monetary Remuneration"), based upon an agreed upon compensation of
* per Cigar, for the first * Cigars
sold by the Company during the First Twelve-Month Period;
(B) The Company shall pay Consultant (I)
* in cash (the "1997 Cash
Compensation"), (II) * worth of
shares of Common Stock (the "1997 Stock Compensation"), based upon a per share
price equal to the lesser of * per share of Common Stock
(the "1997 Ceiling Price") or the average closing price of the Common Stock
during the thirty (30) day period up to and including March 31, 1998 (or if the
Common Stock is not traded on any of such days, the average of the closing high
bid and low asked prices for the Common Stock on such days), but not less than
* per share of Common Stock (the "1997 Floor Price"); and
(III) warrants for the purchase of * shares of Common Stock ("Warrant
Compensation"), all based upon the sale by the Company of at least *
Cigars during the First Twelve-Month Period.
(C) Notwithstanding anything to the contrary
contained in Paragraph 2(b)(i)(A) or Paragraph 2(b)(i)(B) of this Agreement, the
payment of the 1997 Monetary Remuneration, the 1997 Cash Compensation, the 1997
Stock Compensation and the 1997 Warrant Compensation shall be subject to the
following conditions:
(I) If the Company shall sell
* or fewer Cigars during the First Twelve-Month Period, (x) the 1997
Monetary Remuneration otherwise payable shall be equal to *
multiplied by the number of Cigars actually sold, (y) the 1997
Cash Compensation shall be equal to * multiplied by *
times the number of Cigars sold, and (z) the 1997 Stock
Compensation shall be an amount of shares of Common Stock having an aggregate
fair market value equal to * multiplied by *
times the number of Cigars sold.
(II) If the Company shall sell more
than * Cigars but less than * Cigars during the First
Twelve-Month Period, the 1997 Cash Compensation and the 1997 Stock Compensation
otherwise payable shall be equal to the sum of (x) the cash and stock
compensation payable pursuant to Subparagraph (I) of this Paragraph 2(b)(i)(C),
assuming the Company sold * Cigars, (y) cash compensation equal to the
amount determined by multiplying *
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* by a fraction (the "1997 Fraction"),
the numerator of which is the number of Cigars in excess of * Cigars
sold by the Company during the First Twelve-Month Period and the denominator of
which is * Cigars and (z) and stock compensation in the form of shares
of Common Stock having an aggregate fair market value equal to *
multiplied by the 1997
Fraction.
(III) For purposes of determining
the amount of shares of Common Stock to which the Consultant is entitled
pursuant to Subparagraphs (I) and (II) of this Paragraph 2(b)(i)(C), each share
of Common Stock shall be deemed to have a fair market value equal to the lesser
of * per share of Common Stock or the average closing
price of the Common Stock during the thirty (30) day period up to and including
March 31, 1998 (or if the Common Stock is not traded on any of such days, the
average of the closing high bid and low asked prices for the Common Stock on
such days), but not less than * per share of Common Stock
(the "1997 Floor Price").
(IV) If the Company shall sell less
than a total of * Cigars during the First Twelve-Month Period the 1997
Warrant Compensation shall be equal to the Warrant Compensation multiplied by a
fraction, the numerator of which is the number of Cigars actually sold by the
Company and the denominator of which is * .
(D) In the event that the fair market value
per share of Common Stock on March 31, 1998, shall be less than the 1997 Floor
Price, a portion of the 1997 Cash Compensation equal to the difference between
(x) the amount of the 1997 Cash Compensation otherwise payable and (y)
* of the aggregate fair market value of the 1997 Stock
Compensation earned by the Consultant (such fair market value to be determined
as of March 31, 1998) shall be payable at the sole option of the Company either
in cash or in shares of Common stock having an aggregate fair market value equal
to such difference.
(ii) For the Twelve-Month Period beginning April 1,
1998 and ending March 31, 1999 (the "Second Twelve-Month Period").
(A) The Company shall pay Consultant:
(I) * worth of shares of
Common Stock (the "1998 Stock Compensation"), based upon a per share price equal
to the lesser of * per share of Common Stock (the "1998 Ceiling
Price") or the average closing price of the Common Stock during the thirty (30)
day period up to and including March 31, 1999 (or if the Common Stock is not
traded on any of such days, the average of the closing high bid and low asked
prices for the Common Stock on such days), but not less than *
per share of Common Stock (the "1998
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<PAGE> 5
Floor Price"); (II) * in cash (the 1998
Cash Compensation"); and (III) Warrant Compensation upon the sale by the Company
of at least * Cigars during the Second Twelve-Month Period
(B) Notwithstanding anything to the contrary
contained in Paragraph 2(b)(iii)(A) of this Agreement, if the Company shall sell
fewer than * Cigars during the Second Twelve-Month Period, the payment
of the 1998 Cash Compensation, the 1998 Stock Compensation and the 1998 Warrant
Compensation shall be subject to the following conditions:
(I) The 1998 Stock Compensation
payable to Consultant with respect to the Second Twelve-Month Period shall be
equal to the number of shares of Common Stock that the Consultant would have
been entitled to had the Company sold * million Cigars, multiplied by
a fraction (the "1998 Fraction"), the numerator of which is the number of Cigars
actually sold by the Company in the Second Twelve-Month Period and the
denominator of which is * ;
(II) The 1998 Cash Compensation
payable to the Consultant shall be equal to *
multiplied by the 1998 Fraction; and
(III) The 1998 Warrant Compensation
shall represent the right to purchase the product of *
shares of Common Stock multiplied by the 1998
Fraction.
(C) In the event that the fair market value
per share of Common Stock on March 31, 1999, shall be less than the 1998 Floor
Price, a portion of the 1998 Cash Compensation equal to the difference between
(x) the amount of the 1998 Cash Compensation otherwise payable and (y)
* of the aggregate fair market value of the 1998 Stock
Compensation earned by the Consultant (such fair market value to be determined
as of March 31, 1999) shall be payable at the sole option of the Company either
in cash or in shares of Common Stock having an aggregate fair market value equal
to such difference.
(iii) For the Twelve-Month Period beginning April 1,
1999, and ending March 31, 2000 (the "Third Twelve-Month Period").
(A) The Company shall pay Consultant:
(I) *
worth of shares of Common Stock (the "1999 Stock Consideration"),
based upon a per share price equal to the lesser of * per
share of Common Stock (the "1999 Ceiling Price") or the average closing price of
the Common Stock during the thirty (30) day period up to and including March 31,
2000 (or if the Common Stock is not traded on any of such days, the average of
the closing high bid and low asked prices for the
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<PAGE> 6
Common Stock on such days), but not less than * per share
of Common Stock (the "1999 Floor Price"); (II) *
in cash (the "1999 Cash Compensation"); and (III) Warrant
Compensation upon the sale by the Company of least * Cigars during the
Third Twelve-Month Period.
(B) Notwithstanding anything to the contrary
contained in Paragraph 2(b)(iv)(A) of this Agreement, if the Company shall sell
fewer than * Cigars during the Third Twelve-Month Period, the payment
of the 1999 Cash Compensation, the 1999 Stock Compensation and the 1999 Warrant
Compensation shall be subject to the following conditions:
(I) The 1999 Stock Compensation
payable to Consultant with respect to the Third Twelve-Month Period shall be
equal to the number of shares of Common Stock that the Consultant would have
been entitled to had the Company sold * Cigars multiplied by a
fraction (the "1999 Fraction"), the numerator of which is the number of Cigars
actually sold by the Company in the Third Twelve-Month Period and the
Denominator of which is * ;
(II) The 1999 Cash Compensation
shall be equal to * multiplied by the
1999 Fraction; and
(III) The 1999 Warrant Compensation
shall represent the right to purchase the product of *
shares of Common Stock multiplied by the 1999
Fraction.
(C) In the event that the fair market value
per share of Common Stock on March 31, 2000, shall be less than the 1999 Floor
Price, a portion of the 1999 Cash Compensation equal to the difference between
(x) the amount of the 1999 Cash Compensation otherwise payable and (y)
* of the aggregate fair market value of the 1999 Stock
Compensation earned by the consultant (such fair market value to be determined
as of March 31, 2000) shall be payable, at the sole option of the Company,
either in cash or in shares of Common Stock having an aggregate fair market
value equal to such difference.
(iv) If (A) the aggregate number of Cigars sold
during the Term of this Agreement by the Company as of the end of the Third
Twelve-Month Period, equals or exceeds * Cigars and (B) the Consultant
did not earn one hundred percent (100%) of the Performance Compensation during
any Twelve-Month Period because the number of Cigars sold by the Company during
such Twelve-Month Period was less than the target sales of Cigars, the
Consultant shall be entitled to receive Performance Compensation equal to the
aggregate of:
(I) Stock compensation equal to the
number of shares of Common
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Stock determined by dividing (x) the difference between the aggregate fair
market value (as determined below in Subparagraph (2)(b)(iv)(A)(III)) of the
1997 Stock Compensation, the 1998 Stock Compensation or the 1999 Stock
Compensation, as the case may be, which the Consultant would have been entitled
to receive if the number of Cigars sold during the relevant Twelve-Month Period
was equal to the target sales of Cigars for such Twelve-Month Period and (2) the
aggregate fair market value (as determined below in Subparagraph
(2)(b)(iv)(A)(III)) of the 1997 Stock Compensation, the 1998 Stock Compensation
or the 1999 Stock Compensation, as the case may be, actually received by the
Consultant by (y) a per share price * ; and
(II) Cash compensation equal to the
difference between (x) * with respect to the 1997 Cash Compensation or
* with respect to the 1998 Cash Compensation or the 1999 Cash
Compensation, as the case may be, and (y) the amount of cash and the aggregate
fair market value (determined as of March 31 of the year in which paid) of the
Common Stock, if any, actually received by the Consultant as the 1997 Cash
Compensation, the 1998 Cash Compensation or the 1999 Cash Compensation, as the
case may be.
(III) For purposes of determining
under Subparagraph 2(b)(iv)(A)(I) the"aggregate fair market value" of the 1997
Stock Compensation, the 1998 Stock Compensation or the 1999 Stock Compensation,
as the case may be, which the Consultant would have been entitled to receive if
the number of Cigars sold during the relevant Twelve-Month Period equaled or
exceeded the target sales for such period, the price per share as determined
under this Subparagraph shall be multiplied by the number of shares which would
have been issued had the number of Cigars sold during such period equaled or
exceeded the target sales for such period. For purposes of determining under
Subparagraph 2(b)(iv)(A)(I) the aggregate fair market value of the 1997 Stock
Compensation, the 1998 Stock Compensation or the 1999 Stock Compensation, as the
case may be, actually received by the Consultant, the price per share as
determined under this Subparagraph shall be multiplied by the number of shares
actually issued to the Consultant as 1997 Stock Compensation, 1998 Stock
Compensation or 1999 Stock Compensation, as the case may be. The price per share
for the 1997 Stock Compensation, the 1998 Stock Compensation and the 1999 Stock
Compensation under this Subparagraph shall be equal to the average closing price
per share of the Common Stock during the thirty (30) day period up to and
including March 31, 1998, March 31, 1999, or March 31, 2000, respectively (or,
if the Common Stock is not traded on any of such days, the average of the
closing high bid and low asked prices for the Common Stock on such days), but in
no event more than * with respect to the 1997 Stock compensation, *
with respect to the 1998 Stock Compensation
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<PAGE> 8
and * with respect to the 1999 Stock Compensation.
(v) The 1997 Floor Price, the 1997 Ceiling
Price, the 1998 Floor Price, the 1998 Ceiling Price, the 1999 Floor Price and/or
the 1999 Ceiling Price, as the case may be, shall each be adjusted to give
effect to (A) any dividend or distribution by the Company on or with respect to
its shares of Common Stock in Common Stock, or in other securities convertible
into or exchangeable for shares of Common Stock, (B) any subdivision, or
reclassification of the Company's outstanding shares of Common Stock into a
greater number of shares, or (C) any combination or reclassification of the
Company's outstanding shares of Common Stock into a smaller number of shares of
Common Stock or other transaction which effects a reverse split which occurs
between the Effective Date and the date on which the computation is being made.
(vi) The market price of the Common Stock
during any Computation Period shall be adjusted to reflect any dividend,
distribution, subdivision, combination or reclassification or other event
referred to in Paragraph 2(b)(v) of this Agreement which occurs during such
Computation Period. For purposes of this Paragraph 2(b)(vi), the term
"Computation Period" shall mean any of the thirty day periods referred to in
Paragraphs 2(b)(i)(B), 2(b)(ii)((A), 2(b)(iii)(A) or 2(b)(iv)(B)(III) of this
Agreement.
(vii) For purposes of this Agreement, the term
"warrants" shall mean warrants for the purchase of shares of Common Stock,
exercisable within five years of the date of grant at an exercise price of
* per share of Common Stock.
(viii) For purposes of this Agreement, the term
"Twelve-Month Period" shall mean the First Twelve-Month Period, the Second
Twelve-Month Period or the Third Twelve-Month Period, as the case may be.
(ix) Reduction in Performance Compensation. The
parties acknowledge that the Company may hire an individual to (a) train
employees of Taru Martani (or any other manufacturer of cigars located in
Indonesia with which the Company enters into an agreement for the manufacture
and supply of cigars) to hand-roll cigars and/or (b) monitor the quality of
cigars to be shipped by Taru Martani (or such other Indonesian cigar
manufacturer) to the Company, or to perform such other services as requested by
the Company from time to time. In the event that the Company does hire such an
individual, an amount not to exceed * of the cost of such
individual to the Company for the period during which such individual is
performing such services for the Company shall be deducted from the 1997
Monetary Remuneration otherwise payable to the Consultant.
(x) Upon the issuance of shares of Common Stock
pursuant to the terms of this
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<PAGE> 9
Paragraph 2(b), the Company shall obtain a legal opinion that such shares have
been validly issued.
(c) Payment Terms. Other than amounts payable to Consultant
which have been earned and paid pursuant to Paragraph 2 (a) of this Agreement,
which shall be payable monthly on a "as-earned" basis, and the 1997 Monetary
Remuneration which shall be paid within thirty (30) days of the end of each
quarterly period commencing April 1, 1997, all Performance Compensation due and
owing hereunder shall be payable within thirty (30) business days after the
close of the Twelve-Month Period in which such Performance Compensation has been
earned, provided, however, that the 1997 Cash Compensation and 1998 Cash
Compensation shall be payable March 31, 1999, on March 31, 2000, respectively,
and the 1999 Cash Compensation shall be payable on March 31, 2000.
(d) Force Majeure. In the event that the sale of Cigars is
prevented for a period not to exceed six (6) months as a result of fires,
floods, accidents, riots, acts of God, war, blockades, embargoes, transportation
delays or any other circumstance outside the control of the parties (an "event
of force majeure"), the Twelve-Month Period during which such event of force
majeure, occurs, and each subsequent Twelve-Month Period shall be extended by a
period of time, not to exceed six (6) months, during which such event of force
majeure is in effect. In the event that the event of force majeure shall
continue for a period exceeding six (6) months during any Twelve-Month Period,
the Company shall have the right to terminate this Agreement solely with respect
to the remainder of such Twelve-Month Period; provided, that, notwithstanding
such termination, Consultant shall be entitled to compensation for such
Twelve-Month Period for all Cigars sold during such Twelve-Month Period prior to
the event of force majeure, determined by treating such number of Cigars sold as
the total number of Cigars sold during the Twelve-Month Period and applying the
terms of this Agreement otherwise applicable to the determination of Performance
Compensation.
(e) In the event that the Company shall default on its
obligation to pay any amount of 1997 Cash Compensation, 1998 Cash Compensation
or 1999 Cash Compensation, as the case may be, as required pursuant to the terms
of this Agreement, the Company shall, upon demand therefor by the Consultant,
issue registerable shares of Common Stock having an aggregate fair market value
(which shall be equal to the average closing price of the Common Stock during
the thirty day period up to and including the date of demand, or, if the Common
Stock is not traded on any of such days, the average of the closing high bid and
low asked prices of the Common Stock during such days) equal to the amount of
cash otherwise due to the Consultant. The Common Stock issued to the Consultant
pursuant to this Paragraph 2(e) shall be registerable upon the demand of the
Consultant, at the sole cost and expense of the Company
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<PAGE> 10
(excluding any brokerage fees incurred by the Consultant in connection with
sales of such Common Stock and the fees and expenses of any counsel retained by
the Consultant).
(f) The Company and Consultant agree that the Performance
Compensation is dependent on the best efforts of Consultant to arrange for the
steady, non-interrupted supply of high quality and desirable Cigars to the
Company and the best efforts of the Company to sell the Cigars supplied through
the efforts of Consultant so as to maximize the number of Cigars actually sold
at retail at the Company's outlets or by the Company's other retailers at prices
that are profitable to the Company. Such prices will be determined by the
President or the Board of Directors of the Company, but shall not be arbitrary
in relation to market conditions, supply and demand.
3. Registration Rights.
(a) Demand Rights. If, in a written notice given to the
Company at any time during the period commencing one (1) year from the date
hereof and ending four (4) years from the date hereof and signed by the
Consultant, the Consultant informs the Company that (i) the Consultant
contemplates the sale of any or all of the Common Stock received by the
Consultant under and pursuant to the terms of this Agreement (the "Agreement
Common Stock") under such circumstances that a public offering distribution
within the meaning of the Securities Act of 1933, as amended, (hereinafter the
"Securities Act") of the Agreement Common Stock will be involved and (ii) the
Consultant is requesting that the Company file a registration statement (such
right to request the filing of a registration statement referred to in this
Agreement as a "Demand Registration Right") pursuant to the Act with respect to
the Agreement Common Stock, the Company shall, as promptly as possible, but in
no event more than ninety (90) days after receipt of such notice (the "Demand
Registration Notice"), file a registration statement (the "Consultant
Registration Statement") pursuant to the Securities Act, pursuant to which the
Agreement Common Stock requested to be registered by the Consultant may be sold
under the Securities Act as promptly as practicable thereafter. The Company
shall use its best efforts to cause such Consultant Registration Statement to
become effective; provided, that, the Consultant shall furnish the Company with
appropriate information (relating to the intentions of the Consultant) in
connection therewith as the Company shall reasonably request in writing. The
Company shall keep such registration statement current for such time, not to
exceed the greater of nine (9) months or such longer period as the registration
statement may be used without requiring audited financial statements covering a
period subsequent to that for which audited financial statements are otherwise
required, as the Consultant may request. The Demand Registration Right accorded
the Consultant pursuant to this Paragraph 2(c)(i) shall be exercisable by the
Consultant one (1) time only.
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The Company will not be obligated to effect any Demand Registration Right if the
Board of Directors of the Company adopts a resolution to the effect that the
Company intends to register shares (a "Registration") of common stock under the
Securities Act within the six-month period subsequent to the date of receipt of
the Demand Registration Notice until such six-month period has elapsed or the
Company shall have abandoned such intention prior to the expiration of such
six-month period or, in the event such registration becomes effective, during
the one hundred twenty (120) day period after the effective date of such
registration. In the case of a Registration, the Consultant shall (i) retain its
Demand Registration Right and (ii) be entitled to register his Consultant Common
Stock pursuant to terms of Paragraph 3(b) of this Agreement. In addition, if the
Board of Directors, in its good faith judgment, determines that any registration
of Agreement Common Stock should not be made or continued because it would
materially interfere with any material financing, acquisition, corporate
reorganization or merger involving the Company (collectively, a "Valid Business
Reason"), the Company may postpone filing a Consultant Registration Statement
relating to any Demand Registration Right until such Valid Business Reason has
been consummated or terminated, and, if a Consultant Registration shall
previously been filed, may cause such Consultant Registration Statement to be
withdrawn and its effectiveness prematurely terminated or may postpone amending
or supplementing such Consultant Registration Statement. The Company represents
that as of the date of this Agreement, it has no present intention to proceed
with a material financing, acquisition, corporate reorganization or merger as a
result of which it would cause a withdrawal or postponement of a registration
statement pursuant to this paragraph.
(b) Piggy-Back Rights. In addition to the Demand Registration
Right provided for in Paragraph 3(a) and for a period commencing one (1) year
from the date hereof and ending four (4) years from the date hereof, the Company
shall advise the Consultant by prompt written notice of its intention to file
any registration statement under the Securities Act (other than a registration
statement relating solely to an acquisition or a registration statement on Form
S-8 or any subsequent similar form) covering the Common Stock, whether such
Common Stock is being sold for the account of the Company or selling
shareholders, and will, upon the request of the Consultant, include in any such
registration statement such information as may be required to permit a public
offering of the Consultant's Agreement Common Stock (such ability by the
Consultant to request the inclusion Agreement Common Stock in a registration
statement as provided in this Paragraph 3(a) referred to as a "Piggy-Back
Registration Right" and any registration statement with respect to which the
Piggy-Back Registration Right is exercised referred to as a "Piggy-Back
Registration Statement"); provided, however, that, if requested by the managing
underwriter or underwriters,
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the Consultant will agree not to sell any Agreement Common Stock without the
consent of such managing underwriter during the period following the effective
date of such Piggy-Back Registration Statement (the "hold off period"), as the
managing underwriter or underwriters may request, and the Company shall not be
required to include the Agreement Common Stock in such Piggy-Back Registration
Statement unless the Consultant shall agree to refrain from selling shares of
the Agreement Common Stock during the holdoff period. Notwithstanding the
foregoing, in no event shall the Consultant be required to agree to a holdoff
period longer or relating to a greater percentage of his shares of Agreement
Common Stock than is required of any other selling shareholder whose shares of
Common Stock are included in such Piggy-Back Registration Statement or any other
registration statement being filed at or about the same time as such Piggy-Back
Registration Statement. The Company shall keep such Piggy-Back Registration
Statement current for a period of nine (9) months from the effective date of
such Piggy-Back Registration Statement or, if the managing underwriter or
underwriters agree to the inclusion of the shares of Agreement Common Stock in
the Piggy-Back Registration Statement only on the condition that the Consultant
agree to refrain from selling his shares of Agreement Common Stock pursuant to
the Piggy-Back Registration Statement for the holdoff period, six (6) months
from the conclusion of the holdoff period. The rights provided for in this
Paragraph 3(b) shall not be exercised with respect to more than fifty percent
(50%) (or such lesser amount as the managing underwriter or underwriters may
request) of the total number of shares of Common Stock in any Piggy-Back
Registration Statement or Piggy-Back Registration Statements filed within any
eighteen (18) month period.
(c) The Company may, by written notice to the Consultant, up
to three times in any 12-month period and for up to 30 days at a time, require
that the Consultant immediately cease sales of shares of Agreement Common Stock
pursuant to the Consultant Registration Statement during any period during which
the Company is engaged or plans to engage in a public offering, acquisition or
similar activity that has not been publicly announced (the "Company Activity")
if the Company has determined in good faith that the Company Activity would be
adversely affected by a public announcement otherwise required in order for the
offering of the Agreement Common Stock during such period not to be in violation
of federal securities laws or regulations.
(d) If the Company requires the Consultant to cease sales of
shares pursuant to paragraph 3(c), the Company shall, as promptly as practicable
following the termination of the Company Activity, use its best efforts to give
written notice to Consultant authorizing him to resume sales pursuant to the
Consultant Registration Statement. If the prospectus included in the Consultant
Registration Statement has
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been amended to comply with the requirements of the Securities Act, the Company
shall enclose such revised prospectus with the notice to the Consultant given
pursuant to this paragraph 3(d), and the Consultant shall make no offers or
sales of shares of Common Stock pursuant to the Consultant Registration
Statement other than by means of such revised prospectus.
(e) The Company shall use its best efforts to register or
qualify, not later than the effective date of any Consultant Registration
Statement filed pursuant to this Agreement, the Agreement Common Stock covered
by the Consultant Registration Statement under the securities laws of such
states as the Consultant shall reasonably request; provided, however, that the
Company shall not be required in connection with this paragraph 3(e) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction.
(f) In connection with the filing by the Company of the
Consultant Registration Statement or the Piggy-Back Registration Statement, as
the case may be, the Company shall furnish to the Consultant a reasonable number
of copies of the prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act. Such prospectuses shall state that
the Consultant shall be responsible for fulfilling any prospectus delivery
requirements associated with the offering of the Agreement Common Stock.
(g) If the Company has delivered preliminary or final
prospectuses to the Consultant and after having done so the prospectus is
amended to comply with the requirements of the Securities Act, the Company shall
promptly notify the Consultant and, if requested by the Company, the Consultant
shall immediately cease making offers or sales of shares of Common Stock under
the Consultant Registration Statement or the Piggy-Back Registration Statement,
as the case may be, and return all prospectuses to the Company. The Company
shall promptly provide the Consultant with revised prospectuses and, following
receipt of the revised prospectuses, the Consultant shall be free to resume
making offers and sales under the Consultant Registration Statement or the
Piggy-Back Registration Statement, as the case may be.
(h) The Company shall use its best efforts to cause all of the
Agreement Common Stock as to which the Consultant has requested registration to
be listed on the principal stock exchange or market on which the Common Stock is
traded.
(i) In connection with the filing of the Consultant
Registration Statement or the Piggy-Back Registration Statement, as the case may
be, the Company shall use its best efforts to furnish, at the request of
Consultant, an opinion of legal counsel to the Company to the effect that the
shares of Agreement Common Stock are duly authorized, validly issued, fully paid
and non-assessable.
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<PAGE> 14
(j) The Company shall pay one-half and the Consultant shall
pay the other one-half of the expenses relating to compliance with the
obligations of the Company under this Paragraph 3 with respect to any Demand
Registration Right, including all registration and filing fees and the fees and
expenses of the Company's counsel and accountants; provided, however, that the
Consultant shall be solely liable for any brokerage fees and selling expenses
incurred by the Consultant in connection with sales under the Stockholder
Registration Statement and the fees and expenses of any counsel retained by the
Consultant. The Company shall pay all of the expenses relating to compliance
with the obligations of the Company under this Paragraph 3 with respect to any
Piggy-Back Registration Right, including all registration and filing fees and
the fees and expenses of the Company's counsel and accountants; provided,
however, that the Consultant shall be solely liable for any brokerage fees and
selling expenses incurred by the Consultant in connection with sales under the
Consultant Registration Statement and the fees and expenses of any counsel
retained by the Consultant.
(k) The Company shall not be required to include any Agreement
Common Stock in the Consultant Registration Statement unless:
(i) The Company is furnished with such information
regarding the Consultant and the distribution proposed by the Consultant as the
Company, the underwriters or representative may reasonably request.
(ii) The Consultant shall have provided to the
Company its written agreement:
(A) To indemnify the Company and each of its
directors and officers against, and hold the Company and each of its directors
and officers harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Company or such directors and
officers may become subject by reason of any statement or omission in the
Consultant Registration Statement made in reliance upon, or in conformity with,
a written statement by the Consultant furnished pursuant to Paragraph 3(i); and
(B) To comply with all of the provisions of
Paragraph 3.
(l) The Company agrees to indemnify and hold harmless the
Consultant against any losses, claims, damages, expenses or liabilities to which
the Consultant may become subject by reason of any untrue statement of a
material fact contained in the Consultant Registration Statement or any omission
to state therein a fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, expenses or liabilities arise out of or are based upon information
furnished to the Company by or on behalf of the Consultant for use in the
Consultant
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<PAGE> 15
Registration Statement. The Company shall have the right to assume and control
the defense and settlement of any claim or suit for which the Company may be
responsible for indemnification under this Paragraph 3(j).
(m) The rights of the Consultant under this Paragraph 3 are
personal to the Consultant and, except upon the death of Consultant as set forth
in Paragraph 13(e) of this Agreement, the Consultant may not assign any of his
rights under this Paragraph 3; provided, however, in the event that the
Consultant shall exercise any of his Demand Registration Rights or Piggy-Back
Registration rights under this Paragraph 3, the holders of Agreement Common
Stock previously transferred by Consultant under and pursuant to the terms of
this Agreement shall be entitled, to the extent the Consultant would have been
entitled if the Consultant were still the holder of such Agreement Common Stock,
to have their Agreement Common Stock registered in the Demand Registration
Statement or the Piggy-Back Registration Statement, as the case may be.
4. Reimbursement of Expenses. The Company shall pay or reimburse
Consultant, upon presentation of proper expense statements, for all authorized,
ordinary and necessary out-of-pocket expenses reasonably incurred by Consultant
in connection with the performance of Services pursuant to this Agreement in
accordance with the Company's expense reimbursement policy.
5. Termination of Engagement.
(a) Consultant's engagement hereunder is a personal services
contract and is not assignable upon the bankruptcy of Consultant.
(b) The Company may terminate Consultant's engagement,
immediately and without notice, for Gross Cause, in which event no further
compensation (other than accrued but unpaid compensation) shall be payable to
Consultant. The term "Gross Cause" shall mean (i) a material breach by
Consultant of the provisions of Paragraphs 7, 8, 9 or 13(a) of this Agreement,
(ii) acts of dishonesty or deliberate misconduct by Consultant, (iii) breach of
trust or other action by which Consultant obtains personal gain at the expense
of or to the detriment of the Company, or (iv) conviction of the Consultant of
any felony or of any other crime involving moral turpitude.
(c) The Company may terminate the Consultant's engagement,
upon five (5) days prior written notice (the "Written Notice"), if, in the
reasonable determination of the Board of Directors of the Company, the
Consultant is not satisfactorily performing his obligations under this
Agreement. The Written Notice shall specify the grounds or reasons for
termination of Consultant's engagement and shall be delivered to Consultant at
the address provided in Paragraph 12(b), or at such other address that
Consultant
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<PAGE> 16
may provide to the Company from time to time. The Written Notice may be
delivered personally or by recognized overnight delivery service and shall be
deemed delivered when sent. In the case of (i) the termination of Consultant's
engagement pursuant to the terms of the first sentence of this Paragraph 5(c) or
(ii) the death or disability of the Consultant, the Consultant (or the
Consultant's estate in the case of the death of the Consultant) shall not be
entitled to further payments of Base Compensation (other than accrued but unpaid
Base Compensation) but shall retain all rights to receive Performance
Compensation as otherwise set forth in this Agreement. For purposes of this
Paragraph 4(c), the term "disability" shall mean any illness, disability or
physical or mental incapacity of the Consultant which prevents him from
substantially performing his regular duties for a period of three (3)
consecutive months or four (4) months, even though not consecutive, in any
twelve (12) month period.
(d) Consultant's performance of Services under this Agreement
shall be subject to review by the Chief Executive Officer of the Company on an
annual basis.
(e) In the event that there is a Change in Control of the
Company and after such Change in Control the new controlling shareholders of the
Company seek to deny Consultant his rights under this Agreement, Consultant
shall have the right to submit the dispute to binding arbitration in Miami,
Florida, under the rules of and conducted by the American Arbitration
Association. The arbitration panel shall consist of three arbitrators eligible
to serve as a panel for the American Arbitration Association. Each of the
Consultant and the Company shall select one arbitrator who is eligible to serve
as an arbitrator on a panel conducted by the American Arbitration Association,
and the two arbitrators so selected shall select a third arbitrator who is
similarly qualified. None of the Arbitrators selected shall serve or have served
as legal counsel to any of the parties nor shall any of the arbitrators so
selected hold any equity securities in the Company or any company (or affiliate
thereof) controlled by Consultant. The decision of the arbitration panel on the
matters to which arbitration applies pursuant to this Paragraph 5(e) shall be
final and binding on all of the parties hereto, and their successors, heirs and
legal assigns, and may be enforced by a court of competent jurisdiction. The
expense of the arbitration proceeding, including any fees of counsel, shall be
paid by the losing party. For purposes of this Paragraph 5(e), the term "Change
in Control" shall mean the beneficial ownership, directly or indirectly, of more
than fifty percent (50%) or more of the combined voting power of each class of
the Company's then outstanding voting securities by any person (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than (x) the Company or any subsidiary of
the Company or any Company employee benefit plan (including any trustee of such
plan acting as trustee), or (b) Lawrence D. Frutkin, Alfred J. Berger, Jr. or
Kevin Doyle
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<PAGE> 17
(or any member of their families).
6. Representations and Warranties of the Company.
(a) (i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida, with full
corporate power and authority to conduct its business as it is now being
conducted and to own or use the properties and assets that it purports to own or
use. The Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification. The Company has
made available to the Consultant copies of its Organizational Documents, as
currently in effect.
(ii) This Agreement and the Warrants to be issued
pursuant hereto constitute the legal, valid, and binding obligations of the
Company, enforceable against the Company in accordance with their terms. The
Company has the right, power, and authority to execute and deliver this
Agreement and any other documents contemplated by this Agreement.
(b) The authorized equity securities of the Company are as set
forth in the latest Form 10QSB of the Company, as filed with the Securities and
Exchange Commission ("SEC"). The Common Stock to be received by the Consultant
in connection with the transactions contemplated hereby will be duly authorized,
validly issued, fully paid and non-assessable shares of common stock free of any
claim of preemptive rights and free and clear of any and all encumbrances other
than restrictions on transfer imposed by federal and state securities laws and
regulations. The warrants to be received by the Consultant in connection with
the transactions contemplated hereby shall be authorized by appropriate
resolution of the board of directors of the Company.
(c) The Company has timely filed with the SEC all materials
and documents required to be filed by it under the Exchange Act. All the
materials and documents filed with the SEC by the Company since December 1,
1995, including its initial Registration Statement on Form S-1, are hereinafter
referred to as the "Company SEC Reports." The Company SEC Reports, copies of
which have been delivered to the Consultant, are true and correct in all
material respects, including the financial statements and other financial
information contained therein, and do not omit to state any material fact
necessary to make the statements in such Company SEC Reports, in light of the
circumstances in which they were made, not misleading. The financial statements
included in the Company SEC Reports fairly present in all material respects the
financial condition and the results of operations, changes in stockholders'
equity and cash flow of the Company and its subsidiaries as at the respective
dates of and for the periods referred to in such
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<PAGE> 18
financial statements, all in accordance with GAAP.
(d) (i) The Company has filed all tax returns that it has at
any time been required to file. To the Company's knowledge, all such tax returns
were correct and complete in all material respects when filed, and the Company
has paid all taxes that are shown to be due on any such tax return. The Company
has no actual or potential liability for any obligation with respect to any
taxes of any taxpayer (including, without limitation, any affiliated group of
corporations or other entities that included the Company during a prior period)
other than the Company. To the Company's knowledge, all taxes that the Company
is or was required by law to withhold or collect have been duly withheld and
collected and, to the extent required, have been paid to the proper Governmental
Entities.
(ii) The Company has made available to the Consultant complete
and correct copies of all (1) federal income tax returns, (2) examination
reports and (3) statements of deficiencies assessed against or agreed to by the
Company since December 31, 1994. No examination or audit of any tax return of
the Company by any Governmental Entity is currently in progress or, to the
knowledge of the Company, pending or threatened. Except as otherwise set forth
in Schedule 6(d)(ii), the Company has not waived any statute of limitations with
respect to taxes or agreed to any extension of time with respect to any tax
assessment of deficiency.
(e) There are no claims, actions, suits, arbitrations,
proceedings or investigations pending (or to the knowledge of the Company,
threatened) against the Company, and there are no outstanding court orders,
court decrees or court stipulations to which the Company is a party or by which
any of its assets are bound, any of which would (i) impair this Agreement or
affect the transactions contemplated hereby, (ii) materially restrict the
present business, property, operations, prospects, assets, revenues or condition
(financial or otherwise) of the Company, or (iii) individually or in the
aggregate have a material adverse effect or materially impair or preclude the
Company's ability to consummate the transactions contemplated by this Agreement.
(f) The Company and the conduct and operation of its business
are, to its best knowledge and as of this date in compliance with all of the
laws (including rules and regulations thereunder) of any governmental entity
which are applicable to the Company's business.
7. Trade Secrets and Proprietary Information. Consultant agrees that it
will not, during or after the Term of this Agreement or thereafter, use or
disclose to any person, firm, corporation, partnership, limited liability
company, business trust, individual or other business entity any trade secrets
or proprietary
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information concerning the Company's or any of its subsidiaries' inventions,
processes, "know-how," formulae, products, services, business, customer lists,
proposed products and services, marketing strategy and research and development
activities; except that nothing in this Agreement shall be construed to prohibit
him from (a) using or disclosing such information if it shall become public
knowledge or known generally in the cigar industry other than by or as a result
of disclosure by a person not having a right to make such disclosure and (b)
complying with legal process, provided, that the Company shall be given notice
in time to enable it to object to such disclosure.
8. Covenant Not to Solicit or Compete.
(a) Consultant recognizes that the scope of the Company's
business is international and is not limited to any single state or region.
Consultant covenants and agrees that, subject to the last sentence of this
Paragraph 8(a), during the Term of this Agreement and for a period of one (1)
year after termination of this Agreement, Consultant will not (i) directly or
indirectly engage or have any interest in or provide financing for or serve or
accept a position as an officer, director, employee, partner, independent
contractor, principal, agent, representative, consultant, financier, guarantor
or any similar capacity with any entity which is engaged in the United States in
the same business as the Company is engaged, or (ii) contact or solicit the
business of any customers or prospective customers (i.e., prospects whose
business was actively solicited by the Company at any time during the twelve
(12) month period prior to the date Consultant ceased to be engaged by the
Company), or (iii) employ, engage or solicit the employment or engagement of any
employee of or consultant to the Company, or (iv) cause or induce any customer,
prospective customer, supplier, prospective supplier, employee or consultant to
terminate or fail to continue a relationship with the Company, or (v) directly
or indirectly aid or assist others in engaging in any transactions described in
this Paragraph 8(a); provided, however; that the provisions of this Paragraph
8(a) shall not apply to Consultant with respect to the sale by Consultant of
certain Cigars subject to a Letter Agreement of even date herewith by and among
the Company, Consultant and Alfred J. Berger, Jr.. For purposes of this
Agreement, references to customers shall mean those individuals or entities who
were customers at any time during the twelve (12) month period prior to the date
Consultant ceased to be engaged by the Company and references to suppliers shall
refer to suppliers of tobacco products to the Company at any time during the
twelve (12) month period prior to the date Consultant ceased to be engaged by
the Company and references to prospective suppliers shall refer to any supplier
of tobacco products from whom the Company actively sought to procure tobacco
products during the twelve (12) month period prior to the date Consultant ceased
to be engaged by the Company.
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(b) In the event that any Court having jurisdiction shall
determine that the territory or the length of time or scope of activity provided
for in this Paragraph 8 shall be excessive, such Court shall have the authority
to reduce the scope of the restrictions set forth in this Paragraph 8 to the
maximum time and territory and activity as to which such covenant is
enforceable, it being acknowledged by the parties that the parties have
negotiated for the greatest possible scope of this covenant.
9. Inventions and Discoveries. Consultant agrees promptly to disclose
in writing to the Company any invention or discovery made by Consultant during
the Term of this Agreement during the course of the performance by Consultant of
Services for the Company and that all rights to such inventions or discoveries
shall be the exclusive property of the Company. Consultant shall execute and
deliver to the Company such instruments as the Company deems necessary to vest
in the Company the sole and exclusive ownership of all rights in and to such
inventions and discoveries, as well as the copyrights and/or patents applicable
thereto.
10. Injunctive Relief; Agreement by Consultant's Employees.
Consultant agrees that his violation or threatened violation
of any of the provisions of Paragraphs 7, 8 and 9 of this Agreement shall cause
immediate and irreparable harm to the Company. In the event of any breach or
threatened breach of said provisions, Consultant consents to the entry of
preliminary and permanent injunctions by a Court of competent jurisdiction
prohibiting Consultant from engaging in any violation or threatened violation of
such provisions and compelling Consultant to comply with such provisions. This
Paragraph 10 shall not affect or limit, and the injunctive relief provided in
this Paragraph 10 shall be in addition to, any other remedies otherwise
available to the Company at law or in equity. In the event an injunction is
issued against any such conduct by Consultant, the period referred to in
Paragraph 8 of this Agreement shall continue until the later of the expiration
of the period set forth therein or one (1) month from the date a final judgment
enforcing such provisions is entered and the time for appeal has lapsed.
11. Right of First Refusal.
The Consultant agrees that in the event that the Consultant
desires to sell in a public or private transaction any of the shares of Common
Stock of the Company acquired by the Consultant pursuant to the terms of this
Agreement or any other agreement with the Company the Consultant shall give the
Company notice (the "Sale Notice") of the price and other terms of such proposed
sale, including the payment terms and, in a private transaction, the name of the
purchaser. The Company shall have an option (the "Option") to purchase all of
the shares proposed to be sold by the Consultant at the price and on the
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<PAGE> 21
terms set forth in the Sale Notice. The Option shall be exercisable in whole
only and not in part within thirty (30) days (five (5) business days in the case
of (i) a public sale whether pursuant to Rule 144 or otherwise or (ii) a sale of
securities with a fair market value of One Hundred Thousand Dollars ($100,000)
or less; provided, however, all sales made by the Consultant in any 90 day
period shall be aggregated for purposes of this $100,000 exemption from the
30-day notice requirement) after the date the Sale Notice is given to the
Company. Exercise of the Option shall be given by written notice of exercise
accompanied by full payment of the purchase price of the shares subject to the
Option. In the event that, by 5:00 P.M. New York City time on the last day of
the aforementioned thirty (30) or five (5) day period, the Consultant shall not
have received both the notice of exercise of the Option from the Company and the
full amount of the purchase price, the Consultant shall have the right to sell
the shares referred to in the Sale Notice on substantially the same terms as are
set forth in the Sale Notice. The terms shall be deemed to be substantially the
same as those set forth in the Sale Notice if the purchase price, either in
terms of dollars or a percentage of the market price, is not less than the
amount payable pursuant to the terms set forth in the Sale Notice. If the terms
of sale are reduced so that the purchase price is less than the amount payable
as provided in the Sale Notice, the Consultant shall re-offer the shares to the
Company on such revised terms in the manner set forth in this Paragraph 11
except that the thirty (30) day and five (5) day periods shall be reduced to ten
(10) days and five (5) days, respectively. If the terms of payment set forth in
the Sale Notice provide that a portion of the purchase price is payable
subsequent to the closing, then in such event, the payment due at the time of
exercise shall be equal to the amount due at the closing as set forth in the
Sale Notice and the remainder of the purchase price shall be payable at such
times and in such amounts as are set forth in the Sale Notice; all of the shares
being purchased by the Company shall be held in escrow by the Consultant, to be
released on a pro rata basis as the purchase price is paid. In the event that
the Consultant desires to transfer any of such shares by gift, it shall be a
condition to effecting any such transfer that the transferee agree to be subject
to the provisions of this Paragraph 11.
12. Independent Contractor. In all matters relating to this Agreement,
the Company and the Consultant shall act as independent contractors, neither
shall be the employee, joint venturer, partner or agent of the other, and each
shall assume any and all liability for its own acts. Neither the Company nor
Consultant shall have any authority to assume or create obligations, express or
implied, on behalf of the other party or any subsidiary or affiliate of the
other party, and neither party shall have any authority to represent any other
party as its agent, employee, partner or in any other capacity.
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13. Miscellaneous.
(a) Consultant represents, warrants, covenants and agrees that
he has a right to enter into this Agreement, that he is not a party to any
agreement or understanding, oral or written, which would prohibit the
performance of its obligations under this Agreement, and that he will not use in
the performance of his obligations hereunder any proprietary information of any
other party which he is legally prohibited from using.
(b) Any notice under the provisions of this Agreement shall be
in writing and shall be given by hand, overnight courier or messenger service,
against signed receipt or acknowledgment of receipt, registered or certified
mail, return receipt requested, or telecopier or similar means of communication
if receipt is acknowledged or if transmission is confirmed by mail as provided
in this Paragraph 13(b), to the parties at their respective addresses set forth
at the beginning of this Agreement or by telecopier to the Company at (305)
267-6026 or to Consultant at (317) 784-6384 , with notice to the Company being
sent to the attention of the individual who executed this Agreement on behalf of
the Company. Either party may, by like notice, change the person, address or
telecopier number to which notice shall be sent.
(c) If any term, covenant or condition of this Agreement or
the application thereof to any party or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to parties or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law, and any court having
jurisdiction may reduce the scope of any provision of this Agreement so that it
complies with applicable law.
(d) This Agreement constitutes the entire agreement of the
Company and Consultant as to the subject matter hereof, superseding all prior
written or prior or contemporaneous oral understandings or agreements, including
any previous consulting or engagement agreements, or understandings with respect
to the subject matter covered in this Agreement. This Agreement may not be
modified or amended, nor may any right be waived, except by a writing which
expressly refers to this Agreement, states that it is intended to be a
modification, amendment or waiver and is signed by both parties in the case of a
modification or amendment or by the party granting the waiver. No course of
conduct or dealing between the parties and no custom or trade usage shall be
relied upon to vary the terms of this Agreement. The failure of a party to
insist upon strict adherence to any term of this Agreement on any occasion shall
not be considered a waiver or deprive that party of the right thereafter to
insist upon strict adherence to that term or any other term of this Agreement.
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(e) This Agreement will inure to the benefit of and be binding
upon Consultant, his legal representatives and testate or intestate
distributees, and the Company, its respective successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Company may be sold or otherwise transferred.
(f) The headings in this Agreement are for convenience of
reference only and shall not affect in any way the construction or
interpretation of this Agreement.
(g) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed wholly within such State. Each of the parties hereby (i)
irrevocably consents and agrees that any legal or equitable action or proceeding
arising under or in connection with this Agreement shall be brought exclusively
in any Federal or state court in the County of Dade, State of Florida, (ii) by
execution and delivery of this Agreement, irrevocably submits to and accepts,
with respect to its properties and assets, generally and unconditionally, the
jurisdiction of the aforesaid court and (iii) agrees that any action against
such party may be commenced by service of process by any method set forth in
Paragraph 13(b) of this Agreement, other than by telecopier, to such party as
provided in said Paragraph 13(b).
[Balance of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CARIBBEAN CIGAR COMPANY
By: /s/ Thomas R. Dilk
-------------------------------------
Title:Chief Financial Officer
----------------------------------
/s/ Lawrence D. Frutkin
----------------------------------------
Lawrence D. Frutkin
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EXHIBIT "A"
TO
CONSULTING AGREEMENT DATED AS OF APRIL 1, 1997 BY AND BETWEEN
CARIBBEAN CIGAR COMPANY AND LAWRENCE D. FRUTKIN, CONSULTANT
Brands and types of cigars to which Performances Compensation is related:
- - All cigars supplied from and after the Effective Date to Caribbean Cigar
Company (i) by or from Taru Martani, Indonesia or (ii) by or from any other
supplier of cigars located in Indonesia as a result of the efforts of Consultant
and/or Alfred J. Berger, Jr.
For purposes of the Consulting Agreement, the words "Cigar sales" or "Cigars
sold" are defined as the shipment of Cigars on or after the Effective Date by or
on behalf of the Company to customers of the Company less the number of Cigars
returned by such customers to the Company; provided, however, that for purposes
of determining "Cigar sales" or "Cigars sold" under the Agreement, the number of
long-filler second Cigars shipped by the Company to customers for sale under any
name other than "Celestino Vega" or "C.V" shall be deemed to be one-half (1/2)
of the actual number of such long-filler second Cigars shipped by the Company.
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[FORM OF WARRANT]
Warrant to Purchase
WA- ** **
Shares of Common Stock
Date of Grant:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
ON THE FIFTH ANNIVERSARY OF THE EFFECTIVE DATE, AS DEFINED HEREIN
SERIES A COMMON STOCK PURCHASE WARRANT
OF
CARIBBEAN CIGAR COMPANY
This is to certify that, FOR VALUE RECEIVED, _________________________________
or assigns ("Holder"), is entitled to purchase, subject to the provisions of
this _______ Warrant, from Caribbean Cigar Company, a Florida corporation (the
"Company"), at an exercise price per share of fifteen and 00/100 dollars
($15.00), subject to adjustment as provided in this Warrant, __________________
_____________________________________________ (_______ ,_________ ) shares of
common stock, par value $.001 per share ("Common Stock"), of the Company at any
time during the five (5) year period (the "Exercise Period") commencing on the
date of grant of this Warrant (the "Effective Date") and ending at 5:00 P.M.,
New York City time, on the fifth (5th) anniversary of the Effective Date;
provided, however, that if such date is a day on which banking institutions in
the State of New York are required or authorized by law to close, then on the
next succeeding day which shall not be such a day. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for a share of Common Stock may also be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares," and the exercise price for the purchase of a share of
Common Stock pursuant to this Warrant in effect at any time and as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price."
Reference in the Warrant to the "Series A Warrants" shall mean any or all of the
Series A Common Stock Purchase Warrants issued by the Company, regardless of
whether the Exercise Price of such Series A Warrants is the same as the Exercise
Price of this Warrant.
(a) EXERCISE OF WARRANT. This Warrant may be exercised in whole at any
time or in part from time to time during the Exercise Period by presentation and
surrender hereof to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares of Common Stock specified in such form. If this Warrant shall be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the shares of Common Stock purchasable
hereunder. This Warrant may be exercised in whole at any time during the
Exercise
<PAGE> 27
Period by presentation and surrender hereof to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed, without cash payment, for the number of
shares of Common Stock obtained by multiplying (i) the difference of (a) the
"current market price per share of Common Stock", as defined in paragraph (f)(5)
hereof, less (b) the Exercise Price per share then in effect, times (ii) the
fraction, the numerator of which is the number of Warrant Shares then
outstanding and the denominator of which is the Exercise Price per share then in
effect. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
(b) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant and that it shall not, without the
prior approval of the holders of a majority of the Warrants then outstanding,
increase the par value of the Common Stock.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise of this Warrant,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Stock Market or other automated quotation system which
provides information as to the last sale price, the current value shall be the
reported last sale price of one share of Common Stock on such exchange or system
on the last business day prior to the date of exercise of this Warrant, or if no
such sale is made on such day, the current value shall be the average of the
closing bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current value shall be the mean of the reported
last bid and asked prices of one share of Common Stock as reported by Nasdaq,
the National Quotation Bureau, Inc. or other similar reporting service, on the
last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value of one share of Common Stock shall be an amount, not less than
book value, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(d) LOSS, ETC. OF WARRANT. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this
Warrant, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
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<PAGE> 28
(1) In case the Company shall, subsequent to the Effective
Date, (A) pay a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock (B) subdivide or reclassify its outstanding Common Stock
into a greater number of shares, or (C) combine or reclassify its outstanding
Common Stock into a smaller number of shares or otherwise effect a reverse
split, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive upon such dividend, distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed in this Paragraph (f)(1) shall occur.
(2) In case the Company shall, subsequent to the Effective
Date, issue rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into or in exchange for Common Stock), or shall issue directly to any person,
Common Stock at a price (or having a conversion or exchange price per share)
less than the current market price of the Common Stock (as defined in Paragraph
(f)(5) of this Warrant) on the record date mentioned below, the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
issuance by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
or exchange price of the convertible or exchangeable securities so offered)
would purchase at such current market price per share of the Common Stock, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchased (or into which the convertible or
exchangeable securities so offered are convertible or exchangeable). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock or securities convertible into or
exchangable for Common Stock are not delivered after the expiration of such
rights or warrants, the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) actually delivered.
(3) In case the Company shall, subsequent to the Effective
Date, distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (f)(1) of this Warrant)
or subscription rights or warrants (excluding those referred to in Paragraph
(f)(2) of this Warrant), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Paragraph (f)(5) of this
Warrant), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and of which the denominator shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(4) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares of Common
Stock issuable upon exercise of each Warrant in effect on the date thereof by
the Exercise Price in effect on the date thereof and
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<PAGE> 29
dividing the product so obtained by the Exercise Price, as adjusted. In no event
shall the Exercise Price per share be less than the par value per share, and, if
any adjustment made pursuant to Paragraph (f)(1), (2) or (3) would result in an
exercise price of less than the par value per share, then, in such event, the
Exercise Price per share shall be the par value per share.
(5) For the purpose of any computation under Paragraphs (f)(2)
and (3) of this Warrant, the current market price per share of Common Stock at
any date shall be deemed to be the average of the daily closing prices for 30
consecutive business days commencing 45 business days before such date. The
closing price for each day shall be the reported last sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported last bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading or
listed or on the Nasdaq Stock Market, or if not listed or admitted to trading on
such exchange or such System, the average of the reported highest bid and
reported lowest asked prices as reported by Nasdaq, the National Quotation
Bureau, Inc. or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors.
(6) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this Paragraph (f)(6) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Paragraph (f) to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Paragraph (f), as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock, issuance of
warrants to purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph (f) hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(7) The Company may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants employed by the Company) to make any computation
required by this Paragraph (f), and a certificate signed by such firm shall,
absent manifest error, be conclusive evidence of the correctness of such
adjustment.
(8) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph (f)(1) of this Warrant, the Holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Paragraphs (f)(1) to
(6), inclusive, of this Warrant.
(9) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this and similar Warrants initially
issued by the Company.
(g) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Paragraph (f) of this Warrant, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price and the adjusted
number of shares of Common Stock issuable upon exercise of each Warrant,
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
shares of Common Stock, if any, reserved by the Company for issuance upon
exercise of this Warrant, and such other facts as shall be necessary to show the
reason for and the manner of
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<PAGE> 30
computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder or any holder of
a Warrant executed and delivered pursuant to Paragraph (a) and the Company
shall, forthwith after each such adjustment, mail, by certified mail, a copy of
such certificate to the Holder or any such holder at such holder's address set
forth in the Company's Warrant Register.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least thirty days prior to the date specified
in clauses (i) and (ii), as the case may be, of this Paragraph (h) a notice
containing a brief description of the proposed action and stating the date on
which (i) a record is to be taken for the purpose of such dividend, distribution
or rights, or (ii) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant, to purchase
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which might have been purchased upon exercise of this Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Any such provision shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Warrant. The foregoing provisions of this Paragraph (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for a security of the Company
other than Common Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of Paragraph (f) of this Warrant.
(j) WARRANTS AND UNDERLYING SHARES NON-TRANSFERABLE. Neither this
Warrant nor the shares of Common Stock issuable upon exercise of this Warrant
have been registered under the Securities Act of 1933, as amended, and neither
this Warrant nor such shares may be sold, encumbered, or otherwise transferred,
except pursuant to an effective registration statement under such act or an
exemption from such registration
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<PAGE> 31
requirement, and, if an exemption shall be applicable, the holder shall have
delivered an opinion of counsel, acceptable to the Company, that such
registration is not required.
Dated as of April , 1997,
CARIBBEAN CIGAR COMPANY
ATTEST:
By:
-------------------------------------
Kevin Doyle
Chairman of the Board
By:
--------------------------
, Secretary
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<PAGE> 32
PURCHASE FORM
Dated: , 19
____ The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing _________ shares of Common Stock and hereby
makes payment of $_________________ in payment of the actual exercise
price thereof.
____ The undersigned hereby irrevocably elects to exercise the within Warrant
for the number of shares of Common Stock obtained by multiplying (i) the
difference of (a) the "current market price per share of Common Stock",
as defined in paragraph (f)(5) of the within Warrant, less (b) the
Exercise Price per share then in effect, times (ii) the fraction, the
numerator of which is the number of Warrant Shares then outstanding and
the denominator of which is the Exercise Price per share then in effect.
----------------------------------------
Signature
----------------------------------------
Name (printed)
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<PAGE> 1
* Portions of this document have been omitted and filed separately with
the Securities and Exchange Commission pursuant to a request for confidential
treatment.
CONSULTING AGREEMENT
CONSULTING AGREEMENT ("Agreement") dated as of April 1, 1997 (the
"Effective Date"), by and between Caribbean Cigar Company, a Florida corporation
with its principal office at 6265 S.W. 8th Street, Miami, FL 33144 (the
"Company"), and Alfred J. Berger, Jr. ("Consultant"), with an address at 195
East McMillan Street, Cincinnati, Ohio 45129.
W I T N E S S E T H:
WHEREAS, Consultant has extensive experience in and know how with
respect to the cigar industry, including, without limitation, experience
relating to the domestic and international distribution of cigars, the
organization and operation of cigar manufacturing facilities and the development
of premium and handmade cigar brands; and
WHEREAS, Consultant is engaged in the business of providing management,
sales and consulting services to cigar businesses; and
WHEREAS, Consultant desires to provide management, sales and consulting
services on an ongoing basis to the Company; and
WHEREAS, the Company desires to engage Consultant to provide
management, sales and consulting services to it, and Consultant is willing to
provide such services, all on and subject to the terms of this Agreement;
NOW, THEREFORE, the parties do hereby agree as follows:
1. Engagement of Consultant; Services to be Rendered.
(a) The Company hereby engages Consultant to perform Services,
as hereinafter defined, during the Term of this Agreement.
(b) The services to be performed by Consultant shall include,
but not be limited to, such management, marketing, sales, product development,
administrative and other consulting services as the Company may deem appropriate
in connection with the Company's business ("Services"). The Services shall be
performed personally by Consultant at such locations as the Company shall deem
appropriate, provided, that, in no event shall Consultant be required to move
his personal residence from its current location. Promptly after the Effective
Date, but in any event within thirty (30) thereof, Consultant shall be
<PAGE> 2
elected as a director of the Company by the Board of Directors of the Company.
Consultant shall receive no consideration in addition to the consideration set
forth in this Agreement for services rendered as a director of the Company;
provided, however, that, Consultant shall be entitled, to the same extent as
provided to other directors of the Company, to reimbursement for travel and
lodging expenses incurred as a result of attendance at meetings of the Board of
Directors of the Company, to directors fees for attendance at such meetings, and
to indemnification against damages and advancement of expenses incurred in
connection with any action, suit or proceeding brought against Consultant solely
in Consultant's capacity as a director of the Company, all in accordance with
the Articles of Incorporation and By-Laws of the Company and the laws of the
State of Florida.
(c) Unless terminated earlier as provided in Paragraph 4 of
this Agreement, the Term of this Agreement for the provision of Services by
Consultant shall be for an initial period commencing as of April 1, 1997 and
expiring on March 31, 2000.
(d) Consultant hereby accepts the engagement contemplated by
this Agreement. During the Term, Consultant shall perform his duties diligently,
in good faith and in a manner consistent with the best interests of the Company.
Consultant shall devote substantially all of his time to the performance of his
duties as set forth in Paragraph 1(b) of this Agreement.
2. Compensation and Other Benefits.
(a) Base Compensation. For the Services performed and to be
performed pursuant to this Agreement, the Company shall pay Consultant
compensation ("Base Compensation"), in cash, at the annual rate of one hundred
thousand dollars ($100,000), payable in equal monthly installments on the last
day of each month.
(b) Performance Compensation. In addition to Base
Compensation, Consultant shall receive additional compensation ("Performance
Compensation") in the form of cash and shares of the Company's common stock (the
"Common Stock") during the Term of this Agreement based upon the attainment of
certain performance goals relating to the sale of the cigars set forth on
Exhibit A of this Agreement (all of such cigars are referred to collectively in
this Agreement as "Cigars"). The terms and conditions for payment of the
Performance Compensation shall be as follows:
(i) For the Twelve-Month Period commencing on April
1, 1997 and ending on March 31, 1998 (the "First Twelve-Month Period"). (A) The
Company shall pay Consultant * in cash
(the "1997 Monetary Remuneration"), based upon an agreed upon
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<PAGE> 3
compensation of * per Cigar, for the first
* Cigars sold by the Company during the First Twelve-Month Period;
(B) The Company shall pay Consultant (I)
* in cash (the "1997 Cash
Compensation"), (II) * worth of
shares of Common Stock (the "1997 Stock Compensation"), based upon a per share
price equal to the lesser of * per share of Common Stock
(the "1997 Ceiling Price") or the average closing price of the Common Stock
during the thirty (30) day period up to and including March 31, 1998 (or if the
Common Stock is not traded on any of such days, the average of the closing high
bid and low asked prices for the Common Stock on such days), but not less than
* per share of Common Stock (the "1997 Floor Price"); and
(III) warrants for the purchase of * shares of Common Stock ("Warrant
Compensation"), all based upon the sale by the Company of at least *
Cigars during the First Twelve-Month Period.
(C) Notwithstanding anything to the contrary
contained in Paragraph 2(b)(i)(A) or Paragraph 2(b)(i)(B) of this Agreement, the
payment of the 1997 Monetary Remuneration, the 1997 Cash Compensation, the 1997
Stock Compensation and the 1997 Warrant Compensation shall be subject to the
following conditions:
(I) If the Company shall sell
* or fewer Cigars during the First Twelve-Month
Period, (x) the 1997 Monetary Remuneration otherwise payable
shall be equal to * multiplied by the number of Cigars
actually sold, (y) the 1997 Cash Compensation shall be equal to *
times the number of Cigars sold, and (z) the 1997 Stock *
Compensation shall be an amount of shares of Common Stock having an aggregate
fair market value equal to * multiplied by *
times the number of Cigars sold.
(II) If the Company shall sell more
than * Cigars but less than * Cigars during the First
Twelve-Month Period, the 1997 Cash Compensation and the 1997 Stock Compensation
otherwise payable shall be equal to the sum of (x) the cash and stock
compensation payable pursuant to Subparagraph (I) of this Paragraph 2(b)(i)(C),
assuming the Company sold * Cigars, (y) cash compensation equal
to the amount determined by multiplying *
* by a fraction (the "1997 Fraction"), the numerator of
which is the number of Cigars in excess of * Cigars sold by the Company
during the First Twelve-Month Period and the denominator of which is *
Cigars and (z) and stock compensation in the form of
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<PAGE> 4
shares of Common Stock having an aggregate fair market value equal to
* multiplied by the
1997 Fraction.
(III) For purposes of determining
the amount of shares of Common Stock to which the Consultant is entitled
pursuant to Subparagraphs (I) and (II) of this Paragraph 2(b)(i)(C), each share
of Common Stock shall be deemed to have a fair market value equal to the lesser
of * per share of Common Stock or the average closing
price of the Common Stock during the thirty (30) day period up to and including
March 31, 1998 (or if the Common Stock is not traded on any of such days, the
average of the closing high bid and low asked prices for the Common Stock on
such days), but not less than * per share of Common Stock
(the "1997 Floor Price").
(IV) If the Company shall sell less
than a total of * Cigars during the First Twelve-Month Period the 1997
Warrant Compensation shall be equal to the Warrant Compensation multiplied by a
fraction, the numerator of which is the number of Cigars actually sold by the
Company and the denominator of which is * .
(D) In the event that the fair market value
per share of Common Stock on March 31, 1998, shall be less than the 1997 Floor
Price, a portion of the 1997 Cash Compensation equal to the difference between
(x) the amount of the 1997 Cash Compensation otherwise payable and (y)
* of the aggregate fair market value of the 1997 Stock
Compensation earned by the Consultant (such fair market value to be determined
as of March 31, 1998) shall be payable at the sole option of the Company either
in cash or in shares of Common stock having an aggregate fair market value equal
to such difference.
(ii) For the Twelve-Month Period beginning April 1,
1998 and ending March 31, 1999 (the "Second Twelve-Month Period").
(A) The Company shall pay Consultant:
(I) *
worth of shares of Common Stock (the "1998 Stock Compensation"),
based upon a per share price equal to the lesser of * per
share of Common Stock (the "1998 Ceiling Price") or the average closing price of
the Common Stock during the thirty (30) day period up to and including March 31,
1999 (or if the Common Stock is not traded on any of such days, the average of
the closing high bid and low asked prices for the Common Stock on such days),
but not less than * per share of Common Stock (the "1998
Floor Price"); (II) * in cash (the 1998
Cash Compensation"); and (III) Warrant Compensation upon the sale by the Company
of at least * Cigars during the Second Twelve-Month Period
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<PAGE> 5
(B) Notwithstanding anything to the contrary
contained in Paragraph 2(b)(iii)(A) of this Agreement, if the Company shall sell
fewer than * Cigars during the Second Twelve-Month Period, the payment
of the 1998 Cash Compensation, the 1998 Stock Compensation and the 1998 Warrant
Compensation shall be subject to the following conditions:
(I) The 1998 Stock Compensation
payable to Consultant with respect to the Second Twelve-Month Period shall be
equal to the number of shares of Common Stock that the Consultant would have
been entitled to had the Company sold * Cigars, multiplied by a
fraction (the "1998 Fraction"), the numerator of which is the number of Cigars
actually sold by the Company in the Second Twelve-Month Period and the
denominator of which is * ;
(II) The 1998 Cash Compensation
payable to the Consultant shall be equal to *
multiplied by the 1998 Fraction; and
(III) The 1998 Warrant Compensation
shall represent the right to purchase the product of *
shares of Common Stock multiplied by the 1998
Fraction.
(C) In the event that the fair market value
per share of Common Stock on March 31, 1999, shall be less than the 1998 Floor
Price, a portion of the 1998 Cash Compensation equal to the difference between
(x) the amount of the 1998 Cash Compensation otherwise payable and (y)
* of the aggregate fair market value of the 1998 Stock
Compensation earned by the Consultant (such fair market value to be determined
as of March 31, 1999) shall be payable at the sole option of the Company either
in cash or in shares of Common Stock having an aggregate fair market value equal
to such difference.
(iii) For the Twelve-Month Period beginning April 1,
1999, and ending March 31, 2000 (the "Third Twelve-Month Period").
(A) The Company shall pay Consultant:
(I) *
worth of shares of Common Stock (the "1999 Stock Consideration"),
based upon a per share price equal to the lesser of * per
share of Common Stock (the "1999 Ceiling Price") or the average closing price of
the Common Stock during the thirty (30) day period up to and including March 31,
2000 (or if the Common Stock is not traded on any of such days, the average of
the closing high bid and low asked prices for the Common Stock on such days),
but not less than * per share of Common Stock (the "1999
Floor Price"); (II) * in cash (the "1999
Cash Compensation");
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<PAGE> 6
and (III) Warrant Compensation upon the sale by the Company of least
Cigars during the Third Twelve-Month Period.
(B) Notwithstanding anything to the contrary
contained in Paragraph 2(b)(iv)(A) of this Agreement, if the Company shall sell
fewer than * Cigars during the Third Twelve-Month Period, the payment
of the 1999 Cash Compensation, the 1999 Stock Compensation and the 1999 Warrant
Compensation shall be subject to the following conditions:
(I) The 1999 Stock Compensation
payable to Consultant with respect to the Third Twelve-Month Period shall be
equal to the number of shares of Common Stock that the Consultant would have
been entitled to had the Company sold * Cigars multiplied by a
fraction (the "1999 Fraction"), the numerator of which is the number of Cigars
actually sold by the Company in the Third Twelve-Month Period and the
Denominator of which is * ;
(II) The 1999 Cash Compensation
shall be equal to * multiplied by the 1999
Fraction; and *
(III) The 1999 Warrant Compensation
shall represent the right to purchase the product of *
shares of Common Stock multiplied by the 1999
Fraction.
(C) In the event that the fair market value
per share of Common Stock on March 31, 2000, shall be less than the 1999 Floor
Price, a portion of the 1999 Cash Compensation equal to the difference between
(x) the amount of the 1999 Cash Compensation otherwise payable and (y)
* of the aggregate fair market value of the 1999 Stock
Compensation earned by the consultant (such fair market value to be determined
as of March 31, 2000) shall be payable, at the sole option of the Company,
either in cash or in shares of Common Stock having an aggregate fair market
value equal to such difference.
(iv) If (A) the aggregate number of Cigars sold
during the Term of this Agreement by the Company as of the end of the Third
Twelve-Month Period, equals or exceeds * Cigars and (B) the Consultant
did not earn one hundred percent (100%) of the Performance Compensation during
any Twelve-Month Period because the number of Cigars sold by the Company during
such Twelve-Month Period was less than the target sales of Cigars, the
Consultant shall be entitled to receive Performance Compensation equal to the
aggregate of:
(I) Stock compensation equal to the
number of shares of Common Stock determined by dividing (x) the difference
between the aggregate fair market value (as determined below in Subparagraph
(2)(b)(iv)(A)(III)) of the 1997 Stock Compensation, the 1998 Stock Compensation
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or the 1999 Stock Compensation, as the case may be, which the Consultant would
have been entitled to receive if the number of Cigars sold during the relevant
Twelve-Month Period was equal to the target sales of Cigars for such
Twelve-Month Period and (2) the aggregate fair market value (as determined below
in Subparagraph (2)(b)(iv)(A)(III)) of the 1997 Stock Compensation, the 1998
Stock Compensation or the 1999 Stock Compensation, as the case may be, actually
received by the Consultant by (y) a per share price of * ;
and
(II) Cash compensation equal to the
difference between (x) * with respect to the 1997 Cash Compensation or
* with respect to the 1998 Cash Compensation or the 1999 Cash
Compensation, as the case may be, and (y) the amount of cash and the aggregate
fair market value (determined as of March 31 of the year in which paid) of the
Common Stock, if any, actually received by the Consultant as the 1997 Cash
Compensation, the 1998 Cash Compensation or the 1999 Cash Compensation, as the
case may be.
(III) For purposes of determining
under Subparagraph 2(b)(iv)(A)(I) the "aggregate fair market value" of the 1997
Stock Compensation, the 1998 Stock Compensation or the 1999 Stock Compensation,
as the case may be, which the Consultant would have been entitled to receive if
the number of Cigars sold during the relevant Twelve-Month Period equaled or
exceeded the target sales for such period, the price per share as determined
under this Subparagraph shall be multiplied by the number of shares which would
have been issued had the number of Cigars sold during such period equaled or
exceeded the target sales for such period. For purposes of determining under
Subparagraph 2(b)(iv)(A)(I) the aggregate fair market value of the 1997 Stock
Compensation, the 1998 Stock Compensation or the 1999 Stock Compensation, as the
case may be, actually received by the Consultant, the price per share as
determined under this Subparagraph shall be multiplied by the number of shares
actually issued to the Consultant as 1997 Stock Compensation, 1998 Stock
Compensation or 1999 Stock Compensation, as the case may be. The price per share
for the 1997 Stock Compensation, the 1998 Stock Compensation and the 1999 Stock
Compensation under this Subparagraph shall be equal to the average closing price
per share of the Common Stock during the thirty (30) day period up to and
including March 31, 1998, March 31, 1999, or March 31, 2000, respectively (or,
if the Common Stock is not traded on any of such days, the average of the
closing high bid and low asked prices for the Common Stock on such days), but in
no event more than * with respect to the 1997 Stock compensation, *
with respect to the 1998 Stock Compensation and * with respect to the 1999
Stock Compensation.
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<PAGE> 8
(v) The 1997 Floor Price, the 1997 Ceiling Price, the
1998 Floor Price, the 1998 Ceiling Price, the 1999 Floor Price and/or the 1999
Ceiling Price, as the case may be, shall each be adjusted to give effect to (A)
any dividend or distribution by the Company on or with respect to its shares of
Common Stock in Common Stock, or in other securities convertible into or
exchangeable for shares of Common Stock, (B) any subdivision, or
reclassification of the Company's outstanding shares of Common Stock into a
greater number of shares, or (C) any combination or reclassification of the
Company's outstanding shares of Common Stock into a smaller number of shares of
Common Stock or other transaction which effects a reverse split which occurs
between the Effective Date and the date on which the computation is being made.
(vi) The market price of the Common Stock during any
Computation Period shall be adjusted to reflect any dividend, distribution,
subdivision, combination or reclassification or other event referred to in
Paragraph 2(b)(v) of this Agreement which occurs during such Computation Period.
For purposes of this Paragraph 2(b)(vi), the term "Computation Period" shall
mean any of the thirty day periods referred to in Paragraphs 2(b)(i)(B),
2(b)(ii)((A), 2(b)(iii)(A) or 2(b)(iv)(B)(III) of this Agreement.
(vii) For purposes of this Agreement, the term
"warrants" shall mean warrants for the purchase of shares of Common Stock,
exercisable within five years of the date of grant at an exercise price of
* per share of Common Stock.
(viii) For purposes of this Agreement, the term
"Twelve-Month Period" shall mean the First Twelve-Month Period, the Second
Twelve-Month Period or the Third Twelve-Month Period, as the case may be.
(ix) Reduction in Performance Compensation. The
parties acknowledge that the Company may hire an individual to (a) train
employees of Taru Martani (or any other manufacturer of cigars located in
Indonesia with which the Company enters into an agreement for the manufacture
and supply of cigars) to handroll cigars and/or (b) monitor the quality of
cigars to be shipped by Taru Martani (or such other Indonesian cigar
manufacturer) to the Company, or to perform such other services as requested by
the Company from time to time. In the event that the Company does hire such an
individual, an amount not to exceed * of the cost of such
individual to the Company for the period during which such individual is
performing such services for the Company shall be deducted from the 1997
Monetary Remuneration otherwise payable to the Consultant.
(x) Upon the issuance of shares of Common Stock
pursuant to the terms of this Paragraph 2(b), the Company shall obtain a legal
opinion that such shares have been validly issued.
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<PAGE> 9
(c) Payment Terms. Other than amounts payable to Consultant
which have been earned and paid pursuant to Paragraph 2 (a) of this Agreement,
which shall be payable monthly on a "as-earned" basis, and the 1997 Monetary
Remuneration which shall be paid within thirty (30) days of the end of each
quarterly period commencing April 1, 1997, all Performance Compensation due and
owing hereunder shall be payable within thirty (30) business days after the
close of the Twelve-Month Period in which such Performance Compensation has been
earned, provided, however, that the 1997 Cash Compensation and 1998 Cash
Compensation shall be payable March 31, 1999, on March 31, 2000, respectively,
and the 1999 Cash Compensation shall be payable on March 31, 2000.
(d) Force Majeure. In the event that the sale of Cigars is
prevented for a period not to exceed six (6) months as a result of fires,
floods, accidents, riots, acts of God, war, blockades, embargoes, transportation
delays or any other circumstance outside the control of the parties (an "event
of force majeure"), the Twelve-Month Period during which such event of force
majeure, occurs, and each subsequent Twelve-Month Period shall be extended by a
period of time, not to exceed six (6) months, during which such event of force
majeure is in effect. In the event that the event of force majeure shall
continue for a period exceeding six (6) months during any Twelve-Month Period,
the Company shall have the right to terminate this Agreement solely with respect
to the remainder of such Twelve-Month Period; provided, that, notwithstanding
such termination, Consultant shall be entitled to compensation for such
Twelve-Month Period for all Cigars sold during such Twelve-Month Period prior
to the event of force majeure, determined by treating such number of Cigars sold
as the total number of Cigars sold during the Twelve-Month Period and applying
the terms of this Agreement otherwise applicable to the determination of
Performance Compensation.
(e) In the event that the Company shall default on its
obligation to pay any amount of 1997 Cash Compensation, 1998 Cash Compensation
or 1999 Cash Compensation, as the case may be, as required pursuant to the terms
of this Agreement, the Company shall, upon demand therefor by the Consultant,
issue registerable shares of Common Stock having an aggregate fair market value
(which shall be equal to the average closing price of the Common Stock during
the thirty day period up to and including the date of demand, or, if the Common
Stock is not traded on any of such days, the average of the closing high bid and
low asked prices of the Common Stock during such days) equal to the amount of
cash otherwise due to the Consultant. The Common Stock issued to the Consultant
pursuant to this Paragraph 2(e) shall be registerable upon the demand of the
Consultant, at the sole cost and expense of the Company
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<PAGE> 10
(excluding any brokerage fees incurred by the Consultant in connection with
sales of such Common Stock and the fees and expenses of any counsel retained by
the Consultant).
(f) The Company and Consultant agree that the Performance
Compensation is dependent on the best efforts of Consultant to arrange for the
steady, non- interrupted supply of high quality and desirable Cigars to the
Company and the best efforts of the Company to sell the Cigars supplied through
the efforts of Consultant so as to maximize the number of Cigars actually sold
at retail at the Company's outlets or by the Company's other retailers at prices
that are profitable to the Company. Such prices will be determined by the
President or the Board of Directors of the Company, but shall not be arbitrary
in relation to market conditions, supply and demand.
3. Registration Rights.
(a) Demand Rights. If, in a written notice given to the
Company at any time during the period commencing one (1) year from the date
hereof and ending four (4) years from the date hereof and signed by the
Consultant, the Consultant informs the Company that (i) the Consultant
contemplates the sale of any or all of the Common Stock received by the
Consultant under and pursuant to the terms of this Agreement (the "Agreement
Common Stock") under such circumstances that a public offering distribution
within the meaning of the Securities Act of 1933, as amended, (hereinafter the
"Securities Act") of the Agreement Common Stock will be involved and (ii) the
Consultant is requesting that the Company file a registration statement (such
right to request the filing of a registration statement referred to in this
Agreement as a "Demand Registration Right") pursuant to the Act with respect to
the Agreement Common Stock, the Company shall, as promptly as possible, but in
no event more than ninety (90) days after receipt of such notice (the "Demand
Registration Notice"), file a registration statement (the "Consultant
Registration Statement") pursuant to the Securities Act, pursuant to which the
Agreement Common Stock requested to be registered by the Consultant may be sold
under the Securities Act as promptly as practicable thereafter. The Company
shall use its best efforts to cause such Consultant Registration Statement to
become effective; provided, that, the Consultant shall furnish the Company with
appropriate information (relating to the intentions of the Consultant) in
connection therewith as the Company shall reasonably request in writing. The
Company shall keep such registration statement current for such time, not to
exceed the greater of nine (9) months or such longer period as the registration
statement may be used without requiring audited financial statements covering a
period subsequent to that for which audited financial statements are otherwise
required, as the Consultant may request. The Demand Registration Right accorded
the Consultant pursuant to this Paragraph 2(c)(i) shall be exercisable by the
Consultant one (1) time only.
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<PAGE> 11
The Company will not be obligated to effect any Demand Registration Right if the
Board of Directors of the Company adopts a resolution to the effect that the
Company intends to register shares (a "Registration") of common stock under the
Securities Act within the six-month period subsequent to the date of receipt of
the Demand Registration Notice until such six-month period has elapsed or the
Company shall have abandoned such intention prior to the expiration of such
six-month period or, in the event such registration becomes effective, during
the one hundred twenty (120) day period after the effective date of such
registration. In the case of a Registration, the Consultant shall (i) retain its
Demand Registration Right and (ii) be entitled to register his Consultant Common
Stock pursuant to terms of Paragraph 3(b) of this Agreement. In addition, if the
Board of Directors, in its good faith judgment, determines that any registration
of Agreement Common Stock should not be made or continued because it would
materially interfere with any material financing, acquisition, corporate
reorganization or merger involving the Company (collectively, a "Valid Business
Reason"), the Company may postpone filing a Consultant Registration Statement
relating to any Demand Registration Right until such Valid Business Reason has
been consummated or terminated, and, if a Consultant Registration shall
previously been filed, may cause such Consultant Registration Statement to be
withdrawn and its effectiveness prematurely terminated or may postpone amending
or supplementing such Consultant Registration Statement. The Company represents
that as of the date of this Agreement, it has no present intention to proceed
with a material financing, acquisition, corporate reorganization or merger as a
result of which it would cause a withdrawal or postponement of a registration
statement pursuant to this paragraph.
(b) Piggy-Back Rights. In addition to the Demand Registration
Right provided for in Paragraph 3(a) and for a period commencing one (1) year
from the date hereof and ending four (4) years from the date hereof, the Company
shall advise the Consultant by prompt written notice of its intention to file
any registration statement under the Securities Act (other than a registration
statement relating solely to an acquisition or a registration statement on Form
S-8 or any subsequent similar form) covering the Common Stock, whether such
Common Stock is being sold for the account of the Company or selling
shareholders, and will, upon the request of the Consultant, include in any such
registration statement such information as may be required to permit a public
offering of the Consultant's Agreement Common Stock (such ability by the
Consultant to request the inclusion Agreement Common Stock in a registration
statement as provided in this Paragraph 3(a) referred to as a "Piggy-Back
Registration Right" and any registration statement with respect to which the
Piggy-Back Registration Right is exercised referred to as a "Piggy-Back
Registration Statement"); provided, however, that, if requested by the managing
underwriter or underwriters,
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<PAGE> 12
the Consultant will agree not to sell any Agreement Common Stock without the
consent of such managing underwriter during the period following the effective
date of such Piggy-Back Registration Statement (the "hold off period"), as the
managing underwriter or underwriters may request, and the Company shall not be
required to include the Agreement Common Stock in such Piggy-Back Registration
Statement unless the Consultant shall agree to refrain from selling shares of
the Agreement Common Stock during the holdoff period. Notwithstanding the
foregoing, in no event shall the Consultant be required to agree to a holdoff
period longer or relating to a greater percentage of his shares of Agreement
Common Stock than is required of any other selling shareholder whose shares of
Common Stock are included in such Piggy-Back Registration Statement or any other
registration statement being filed at or about the same time as such Piggy-Back
Registration Statement. The Company shall keep such Piggy-Back Registration
Statement current for a period of nine (9) months from the effective date of
such Piggy-Back Registration Statement or, if the managing underwriter or
underwriters agree to the inclusion of the shares of Agreement Common Stock in
the Piggy-Back Registration Statement only on the condition that the Consultant
agree to refrain from selling his shares of Agreement Common Stock pursuant to
the Piggy-Back Registration Statement for the holdoff period, six (6) months
from the conclusion of the holdoff period. The rights provided for in this
Paragraph 3(b) shall not be exercised with respect to more than fifty percent
(50%) (or such lesser amount as the managing underwriter or underwriters may
request) of the total number of shares of Common Stock in any Piggy-Back
Registration Statement or Piggy-Back Registration Statements filed within any
eighteen (18) month period.
(c) The Company may, by written notice to the Consultant, up
to three times in any 12-month period and for up to 30 days at a time, require
that the Consultant immediately cease sales of shares of Agreement Common Stock
pursuant to the Consultant Registration Statement during any period during which
the Company is engaged or plans to engage in a public offering, acquisition or
similar activity that has not been publicly announced (the "Company Activity")
if the Company has determined in good faith that the Company Activity would be
adversely affected by a public announcement otherwise required in order for the
offering of the Agreement Common Stock during such period not to be in violation
of federal securities laws or regulations.
(d) If the Company requires the Consultant to cease sales of
shares pursuant to paragraph 3(c), the Company shall, as promptly as practicable
following the termination of the Company Activity, use its best efforts to give
written notice to Consultant authorizing him to resume sales pursuant to the
Consultant Registration Statement. If the prospectus included in the Consultant
Registration Statement has
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<PAGE> 13
been amended to comply with the requirements of the Securities Act, the Company
shall enclose such revised prospectus with the notice to the Consultant given
pursuant to this paragraph 3(d), and the Consultant shall make no offers or
sales of shares of Common Stock pursuant to the Consultant Registration
Statement other than by means of such revised prospectus.
(e) The Company shall use its best efforts to register or
qualify, not later than the effective date of any Consultant Registration
Statement filed pursuant to this Agreement, the Agreement Common Stock covered
by the Consultant Registration Statement under the securities laws of such
states as the Consultant shall reasonably request; provided, however, that the
Company shall not be required in connection with this paragraph 3(e) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction.
(f) In connection with the filing by the Company of the
Consultant Registration Statement or the Piggy-Back Registration Statement, as
the case may be, the Company shall furnish to the Consultant a reasonable number
of copies of the prospectus, including a preliminary prospectus, in conformity
with the requirements of the Securities Act. Such prospectuses shall state that
the Consultant shall be responsible for fulfilling any prospectus delivery
requirements associated with the offering of the Agreement Common Stock.
(g) If the Company has delivered preliminary or final
prospectuses to the Consultant and after having done so the prospectus is
amended to comply with the requirements of the Securities Act, the Company shall
promptly notify the Consultant and, if requested by the Company, the Consultant
shall immediately cease making offers or sales of shares of Common Stock under
the Consultant Registration Statement or the Piggy-Back Registration Statement,
as the case may be, and return all prospectuses to the Company. The Company
shall promptly provide the Consultant with revised prospectuses and, following
receipt of the revised prospectuses, the Consultant shall be free to resume
making offers and sales under the Consultant Registration Statement or the
Piggy-Back Registration Statement, as the case may be.
(h) The Company shall use its best efforts to cause all of the
Agreement Common Stock as to which the Consultant has requested registration to
be listed on the principal stock exchange or market on which the Common Stock is
traded.
(i) In connection with the filing of the Consultant
Registration Statement or the Piggy-Back Registration Statement, as the case may
be, the Company shall use its best efforts to furnish, at the request of
Consultant, an opinion of legal counsel to the Company to the effect that the
shares of Agreement Common Stock are duly authorized, validly issued, fully paid
and non-assessable.
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<PAGE> 14
(j) The Company shall pay one-half and the Consultant shall
pay the other one-half of the expenses relating to compliance with the
obligations of the Company under this Paragraph 3 with respect to any Demand
Registration Right, including all registration and filing fees and the fees and
expenses of the Company's counsel and accountants; provided, however, that the
Consultant shall be solely liable for any brokerage fees and selling expenses
incurred by the Consultant in connection with sales under the Stockholder
Registration Statement and the fees and expenses of any counsel retained by the
Consultant. The Company shall pay all of the expenses relating to compliance
with the obligations of the Company under this Paragraph 3 with respect to any
Piggy-Back Registration Right, including all registration and filing fees and
the fees and expenses of the Company's counsel and accountants; provided,
however, that the Consultant shall be solely liable for any brokerage fees and
selling expenses incurred by the Consultant in connection with sales under the
Consultant Registration Statement and the fees and expenses of any counsel
retained by the Consultant.
(k) The Company shall not be required to include any Agreement
Common Stock in the Consultant Registration Statement unless:
(i) The Company is furnished with such information
regarding the Consultant and the distribution proposed by the Consultant as the
Company, the underwriters or representative may reasonably request.
(ii) The Consultant shall have provided to the
Company its written agreement:
(A) To indemnify the Company and each of its
directors and officers against, and hold the Company and each of its directors
and officers harmless from, any losses, claims, damages, expenses or liabilities
(including reasonable attorneys fees) to which the Company or such directors and
officers may become subject by reason of any statement or omission in the
Consultant Registration Statement made in reliance upon, or in conformity with,
a written statement by the Consultant furnished pursuant to Paragraph 3(i); and
(B) To comply with all of the provisions of
Paragraph 3.
(l) The Company agrees to indemnify and hold harmless the
Consultant against any losses, claims, damages, expenses or liabilities to which
the Consultant may become subject by reason of any untrue statement of a
material fact contained in the Consultant Registration Statement or any omission
to state therein a fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses, claims,
damages, expenses or liabilities arise out of or are based upon information
furnished to the Company by or on behalf of the Consultant for use in the
Consultant
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<PAGE> 15
Registration Statement. The Company shall have the right to assume and control
the defense and settlement of any claim or suit for which the Company may be
responsible for indemnification under this Paragraph 3(j).
(m) The rights of the Consultant under this Paragraph 3 are
personal to the Consultant and, except upon the death of Consultant as set forth
in Paragraph 13(e) of this Agreement, the Consultant may not assign any of his
rights under this Paragraph 3; provided, however, in the event that the
Consultant shall exercise any of his Demand Registration Rights or Piggy-Back
Registration rights under this Paragraph 3, the holders of Agreement Common
Stock previously transferred by Consultant under and pursuant to the terms of
this Agreement shall be entitled, to the extent the Consultant would have been
entitled if the Consultant were still the holder of such Agreement Common Stock,
to have their Agreement Common Stock registered in the Demand Registration
Statement or the Piggy-Back Registration Statement, as the case may be.
4. Reimbursement of Expenses. The Company shall pay or reimburse
Consultant, upon presentation of proper expense statements, for all authorized,
ordinary and necessary out-of-pocket expenses reasonably incurred by Consultant
in connection with the performance of Services pursuant to this Agreement in
accordance with the Company's expense reimbursement policy.
5. Termination of Engagement.
(a) Consultant's engagement hereunder is a personal services
contract and is not assignable upon the bankruptcy of Consultant.
(b) The Company may terminate Consultant's engagement,
immediately and without notice, for Gross Cause, in which event no further
compensation (other than accrued but unpaid compensation) shall be payable to
Consultant. The term "Gross Cause" shall mean (i) a material breach by
Consultant of the provisions of Paragraphs 7, 8, 9 or 13(a) of this Agreement,
(ii) acts of dishonesty or deliberate misconduct by Consultant, (iii) breach of
trust or other action by which Consultant obtains personal gain at the expense
of or to the detriment of the Company, or (iv) conviction of the Consultant of
any felony or of any other crime involving moral turpitude.
(c) The Company may terminate the Consultant's engagement,
upon five (5) days prior written notice (the "Written Notice"), if, in the
reasonable determination of the Board of Directors of the Company, the
Consultant is not satisfactorily performing his obligations under this
Agreement. The Written Notice shall specify the grounds or reasons for
termination of Consultant's engagement and shall be delivered to Consultant at
the address provided in Paragraph 12(b), or at such other address that
Consultant
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<PAGE> 16
may provide to the Company from time to time. The Written Notice may be
delivered personally or by recognized overnight delivery service and shall be
deemed delivered when sent. In the case of (i) the termination of Consultant's
engagement pursuant to the terms of the first sentence of this Paragraph 5(c) or
(ii) the death or disability of the Consultant, the Consultant (or the
Consultant's estate in the case of the death of the Consultant) shall not be
entitled to further payments of Base Compensation (other than accrued but unpaid
Base Compensation) but shall retain all rights to receive Performance
Compensation as otherwise set forth in this Agreement. For purposes of this
Paragraph 4(c), the term "disability" shall mean any illness, disability or
physical or mental incapacity of the Consultant which prevents him from
substantially performing his regular duties for a period of three (3)
consecutive months or four (4) months, even though not consecutive, in any
twelve (12) month period.
(d) Consultant's performance of Services under this Agreement
shall be subject to review by the Chief Executive Officer of the Company on an
annual basis.
(e) In the event that there is a Change in Control of the
Company and after such Change in Control the new controlling shareholders of the
Company seek to deny Consultant his rights under this Agreement, Consultant
shall have the right to submit the dispute to binding arbitration in Miami,
Florida, under the rules of and conducted by the American Arbitration
Association. The arbitration panel shall consist of three arbitrators eligible
to serve as a panel for the American Arbitration Association. Each of the
Consultant and the Company shall select one arbitrator who is eligible to serve
as an arbitrator on a panel conducted by the American Arbitration Association,
and the two arbitrators so selected shall select a third arbitrator who is
similarly qualified. None of the Arbitrators selected shall serve or have served
as legal counsel to any of the parties nor shall any of the arbitrators so
selected hold any equity securities in the Company or any company (or affiliate
thereof) controlled by Consultant. The decision of the arbitration panel on the
matters to which arbitration applies pursuant to this Paragraph 5(e) shall be
final and binding on all of the parties hereto, and their successors, heirs and
legal assigns, and may be enforced by a court of competent jurisdiction. The
expense of the arbitration proceeding, including any fees of counsel, shall be
paid by the losing party. For purposes of this Paragraph 5(e), the term "Change
in Control" shall mean the beneficial ownership, directly or indirectly, of more
than fifty percent (50%) or more of the combined voting power of each class of
the Company's then outstanding voting securities by any person (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), other than (x) the Company or any subsidiary of
the Company or any Company employee benefit plan (including
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<PAGE> 17
any trustee of such plan acting as trustee), or (b) Lawrence D. Frutkin, Alfred
J. Berger, Jr. or Kevin Doyle (or any member of their families).
6. Representations and Warranties of the Company.
(a) (i) The Company is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Florida, with full
corporate power and authority to conduct its business as it is now being
conducted and to own or use the properties and assets that it purports to own or
use. The Company is duly qualified to do business as a foreign corporation and
is in good standing under the laws of each state or other jurisdiction in which
either the ownership or use of the properties owned or used by it, or the nature
of the activities conducted by it, requires such qualification. The Company has
made available to the Consultant copies of its Organizational Documents, as
currently in effect.
(ii) This Agreement and the Warrants to be issued
pursuant hereto constitute the legal, valid, and binding obligations of the
Company, enforceable against the Company in accordance with their terms. The
Company has the right, power, and authority to execute and deliver this
Agreement and any other documents contemplated by this Agreement.
(b) The authorized equity securities of the Company are as set
forth in the latest Form 10QSB of the Company, as filed with the Securities and
Exchange Commission ("SEC"). The Common Stock to be received by the Consultant
in connection with the transactions contemplated hereby will be duly authorized,
validly issued, fully paid and non-assessable shares of common stock free of any
claim of preemptive rights and free and clear of any and all encumbrances other
than restrictions on transfer imposed by federal and state securities laws and
regulations. The warrants to be received by the Consultant in connection with
the transactions contemplated hereby shall be authorized by appropriate
resolution of the board of directors of the Company.
(c) The Company has timely filed with the SEC all materials
and documents required to be filed by it under the Exchange Act. All the
materials and documents filed with the SEC by the Company since December 1,
1995, including its initial Registration Statement on Form S-1, are hereinafter
referred to as the "Company SEC Reports." The Company SEC Reports, copies of
which have been delivered to the Consultant, are true and correct in all
material respects, including the financial statements and other financial
information contained therein, and do not omit to state any material fact
necessary to make the statements in such Company SEC Reports, in light of the
circumstances in which they were made, not misleading. The financial statements
included in the Company SEC Reports fairly present in all material respects the
financial condition and the results of operations, changes in stockholders'
equity and cash flow
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<PAGE> 18
of the Company and its subsidiaries as at the respective dates of and for the
periods referred to in such financial statements, all in accordance with GAAP.
(d) (i) The Company has filed all tax returns that it has at
any time been required to file. To the Company's knowledge, all such tax returns
were correct and complete in all material respects when filed, and the Company
has paid all taxes that are shown to be due on any such tax return. The Company
has no actual or potential liability for any obligation with respect to any
taxes of any taxpayer (including, without limitation, any affiliated group of
corporations or other entities that included the Company during a prior period)
other than the Company. To the Company's knowledge, all taxes that the Company
is or was required by law to withhold or collect have been duly withheld and
collected and, to the extent required, have been paid to the proper Governmental
Entities.
(ii) The Company has made available to the Consultant
complete and correct copies of all (1) federal income tax returns, (2)
examination reports and (3) statements of deficiencies assessed against or
agreed to by the Company since December 31, 1994. No examination or audit of any
tax return of the Company by any Governmental Entity is currently in progress
or, to the knowledge of the Company, pending or threatened. Except as otherwise
set forth in Schedule 6(d)(ii), the Company has not waived any statute of
limitations with respect to taxes or agreed to any extension of time with
respect to any tax assessment of deficiency.
(e) There are no claims, actions, suits, arbitrations,
proceedings or investigations pending (or to the knowledge of the Company,
threatened) against the Company, and there are no outstanding court orders,
court decrees or court stipulations to which the Company is a party or by which
any of its assets are bound, any of which would (i) impair this Agreement or
affect the transactions contemplated hereby, (ii) materially restrict the
present business, property, operations, prospects, assets, revenues or condition
(financial or otherwise) of the Company, or (iii) individually or in the
aggregate have a material adverse effect or materially impair or preclude the
Company's ability to consummate the transactions contemplated by this Agreement.
(f) The Company and the conduct and operation of its business
are, to its best knowledge and as of this date in compliance with all of the
laws (including rules and regulations thereunder) of any governmental entity
which are applicable to the Company's business.
7. Trade Secrets and Proprietary Information. Consultant agrees that it
will not, during or after the Term of this Agreement or thereafter, use or
disclose to any person, firm, corporation, partnership, limited liability
company, business trust, individual or other business entity any trade secrets
or proprietary
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<PAGE> 19
information concerning the Company's or any of its subsidiaries' inventions,
processes, "know-how," formulae, products, services, business, customer lists,
proposed products and services, marketing strategy and research and development
activities; except that nothing in this Agreement shall be construed to prohibit
him from (a) using or disclosing such information if it shall become public
knowledge or known generally in the cigar industry other than by or as a result
of disclosure by a person not having a right to make such disclosure and (b)
complying with legal process, provided, that the Company shall be given notice
in time to enable it to object to such disclosure.
8. Covenant Not to Solicit or Compete.
(a) Consultant recognizes that the scope of the Company's
business is international and is not limited to any single state or region.
Consultant covenants and agrees that, subject to the last sentence of this
Paragraph 8(a), during the Term of this Agreement and for a period of one (1)
year after termination of this Agreement, Consultant will not (i) directly or
indirectly engage or have any interest in or provide financing for or serve or
accept a position as an officer, director, employee, partner, independent
contractor, principal, agent, representative, consultant, financier, guarantor
or any similar capacity with any entity which is engaged in the United States in
the same business as the Company is engaged, or (ii) contact or solicit the
business of any customers or prospective customers (i.e., prospects whose
business was actively solicited by the Company at any time during the twelve
(12) month period prior to the date Consultant ceased to be engaged by the
Company), or (iii) employ, engage or solicit the employment or engagement of any
employee of or consultant to the Company, or (iv) cause or induce any customer,
prospective customer, supplier, prospective supplier, employee or consultant to
terminate or fail to continue a relationship with the Company, or (v) directly
or indirectly aid or assist others in engaging in any transactions described in
this Paragraph 8(a); provided, however; that the provisions of this Paragraph
8(a) shall not apply to Consultant with respect to (i) the sale by Consultant of
certain Cigars subject to a Letter Agreement of even date herewith by and among
the Company, Consultant and Lawrence D. Frutkin and (ii) in the event that as a
result of death, incapacity or other permanent disability, Carl Berger is unable
to perform services for such companies, services, if any performed by Consultant
for the following companies and with respect to the following activities: Marsh
Wheeling, Co., with respect to machine rolled cigars; National Cigar Co., with
respect to machine rolled cigars; John Berger & Son Co., with respect to machine
rolled cigars; and SWD, Inc., with respect to the distribution of candy,
cigarettes and sundries; provided, that, in rendering services, if any, to any
of Marsh Wheeling, National Cigar Co., John Berger & Son Co., or SWD, Inc.,
Consultant shall in all events be bound by the provisions of Paragraph 9 of this
Agreement. For purposes of this
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<PAGE> 20
Agreement, references to customers shall mean those individuals or entities who
were customers at any time during the twelve (12) month period prior to the date
Consultant ceased to be engaged by the Company and references to suppliers shall
refer to suppliers of tobacco products to the Company at any time during the
twelve (12) month period prior to the date Consultant ceased to be engaged by
the Company and references to prospective suppliers shall refer to any supplier
of tobacco products from whom the Company actively sought to procure tobacco
products during the twelve (12) month period prior to the date Consultant ceased
to be engaged by the Company.
(b) In the event that any Court having jurisdiction shall
determine that the territory or the length of time or scope of activity provided
for in this Paragraph 8 shall be excessive, such Court shall have the authority
to reduce the scope of the restrictions set forth in this Paragraph 8 to the
maximum time and territory and activity as to which such covenant is
enforceable, it being acknowledged by the parties that the parties have
negotiated for the greatest possible scope of this covenant.
9. Inventions and Discoveries. Consultant agrees promptly to disclose
in writing to the Company any invention or discovery made by Consultant during
the Term of this Agreement during the course of the performance by Consultant of
Services for the Company and that all rights to such inventions or discoveries
shall be the exclusive property of the Company. Consultant shall execute and
deliver to the Company such instruments as the Company deems necessary to vest
in the Company the sole and exclusive ownership of all rights in and to such
inventions and discoveries, as well as the copyrights and/or patents applicable
thereto.
10. Injunctive Relief; Agreement by Consultant's Employees.
Consultant agrees that his violation or threatened violation of any of
the provisions of Paragraphs 7, 8 and 9 of this Agreement shall cause immediate
and irreparable harm to the Company. In the event of any breach or threatened
breach of said provisions, Consultant consents to the entry of preliminary and
permanent injunctions by a Court of competent jurisdiction prohibiting
Consultant from engaging in any violation or threatened violation of such
provisions and compelling Consultant to comply with such provisions. This
Paragraph 10 shall not affect or limit, and the injunctive relief provided in
this Paragraph 10 shall be in addition to, any other remedies otherwise
available to the Company at law or in equity. In the event an injunction is
issued against any such conduct by Consultant, the period referred to in
Paragraph 8 of this Agreement shall continue until the later of the expiration
of the period set forth therein or one (1) month from the date a final judgment
enforcing such provisions is entered and the time for appeal has lapsed.
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<PAGE> 21
11. Right of First Refusal.
The Consultant agrees that in the event that the Consultant desires to
sell in a public or private transaction any of the shares of Common Stock of the
Company acquired by the Consultant pursuant to the terms of this Agreement or
any other agreement with the Company the Consultant shall give the Company
notice (the "Sale Notice") of the price and other terms of such proposed sale,
including the payment terms and, in a private transaction, the name of the
purchaser. The Company shall have an option (the "Option") to purchase all of
the shares proposed to be sold by the Consultant at the price and on the terms
set forth in the Sale Notice. The Option shall be exercisable in whole only and
not in part within thirty (30) days (five (5) business days in the case of (i) a
public sale whether pursuant to Rule 144 or otherwise or (ii) a sale of
securities with a fair market value of One Hundred Thousand Dollars ($100,000)
or less; provided, however, all sales made by the Consultant in any 90 day
period shall be aggregated for purposes of this $100,000 exemption from the
30-day notice requirement) after the date the Sale Notice is given to the
Company. Exercise of the Option shall be given by written notice of exercise
accompanied by full payment of the purchase price of the shares subject to the
Option. In the event that, by 5:00 P.M. New York City time on the last day of
the aforementioned thirty (30) or five (5) day period, the Consultant shall not
have received both the notice of exercise of the Option from the Company and the
full amount of the purchase price, the Consultant shall have the right to sell
the shares referred to in the Sale Notice on substantially the same terms as are
set forth in the Sale Notice. The terms shall be deemed to be substantially the
same as those set forth in the Sale Notice if the purchase price, either in
terms of dollars or a percentage of the market price, is not less than the
amount payable pursuant to the terms set forth in the Sale Notice. If the terms
of sale are reduced so that the purchase price is less than the amount payable
as provided in the Sale Notice, the Consultant shall re-offer the shares to the
Company on such revised terms in the manner set forth in this Paragraph 11
except that the thirty (30) day and five (5) day periods shall be reduced to ten
(10) days and five (5) days, respectively. If the terms of payment set forth in
the Sale Notice provide that a portion of the purchase price is payable
subsequent to the closing, then in such event, the payment due at the time of
exercise shall be equal to the amount due at the closing as set forth in the
Sale Notice and the remainder of the purchase price shall be payable at such
times and in such amounts as are set forth in the Sale Notice; all of the shares
being purchased by the Company shall be held in escrow by the Consultant, to be
released on a pro rata basis as the purchase price is paid. In the event that
the Consultant desires to transfer any of such shares by gift, it shall be a
condition to effecting any such transfer that the transferee agree to be subject
to the provisions of this Paragraph 11.
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<PAGE> 22
12. Independent Contractor. In all matters relating to this Agreement,
the Company and the Consultant shall act as independent contractors, neither
shall be the employee, joint venturer, partner or agent of the other, and each
shall assume any and all liability for its own acts. Neither the Company nor
Consultant shall have any authority to assume or create obligations, express or
implied, on behalf of the other party or any subsidiary or affiliate of the
other party, and neither party shall have any authority to represent any other
party as its agent, employee, partner or in any other capacity.
13. Miscellaneous.
(a) Consultant represents, warrants, covenants and agrees that
he has a right to enter into this Agreement, that he is not a party to any
agreement or understanding, oral or written, which would prohibit the
performance of its obligations under this Agreement, and that he will not use in
the performance of his obligations hereunder any proprietary information of any
other party which he is legally prohibited from using.
(b) Any notice under the provisions of this Agreement shall be
in writing and shall be given by hand, overnight courier or messenger service,
against signed receipt or acknowledgment of receipt, registered or certified
mail, return receipt requested, or telecopier or similar means of communication
if receipt is acknowledged or if transmission is confirmed by mail as provided
in this Paragraph 13(b), to the parties at their respective addresses set forth
at the beginning of this Agreement or by telecopier to the Company at (305)
267-6026 or to Consultant at (513) 621-4255, with notice to the Company being
sent to the attention of the individual who executed this Agreement on behalf of
the Company. Either party may, by like notice, change the person, address or
telecopier number to which notice shall be sent.
(c) If any term, covenant or condition of this Agreement or
the application thereof to any party or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this Agreement, or the application of
such term, covenant or condition to parties or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected thereby and
each term, covenant or condition of this Agreement shall be valid and be
enforced to the fullest extent permitted by law, and any court having
jurisdiction may reduce the scope of any provision of this Agreement so that it
complies with applicable law.
(d) This Agreement constitutes the entire agreement of the
Company and Consultant as to the subject matter hereof, superseding all prior
written or prior or contemporaneous oral understandings or agreements, including
any previous consulting or engagement agreements, or understandings with respect
to the subject matter covered in this Agreement. This Agreement may not be
modified or amended, nor may any right be waived, except by a writing which
expressly refers to this Agreement, states that it is intended
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<PAGE> 23
to be a modification, amendment or waiver and is signed by both parties in the
case of a modification or amendment or by the party granting the waiver. No
course of conduct or dealing between the parties and no custom or trade usage
shall be relied upon to vary the terms of this Agreement. The failure of a party
to insist upon strict adherence to any term of this Agreement on any occasion
shall not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
(e) This Agreement will inure to the benefit of and be binding
upon Consultant, his legal representatives and testate or intestate
distributees, and the Company, its respective successors and assigns, including
any successor by merger or consolidation or a statutory receiver or any other
person or firm or corporation to which all or substantially all of the assets
and business of the Company may be sold or otherwise transferred.
(f) The headings in this Agreement are for convenience of
reference only and shall not affect in any way the construction or
interpretation of this Agreement.
(g) This Agreement shall be governed by and construed in
accordance with the laws of the State of Florida applicable to contracts made
and to be performed wholly within such State. Each of the parties hereby (i)
irrevocably consents and agrees that any legal or equitable action or proceeding
arising under or in connection with this Agreement shall be brought exclusively
in any Federal or state court in the County of Dade, State of Florida, (ii) by
execution and delivery of this Agreement, irrevocably submits to and accepts,
with respect to its properties and assets, generally and unconditionally, the
jurisdiction of the aforesaid court and (iii) agrees that any action against
such party may be commenced by service of process by any method set forth in
Paragraph 13(b) of this Agreement, other than by telecopier, to such party as
provided in said Paragraph 13(b).
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<PAGE> 24
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CARIBBEAN CIGAR COMPANY
By: /s/ Thomas R. Dilk
-------------------------------------
Title: Chief Financial Officer
----------------------------------
/s/ Alfred J. Berger, Jr.
----------------------------------------
Alfred J. Berger, Jr.
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<PAGE> 25
EXHIBIT "A"
TO
CONSULTING AGREEMENT DATED AS OF APRIL 1, 1997 BY AND BETWEEN CARIBBEAN CIGAR
COMPANY AND ALFRED J. BERGER, CONSULTANT
Brands and types of cigars to which Performances Compensation is related:
All cigars supplied from and after the Effective Date to Caribbean Cigar
Company (i) by or from Taru Martani, Indonesia or (ii) by or from any other
supplier of cigars located in Indonesia as a result of the efforts of Consultant
and/or Lawrence D. Frutkin.
For purposes of the Consulting Agreement, the words "Cigar sales" or "Cigars
sold" are defined as the shipment of Cigars on or after the Effective Date by or
on behalf of the Company to customers of the Company less the number of Cigars
returned by such customers to the Company; provided, however, that for purposes
of determining "Cigar sales" or "Cigars sold" under the Agreement, the number of
long-filler second Cigars shipped by the Company to customers for sale under any
name other than "Celestino Vega" or "C.V" shall be deemed to be one-half (1/2)
of the actual number oF such long-filler second Cigars shipped by the Company.
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<PAGE> 26
[FORM OF WARRANT]
Warrant to Purchase
WA- ** **
Shares of Common Stock
Date of Grant:
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AND NEITHER
THIS WARRANT NOR SUCH SHARES MAY BE SOLD, ENCUMBERED OR OTHERWISE TRANSFERRED
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR AN
EXEMPTION FROM SUCH REGISTRATION REQUIREMENT, AND, IF AN EXEMPTION SHALL BE
APPLICABLE, THE HOLDER SHALL HAVE DELIVERED AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
VOID AFTER 5:00 P.M. NEW YORK CITY TIME
ON THE FIFTH ANNIVERSARY OF THE EFFECTIVE DATE, AS DEFINED HEREIN
SERIES A COMMON STOCK PURCHASE WARRANT
OF
CARIBBEAN CIGAR COMPANY
This is to certify that, FOR VALUE RECEIVED, __________________________
__________________________________ or assigns ("Holder"), is entitled to
purchase, subject to the provisions of this Warrant, from Caribbean Cigar
Company, a Florida corporation (the "Company"), at an exercise price per share
of fifteen and 00/100 dollars ($15.00), subject to adjustment as provided in
this Warrant, _______________________________ ( ____, ____) shares
of common stock, par value $.001 per share ("Common Stock"), of the Company at
any time during the five (5) year period (the "Exercise Period") commencing on
the date of grant of this Warrant (the "Effective Date") and ending at 5:00
P.M., New York City time, on the fifth (5th) anniversary of the Effective Date;
provided, however, that if such date is a day on which banking institutions in
the State of New York are required or authorized by law to close, then on the
next succeeding day which shall not be such a day. The number of shares of
Common Stock to be received upon the exercise of this Warrant and the price to
be paid for a share of Common Stock may also be adjusted from time to time as
hereinafter set forth. The shares of Common Stock deliverable upon such
exercise, and as adjusted from time to time, are hereinafter sometimes referred
to as "Warrant Shares," and the exercise price for the purchase of a share of
Common Stock pursuant to this Warrant in effect at any time and as adjusted from
time to time is hereinafter sometimes referred to as the "Exercise Price."
Reference in the Warrant to the "Series A Warrants" shall mean any or all of the
Series A Common Stock Purchase Warrants issued by the Company, regardless of
whether the Exercise Price of such Series A Warrants is the same as the Exercise
Price of this Warrant.
(c) EXERCISE OF WARRANT. This Warrant may be exercised in whole at any
time or in part from time to time during the Exercise Period by presentation and
surrender hereof to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Purchase Form annexed hereto duly
executed and accompanied by payment of the Exercise Price for the number of
shares of Common Stock specified in such form. If this Warrant shall be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder hereof to purchase the balance of the shares of Common Stock purchasable
hereunder. This Warrant may be exercised in whole at any time during the
Exercise
<PAGE> 27
Period by presentation and surrender hereof to the Company at its principal
office, or at the office of its stock transfer agent, if any, with the Purchase
Form annexed hereto duly executed, without cash payment, for the number of
shares of Common Stock obtained by multiplying (i) the difference of (a) the
"current market price per share of Common Stock", as defined in paragraph (f)(5)
hereof, less (b) the Exercise Price per share then in effect, times (ii) the
fraction, the numerator of which is the number of Warrant Shares then
outstanding and the denominator of which is the Exercise Price per share then in
effect. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon such exercise, notwithstanding that the stock transfer books
of the Company shall then be closed or that certificates representing such
shares of Common Stock shall not then be actually delivered to the Holder.
(d) RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance and/or delivery upon exercise of this
Warrant such number of shares of Common Stock as shall be required for issuance
and delivery upon exercise of this Warrant and that it shall not, without the
prior approval of the holders of a majority of the Warrants then outstanding,
increase the par value of the Common Stock.
(e) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise of this Warrant,
the Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of such fractional share, determined as
follows:
(1) If the Common Stock is listed on a national securities
exchange or admitted to unlisted trading privileges on such exchange or listed
for trading on the Nasdaq Stock Market or other automated quotation system which
provides information as to the last sale price, the current value shall be the
reported last sale price of one share of Common Stock on such exchange or system
on the last business day prior to the date of exercise of this Warrant, or if no
such sale is made on such day, the current value shall be the average of the
closing bid and asked prices for such day on such exchange or system; or
(2) If the Common Stock is not so listed or admitted to
unlisted trading privileges, the current value shall be the mean of the reported
last bid and asked prices of one share of Common Stock as reported by Nasdaq,
the National Quotation Bureau, Inc. or other similar reporting service, on the
last business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to
unlisted trading privileges and bid and asked prices are not so reported, the
current value of one share of Common Stock shall be an amount, not less than
book value, determined in such reasonable manner as may be prescribed by the
Board of Directors of the Company.
(f) LOSS, ETC. OF WARRANT. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor. Any such new Warrant executed and delivered shall constitute an
additional contractual obligation on the part of the Company, whether or not
this Warrant so lost, stolen, destroyed, or mutilated shall be at any time
enforceable by anyone.
(g) RIGHTS OF THE HOLDER. The Holder shall not, by virtue of this
Warrant, be entitled to any rights of a stockholder in the Company, either at
law or equity, and the rights of the Holder are limited to those expressed in
the Warrant and are not enforceable against the Company except to the extent set
forth herein.
(h) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon exercise of each Warrant
shall be subject to adjustment as follows:
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<PAGE> 28
(1) In case the Company shall, subsequent to the Effective
Date, (A) pay a dividend or make a distribution on its shares of Common Stock in
shares of Common Stock (B) subdivide or reclassify its outstanding Common Stock
into a greater number of shares, or (C) combine or reclassify its outstanding
Common Stock into a smaller number of shares or otherwise effect a reverse
split, the Exercise Price in effect at the time of the record date for such
dividend or distribution or of the effective date of such subdivision,
combination or reclassification shall be proportionately adjusted so that the
Holder of this Warrant exercised after such date shall be entitled to receive
the aggregate number and kind of shares which, if this Warrant had been
exercised immediately prior to such time, he would have owned upon such exercise
and been entitled to receive upon such dividend, distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event listed in this Paragraph (f)(1) shall occur.
(2) In case the Company shall, subsequent to the Effective
Date, issue rights or warrants to all holders of its Common Stock entitling them
to subscribe for or purchase shares of Common Stock (or securities convertible
into or in exchange for Common Stock), or shall issue directly to any person,
Common Stock at a price (or having a conversion or exchange price per share)
less than the current market price of the Common Stock (as defined in Paragraph
(f)(5) of this Warrant) on the record date mentioned below, the Exercise Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Exercise Price in effect immediately prior to the date of such
issuance by a fraction, of which the numerator shall be the number of shares of
Common Stock outstanding on the record date mentioned below plus the number of
additional shares of Common Stock which the aggregate offering price of the
total number of shares of Common Stock so offered (or the aggregate conversion
or exchange price of the convertible or exchangeable securities so offered)
would purchase at such current market price per share of the Common Stock, and
of which the denominator shall be the number of shares of Common Stock
outstanding on such record date plus the number of additional shares of Common
Stock offered for subscription or purchased (or into which the convertible or
exchangeable securities so offered are convertible or exchangeable). Such
adjustment shall be made successively whenever such rights or warrants are
issued and shall become effective immediately after the record date for the
determination of stockholders entitled to receive such rights or warrants; and
to the extent that shares of Common Stock or securities convertible into or
exchangable for Common Stock are not delivered after the expiration of such
rights or warrants, the Exercise Price shall be readjusted to the Exercise Price
which would then be in effect had the adjustments made upon the issuance of such
rights or warrants been made upon the basis of delivery of only the number of
shares of Common Stock (or securities convertible into or exchangeable for
Common Stock) actually delivered.
(3) In case the Company shall, subsequent to the Effective
Date, distribute to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends or distributions paid out of current earnings
and dividends or distributions referred to in Paragraph (f)(1) of this Warrant)
or subscription rights or warrants (excluding those referred to in Paragraph
(f)(2) of this Warrant), then in each such case the Exercise Price in effect
thereafter shall be determined by multiplying the Exercise Price in effect
immediately prior thereto by a fraction, of which the numerator shall be the
total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Paragraph (f)(5) of this
Warrant), less the fair market value (as determined by the Company's Board of
Directors) of said assets or evidences of indebtedness so distributed or of such
rights or warrants, and of which the denominator shall be the total number of
shares of Common Stock outstanding multiplied by such current market price per
share of Common Stock. Such adjustment shall be made successively whenever such
a record date is fixed. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
distribution.
(4) Whenever the Exercise Price payable upon exercise of each
Warrant is adjusted pursuant to Paragraphs (f)(1), (2) or (3) of this Warrant,
the number of shares of Common Stock purchasable upon exercise of each Warrant
shall simultaneously be adjusted by multiplying the number of shares of Common
Stock issuable upon exercise of each Warrant in effect on the date thereof by
the Exercise Price in effect on the date thereof and
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<PAGE> 29
dividing the product so obtained by the Exercise Price, as adjusted. In no event
shall the Exercise Price per share be less than the par value per share, and, if
any adjustment made pursuant to Paragraph (f)(1), (2) or (3) would result in an
exercise price of less than the par value per share, then, in such event, the
Exercise Price per share shall be the par value per share.
(5) For the purpose of any computation under Paragraphs (f)(2)
and (3) of this Warrant, the current market price per share of Common Stock at
any date shall be deemed to be the average of the daily closing prices for 30
consecutive business days commencing 45 business days before such date. The
closing price for each day shall be the reported last sale price regular way or,
in case no such reported sale takes place on such day, the average of the
reported last bid and asked prices regular way, in either case on the principal
national securities exchange on which the Common Stock is admitted to trading or
listed or on the Nasdaq Stock Market, or if not listed or admitted to trading on
such exchange or such System, the average of the reported highest bid and
reported lowest asked prices as reported by Nasdaq, the National Quotation
Bureau, Inc. or other similar organization if NASDAQ is no longer reporting such
information, or if not so available, the fair market price as determined by the
Board of Directors.
(6) No adjustment in the Exercise Price shall be required
unless such adjustment would require an increase or decrease of at least one
percent (1%) in such price; provided, however, that any adjustments which by
reason of this Paragraph (f)(6) are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
under this Paragraph (f) shall be made to the nearest cent or to the nearest
one-hundredth of a share, as the case may be. Anything in this Paragraph (f) to
the contrary notwithstanding, the Company shall be entitled, but shall not be
required, to make such changes in the Exercise Price, in addition to those
required by this Paragraph (f), as it in its discretion shall determine to be
advisable in order that any dividend or distribution in shares of Common Stock,
subdivision, reclassification or combination of Common Stock, issuance of
warrants to purchase Common Stock or distribution of evidences of indebtedness
or other assets (excluding cash dividends) referred to hereinabove in this
Paragraph (f) hereafter made by the Company to the holders of its Common Stock
shall not result in any tax to the holders of its Common Stock or securities
convertible into Common Stock.
(7) The Company may retain a firm of independent public
accountants of recognized standing selected by the Board of Directors (who may
be the regular accountants employed by the Company) to make any computation
required by this Paragraph (f), and a certificate signed by such firm shall,
absent manifest error, be conclusive evidence of the correctness of such
adjustment.
(8) In the event that at any time, as a result of an
adjustment made pursuant to Paragraph (f)(1) of this Warrant, the Holder of any
Warrant thereafter shall become entitled to receive any shares of the Company,
other than Common Stock, thereafter the number of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Common Stock contained in Paragraphs (f)(1) to
(6), inclusive, of this Warrant.
(9) Irrespective of any adjustments in the Exercise Price or
the number or kind of shares purchasable upon exercise of Warrants, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in this and similar Warrants initially
issued by the Company.
(i) OFFICER'S CERTIFICATE. Whenever the Exercise Price shall be
adjusted as required by the provisions of Paragraph (f) of this Warrant, the
Company shall forthwith file in the custody of its Secretary or an Assistant
Secretary at its principal office and with its stock transfer agent, if any, an
officer's certificate showing the adjusted Exercise Price and the adjusted
number of shares of Common Stock issuable upon exercise of each Warrant,
determined as herein provided, setting forth in reasonable detail the facts
requiring such adjustment, including a statement of the number of additional
shares of Common Stock, if any, reserved by the Company for issuance upon
exercise of this Warrant, and such other facts as shall be necessary to show the
reason for and the manner of
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<PAGE> 30
computing such adjustment. Each such officer's certificate shall be made
available at all reasonable times for inspection by the Holder or any holder of
a Warrant executed and delivered pursuant to Paragraph (a) and the Company
shall, forthwith after each such adjustment, mail, by certified mail, a copy of
such certificate to the Holder or any such holder at such holder's address set
forth in the Company's Warrant Register.
(j) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (1) if the Company shall pay any dividend or make any distribution
upon Common Stock (other than a regular cash dividend payable out of retained
earnings) or (2) if the Company shall offer to the holders of Common Stock for
subscription or purchase by them any share of any class or any other rights or
(3) if any capital reorganization of the Company, reclassification of the
capital stock of the Company, consolidation or merger of the Company with or
into another corporation, sale, lease or transfer of all or substantially all of
the property and assets of the Company to another corporation, or voluntary or
involuntary dissolution, liquidation or winding up of the Company shall be
effected, then in any such case, the Company shall cause to be mailed by
certified mail to the Holder, at least thirty days prior to the date specified
in clauses (i) and (ii), as the case may be, of this Paragraph (h) a notice
containing a brief description of the proposed action and stating the date on
which (i) a record is to be taken for the purpose of such dividend, distribution
or rights, or (ii) such reclassification, reorganization, consolidation, merger,
conveyance, lease, dissolution, liquidation or winding up is to take place and
the date, if any is to be fixed, as of which the holders of Common Stock or
other securities shall receive cash or other property deliverable upon such
reclassification, reorganization, consolidation, merger, conveyance,
dissolution, liquidation or winding up.
(k) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another corporation of
the property of the Company as an entirety, the Company shall, as a condition
precedent to such transaction, cause effective provisions to be made so that the
Holder shall have the right thereafter by exercising this Warrant, to purchase
the kind and amount of shares of stock and other securities and property
receivable upon such reclassification, capital reorganization and other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock which might have been purchased upon exercise of this Warrant
immediately prior to such reclassification, change, consolidation, merger, sale
or conveyance. Any such provision shall include provision for adjustments which
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Warrant. The foregoing provisions of this Paragraph (i) shall
similarly apply to successive reclassifications, capital reorganizations and
changes of shares of Common Stock and to successive consolidations, mergers,
sales or conveyances. In the event that in connection with any such capital
reorganization or reclassification, consolidation, merger, sale or conveyance,
additional shares of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for a security of the Company
other than Common Stock, any such issue shall be treated as an issue of Common
Stock covered by the provisions of Paragraph (f) of this Warrant.
(l) WARRANTS AND UNDERLYING SHARES NON-TRANSFERABLE. Neither this
Warrant nor the shares of Common Stock issuable upon exercise of this Warrant
have been registered under the Securities Act of 1933, as amended, and neither
this Warrant nor such shares may be sold, encumbered, or otherwise transferred,
except pursuant to an effective registration statement under such act or an
exemption from such registration
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<PAGE> 31
requirement, and, if an exemption shall be applicable, the holder shall have
delivered an opinion of counsel, acceptable to the Company, that such
registration is not required.
Dated as of April , 1997,
CARIBBEAN CIGAR COMPANY
ATTEST:
By:
-------------------------------------
Kevin Doyle
Chairman of the Board
By:
--------------------------
, Secretary
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<PAGE> 32
PURCHASE FORM
Dated: , 19__
____ The undersigned hereby irrevocably elects to exercise the within Warrant
to the extent of purchasing _______________ shares of Common Stock and
hereby makes payment of $___________ in payment of the actual exercise
price thereof.
____ The undersigned hereby irrevocably elects to exercise the within Warrant
for the number of shares of Common Stock obtained by multiplying (i) the
difference of (a) the "current market price per share of Common Stock",
as defined in paragraph (f)(5) of the within Warrant, less (b) the
Exercise Price per share then in effect, times (ii) the fraction, the
numerator of which is the number of Warrant Shares then outstanding and
the denominator of which is the Exercise Price per share then in effect.
----------------------------------------
Signature
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Name (printed)
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