AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1996
REGISTRATION NO. 333-6819
==============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
--------------------
CONSOLIDATED CIGAR HOLDINGS INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
DELAWARE 2121 13-3694743
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
5900 NORTH ANDREWS AVENUE
SUITE 700
FORT LAUDERDALE, FLORIDA 33309-2369
(954) 772-9000
(Address, including zip code, and telephone
number, including area code, of
Registrant's principal executive offices)
--------------------
BARRY F. SCHWARTZ, ESQ.
CONSOLIDATED CIGAR HOLDINGS INC.
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-8600
(Name, address, including zip code, and
telephone number, including area
code, of agent for service)
--------------------
Copies of all communications to:
<TABLE>
<CAPTION>
<S> <C>
Stacy J. Kanter, Esq. Kris F. Heinzelman, Esq.
Skadden, Arps, Slate, Meagher & Flom Cravath, Swaine & Moore
919 Third Avenue 825 Eighth Avenue
New York, New York 10022 New York, New York 10019
(212) 735-3000 (212) 474-1000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A)
OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
==============================================================================
<PAGE>
EXPLANATORY NOTE
This Registration Statement contains two forms of prospectus: one to be
used in connection with an offering in the United States and Canada (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The two prospectuses are
identical except for the front and back cover pages, the inside front cover
page, and the section entitled "Underwriting." The form of U.S. Prospectus is
included herein and is followed by the alternate pages to be used in the
International Prospectus. Each of the alternate pages for the International
Prospectus included herein is labeled "Alternate Page for International
Prospectus." Final forms of each Prospectus will be filed with the Securities
and Exchange Commission under Rule 424(b).
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 13, 1996
4,500,000 SHARES
CONSOLIDATED CIGAR HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
--------------------
All of the 4,500,000 shares of Class A Common Stock offered hereby are
being sold by the Company. Of the 4,500,000 shares of Class A Common Stock
offered, 3,500,000 shares are being offered hereby in the United States and
1,000,000 shares are being offered in a concurrent international offering
outside the United States. The initial public offering price and the aggregate
underwriting discount per share will be identical for both offerings. See
"Underwriting."
Each share of Class A Common Stock entitles its holder to one vote, and
each share of Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common
Stock"), of the Company entitles its holder to ten votes. All of the shares of
Class B Common Stock are owned by Mafco Consolidated Group Inc. (NYSE:MFO)
("Mafco Consolidated Group"), a corporation 85% owned by Ronald O. Perelman,
through his ownership of Mafco Holdings Inc. Immediately after consummation of
the Offerings (assuming no exercise of the over-allotment options granted to
the Underwriters), Mafco Consolidated Group will beneficially own shares of
Class B Common Stock representing approximately 98.3% of the combined voting
power of the outstanding shares of Common Stock. The net proceeds from the
Offerings will be paid as a dividend to Mafco Consolidated Group. See "Use of
Proceeds."
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $18.00 and $21.00. For factors to be
considered in determining the initial public offering price, see
"Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "CIG," subject to official notice of issuance.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
--------------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share ..... $ $ $
Total(3) ...... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 525,000 shares of Class A Common Stock at
the initial public offering price per share, less the underwriting
discount, solely to cover over-allotments. Additionally, the Company
has granted the International Underwriters a similar option with
respect to an additional 150,000 shares as part of the concurrent
International Offering. If such options are exercised in full, the
total initial public offering price, underwriting discount and proceeds
to Company will be $ , $ and $ , respectively. See "Underwriting."
--------------------
The shares offered hereby are offered severally by the U.S. Underwriters,
as specified herein, subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
certificates for the shares will be ready for delivery in New York, New York,
on or about , 1996, against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES INC.
--------------------
The date of this Prospectus is , 1996.
<PAGE>
[GRAPHIC OF HAND HOLDING H. UPMAN CIGAR OMITTED]
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A
COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and the Consolidated
Financial Statements of the Company contained elsewhere in this Prospectus.
Unless otherwise indicated or unless the context otherwise requires, the
information contained in this Prospectus (i) gives effect to the amendment to
the Company's certificate of incorporation to change the Company's authorized
capital stock to Class A Common Stock, Class B Common Stock and preferred
stock, par value $0.01 per share, to be effected simultaneously with the
consummation of the Offerings; (ii) gives effect to the conversion of each
outstanding share of the Company's current common stock, par value $1.00 per
share, into approximately 25,500 shares of its newly created Class B Common
Stock (totaling 25,500,000 shares of Class B Common Stock) (see "Description
of Capital Stock"); and (iii) assumes the Underwriters' over-allotment options
are not exercised. Simultaneously with or prior to consummation of the
Offerings, the Company intends to issue a promissory note in the aggregate
principal amount of $70.0 million (the "Promissory Note") to Mafco
Consolidated Group and to pay to Mafco Consolidated Group a cash dividend of
approximately $5.6 million funded by borrowings under the Credit Agreement (as
defined herein). See "Certain Relationships and Related Transactions." Unless
the context otherwise requires, all references in this Prospectus to the
Company mean Consolidated Cigar Holdings Inc. and its subsidiaries.
THE COMPANY
Consolidated Cigar Holdings Inc. is the largest manufacturer and marketer
of cigars sold in the United States in terms of dollar sales, with a 1995
market share of approximately 23% according to the Company's estimates. The
Company markets its cigar products under a number of well-known brand names at
all price levels and in all segments of the growing cigar market, including
premium large cigars, mass market large cigars and mass market little cigars.
The Company attributes its leading market position to the following
competitive strengths: (i) well-known brand names, many of which are the
leading brands in their category; (ii) broad range of product offerings within
both the premium and mass market segments of the United States cigar market;
(iii) commitment to and reputation for manufacturing quality cigars; (iv)
marketing expertise and close attention to customer service; (v) efficient
manufacturing operations; and (vi) an experienced management team. The Company
is also a leading producer of pipe tobacco and is the largest supplier of
private label and branded generic pipe tobacco to mass market retailers. In
addition, the Company distributes a variety of pipe and cigar smokers'
accessories.
The Company's cigars and pipe tobacco products are marketed under a number
of well-known brand names. The Company's premium cigars include the H. UPMANN,
MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY
and MONTECRUZ brands. The Company's mass market large cigars include the
ANTONIO Y CLEOPATRA (also known as AYC), DUTCH MASTERS, EL PRODUCTO, MURIEL,
BACKWOODS, SUPER VALUE and SUPRE SWEETS brands. The Company's mass market
little cigars include the DUTCH TREATS, SUPER VALUE and SUPRE SWEETS brands.
The Company's pipe tobacco products include the MIXTURE NO. 79 and CHINA BLACK
brands.
The Company believes that the growing cigar market and increased demand for
cigars continue to offer the Company substantial growth opportunities.
Recently, cigar smoking has gained popularity in the United States, resulting
in a significant increase in consumption and retail sales of cigars,
particularly for premium cigars. Management believes that this increase in
cigar consumption and retail sales is the result of a number of factors,
including: (i) the increase in the number of adults over the age of 50 (a
demographic group believed to smoke more cigars than any other demographic
segment) and (ii) the emergence of an expanding base of younger affluent
adults who have recently started smoking cigars and who tend to smoke premium
cigars. The Company believes the increase in cigar smoking is in large part
attributable to a positive and improving image of cigar smoking resulting from
increased publicity, including the success of Cigar Aficionado magazine, the
increased visibility of use by celebrities and the proliferation of "Cigar
Smokers" dinners and other special events for cigar smokers.
Consumption of cigars is currently increasing following a decline in
consumption at a compound annual rate of 3.6% from 1964 to 1993. Consumption
of cigars increased to 4.0 billion units in 1995 from 3.4 billion units in
1993, with substantial growth in premium cigars. Consumption of premium cigars
increased at a compound annual unit growth rate of 2.4% from 1976 to 1991, at
a compound annual unit growth rate of 8.9% from 1991 to 1994 and at a unit
growth rate of 30.6% from 1994 to 163.9 million units
3
<PAGE>
in 1995. Growth in the premium segment has continued to accelerate in 1996.
The mass market segment of the industry has also experienced increased
consumption with a compound annual unit growth rate of 7.2% from 1993 to 3.8
billion units in 1995. Retail sales of cigars, which generally declined from
1964 to 1987 and grew modestly from 1987 to 1993, experienced significant
growth from 1993 to 1995 with retail sales of cigars outpacing unit growth
since 1991. This growth in retail sales of cigars was primarily the result of
a combination of increased prices and a shift in the sales mix to more
expensive cigars. Total retail sales have increased at a compound annual
growth rate of 9.3% from 1991 to $1.0 billion in 1995, while the corresponding
compound annual unit growth rate was only 3.6%. There can be no assurance that
unit consumption and retail sales of cigars will continue to increase in the
future. See "Risk Factors--Declining Market for Cigars through 1993" and
"--Extensive and Increasing Regulation of Tobacco Products."
The Company's financial results reflect the strength of the cigar industry
and the Company's leadership position in that industry. In 1995, the Company
had net sales of $158.2 million, operating income of $31.4 million and net
income of $13.9 million, representing increases of 20.3%, 35.1%, and 81.3%,
respectively, from 1994 results. For the first twenty-six weeks of 1996, the
Company had net sales of $92.2 million, operating income of $21.2 million and
net income of $11.2 million, representing increases of 29.0%, 51.6%, and
100.0%, respectively, from the first twenty-six weeks of 1995. Further,
because of the high demand for the Company's cigars, especially its premium
cigars, the Company's backorders increased from 3.2 million cigars at December
31, 1994 to 4.3 million cigars at December 31, 1995, and further increased to
12.0 million cigars at June 29, 1996. For the year ended December 31, 1995 and
the twenty-six week period ended June 29, 1996, cigars accounted for
approximately 90% of the Company's net sales.
The Company believes that its competitive strengths, together with the
following initiatives, will enable the Company to accelerate its growth,
increase its profitability and enhance its market share:
CAPITALIZE ON GROWTH OPPORTUNITIES IN THE PREMIUM MARKET SEGMENT. The
Company intends to capitalize on the rapidly growing premium cigar market by
(i) increasing the Company's production capabilities through its planned
expansion of its existing facilities in the Dominican Republic and Honduras
and the construction of new facilities in Jamaica, (ii) improving the market's
awareness and recognition of its premium cigars through targeted marketing
programs and (iii) expanding its premium cigar product offerings through the
introduction of super-premium cigars, such as H. UPMANN CHAIRMAN'S RESERVE and
PLAYBOY by DON DIEGO, and the extension of its existing brands.
EXPAND MASS MARKET CIGAR BUSINESS. The Company will seek to expand further
its mass market cigar business by leveraging its well-known brand names and
capitalizing on the growth in the premium segment with brand extensions in
higher priced categories within the mass market segment. In addition, the
Company intends to introduce new flavors, sizes, packaging and other new
features and improvements to its existing mass market cigar products.
BROADEN MASS MARKET CIGAR DISTRIBUTION CHANNELS. The Company intends to
broaden its existing relationships and actively develop new relationships with
mass market retailers. The Company is also pursuing opportunities in other
distribution channels, including marketing its mass market cigars to
convenience stores to take advantage of the increase in consumer demand for
mass market cigars in such locations.
IMPROVE MANUFACTURING PROCESSES AND RAW MATERIAL PROCUREMENT. The Company
continually seeks ways to improve further the efficiency of its manufacturing
operations in order to ensure quality and realize cost savings. To ensure the
quality of its raw materials while also maximizing cost savings, the Company
will (i) continue to develop long-term relationships with tobacco suppliers,
(ii) expand its commercial and technical ties with local growers, (iii) obtain
its tobacco raw materials from a variety of suppliers and growers and (iv)
take advantage of its large purchasing requirements to negotiate favorable
terms from suppliers.
PURSUE SELECTIVELY STRATEGIC ACQUISITIONS. The Company intends to pursue
selectively strategic acquisitions in the cigar and pipe tobacco products
industry to expand its market share and product lines and benefit from
synergies.
4
<PAGE>
The following chart sets forth in simplified form the ownership structure
of the Company immediately prior to consummation of the Offerings.
-----------------------------------
| |
| Ronald O. Perelman |
| |
-----------------------------------
| 100%
|
-----------------------------------
| |
| Mafco Holdings Inc. |
| ("Mafco Holdings") |
| |
-----------------------------------
| 85%
-----------------------------------
| |
| Mafco Consolidated Group Inc. |
| ("Mafco Consolidated Group") |
| |
-----------------------------------
| 100%
-----------------------------------
| |
| CONSOLIDATED CIGAR |
| HOLDINGS INC. |
| (THE "COMPANY") |
| |
-----------------------------------
| 100%
-----------------------------------
| |
| Consolidated Cigar Corporation |
| ("Consolidated Cigar") |
| |
-----------------------------------
The Company is a holding company with no business operations of its own.
The Company's only material asset is all of the outstanding capital stock of
Consolidated Cigar Corporation ("Consolidated Cigar"), through which the
Company conducts its business operations.
Immediately after consummation of the Offerings, Mafco Consolidated Group
will beneficially own all of the 25,500,000 outstanding shares of Class B
Common Stock, which will represent approximately 98.3% of the combined voting
power of the outstanding shares of Common Stock (approximately 98.0% if the
Underwriters' over-allotment options are exercised in full). Mafco
Consolidated Group is 85% owned through Mafco Holdings Inc. ("Mafco
Holdings") by Ronald O. Perelman. See "Ownership of Common Stock" and
"Certain Relationships and Related Transactions."
The Company was incorporated on January 6, 1993 under the laws of the state
of Delaware. The Company's principal executive offices are located at 5900
North Andrews Avenue, Suite 700, Fort Lauderdale, Florida 33309-2369 and
its telephone number is (954) 772-9000.
5
<PAGE>
THE OFFERINGS
The offering of 3,500,000 shares of Class A Common Stock initially being
offered in the United States (the "U.S. Offering") and the offering of
1,000,000 shares of Class A Common Stock initially being offered in a
concurrent international offering outside the United States (the
"International Offering") are collectively referred to as the "Offerings." The
closing of each of the Offerings is conditioned upon the closing of the other
Offering.
<TABLE>
<CAPTION>
<S> <C>
Class A Common Stock offered by the Company:
U.S. Offering ...................... 3,500,000 shares
International Offering ............. 1,000,000 shares
Common Stock to be outstanding
after the Offerings ................ 4,500,000 shares of Class A Common Stock (a)
25,500,000 shares of Class B Common Stock (b)
----------
30,000,000 shares of Common Stock (a)
==========
Voting rights ....................... The Class A Common Stock and Class
B Common Stock vote as a single
class on all matters, except as
otherwise required by law, with
each share of Class A Common Stock
entitling its holder to one vote
and each share of Class B Common
Stock entitling its holder to ten
votes. All of the shares of Class
B Common Stock are owned by Mafco
Consolidated Group, an indirect
85% owned subsidiary of Mafco
Holdings. Immediately after
consummation of the Offerings,
Mafco Consolidated Group will
beneficially own shares of Class B
Common Stock representing
approximately 98.3% of the
combined voting power of the
outstanding shares of Common Stock
(approximately 98.0% if the
Underwriters' over-allotment
options are exercised in full).
Use of Proceeds ..................... The net proceeds from the
Offerings will be paid as a
dividend to Mafco Consolidated
Group. See "Use of Proceeds."
Proposed New York Stock Exchange
symbol ............................. CIG
</TABLE>
- ---------------
(a) Excludes 3,000,000 shares of Class A Common Stock reserved for
issuance under the Consolidated Cigar Holdings Inc. 1996 Stock Plan
(the "Stock Plan"), including 1,150,000 shares of Class A Common
Stock subject to outstanding options granted at the initial public
offering price of the Class A Common Stock. See "Management --Stock
Plan."
(b) Each share of Class B Common Stock is convertible at any time into one
share of Class A Common Stock and converts automatically into one
share of Class A Common Stock upon a transfer to any person other than
a Permitted Transferee (as defined herein) of Mafco Consolidated
Group. See "Description of Capital Stock --Class A Common Stock and
Class B Common Stock."
RISK FACTORS
See "Risk Factors" beginning on page 9 for a discussion of certain risks
that should be considered in connection with an investment in the Class A
Common Stock offered hereby.
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents summary historical financial data of the
Company for the years ended December 31, 1994 and 1995, which were derived
from the audited Consolidated Financial Statements of the Company included
elsewhere in this Prospectus. The summary historical data for the twenty-six
week periods ended July 1, 1995 and June 29, 1996 and as of June 29, 1996 have
been derived from the unaudited Consolidated Financial Statements of the
Company, included elsewhere in this Prospectus, which reflect, in the opinion
of management of the Company, all adjustments (which include only normal
recurring adjustments) necessary for the fair presentation of the financial
data for such periods. The results of such interim periods are not necessarily
indicative of the results for the full fiscal year. The summary unaudited pro
forma balance sheet data as of June 29, 1996 give pro forma effect to the (i)
Offerings, (ii) the payment to Mafco Consolidated Group of the net proceeds
from the Offerings, (iii) the payment to Mafco Consolidated Group of the $5.6
million dividend funded by borrowings under the Credit Agreement and (iv) the
issuance of the Promissory Note, assuming that the Offerings, the payment to
Mafco Consolidated Group of the net proceeds from the Offerings and the
payment to Mafco Consolidated Group of the $5.6 million dividend funded by
borrowings under the Credit Agreement had been consummated and the Promissory
Note had been issued on June 29, 1996. The pro forma adjustments are based
upon available information and certain assumptions that the management of the
Company believes are reasonable. The summary unaudited pro forma data do not
purport to represent the results of operations or the financial position of
the Company that actually would have occurred had the Offerings, the payment
to Mafco Consolidated Group of the net proceeds from the Offerings and the
payment to Mafco Consolidated Group of the $5.6 million dividend funded by
borrowings under the Credit Agreement been consummated and the Promissory Note
been issued on June 29, 1996, or project the results of operations or
financial position of the Company and its subsidiaries for any future date.
The Company's only material asset is all of the outstanding capital stock
of Consolidated Cigar, through which the Company conducts its business
operations. The summary historical and pro forma financial data therefore
reflect the consolidated results of Consolidated Cigar.
The following summary historical financial data should be read in
conjunction with "Selected Historical and Pro Forma Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS ENDED
---------------------- -------------------------------
1994 1995 JULY 1, 1995 JUNE 29, 1996
---- ---- ------------ -------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $131,510 $158,166 $71,449 $92,200
Cost of sales ............................... 78,836 94,347 42,166 53,416
---------- ---------- -------------- ---------------
Gross profit ................................ 52,674 63,819 29,283 38,784
Selling, general and administrative expenses 29,413 32,393 15,295 17,578
---------- ---------- -------------- ---------------
Operating income ............................ 23,261 31,426 13,988 21,206
Other (expenses) income:
Interest expense, net ....................... (12,838) (12,635) (6,650) (5,301)
Minority interest ........................... 78 (262) (45) (141)
Miscellaneous, net .......................... (828) (1,000) (438) (444)
---------- ---------- -------------- ---------------
Income before provision for income taxes ... 9,673 17,529 6,855 15,320
Provision for income taxes .................. 1,989 3,599 1,266 4,143
---------- ---------- -------------- ---------------
Net income .................................. $ 7,684 $ 13,930 $ 5,589 $11,177
========== ========== ============== ===============
Pro forma earnings per share(a) ............. $ 0.45 $ 0.37
========== ===============
</TABLE>
<TABLE>
<CAPTION>
JUNE 29, 1996
----------------------
ACTUAL PRO FORMA
------ ---------
<S> <C> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets ..................................................... $200,518 $200,518
Long-term debt (including current portion and the Promissory
Note) ........................................................... 111,500 187,088
Total stockholder's equity (deficit) ............................. 58,325 (17,263)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS ENDED
---------------------- -------------------------------
OTHER DATA: 1994 1995 JULY 1, 1995 JUNE 29, 1996
---- ---- ------------ -------------
<S> <C> <C> <C> <C>
Gross margin (b) ...................................... 40.1% 40.3% 41.0% 42.1%
Operating margin (b) .................................. 17.7 19.9 19.6 23.0
Cash flows provided by operating activities .......... $ 14,259 $ 19,801 $ 6,328 $10,668
Cash flows provided by (used for) investing activities 5,036 (989) (170) (3,538)
Cash flows used for financing activities .............. (18,810) (19,367) (6,084) (7,328)
Capital expenditures .................................. 788 983 370 3,170
Amortization of goodwill .............................. 1,771 1,771 886 826
EBITDA (c) ............................................ 30,046 38,125 17,292 24,409
EBITDA margin (c) ..................................... 22.8% 24.1% 24.2% 26.5%
</TABLE>
(footnotes on following page)
7
<PAGE>
- ------------
(a) The pro forma per share data give effect to the consummation of the
Offerings and the $5.6 million dividend funded by borrowings under the
Credit Agreement and are calculated assuming that 30,000,000 shares of
Common Stock had been outstanding for each period presented as a result of
the conversion of the outstanding shares of the Company's current common
stock into approximately 25,500,000 shares of its newly created Class B
Common Stock and the issuance of 4,500,000 shares of its newly created
Class A Common Stock in the Offerings. On a pro forma basis, net income
would have been $13.5 million and $11.0 million for the year ended
December 31, 1995 and the twenty-six weeks ended June 29, 1996,
respectively.
(b) Gross margin is defined as gross profit as a percentage of net sales and
operating margin is defined as operating income as a percentage of net
sales.
(c) EBITDA is defined as earnings before interest expense, net, taxes,
extraordinary items, depreciation and amortization and minority interest.
The Company believes that EBITDA is a measure commonly used by analysts,
investors and others interested in the cigar industry. Accordingly, this
information has been disclosed herein to permit a more complete analysis
of the Company's operating performance. EBITDA should not be considered in
isolation or as a substitute for net income or other consolidated
statement of operations or cash flows data prepared in accordance with
generally accepted accounting principles as a measure of the profitability
or liquidity of the Company. EBITDA does not take into account the
Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be
available for discretionary uses. EBITDA margin is defined as EBITDA as a
percentage of net sales.
8
<PAGE>
RISK FACTORS
Prospective purchasers of the Class A Common Stock offered hereby should
consider carefully all of the information set forth in this Prospectus and, in
particular, should evaluate the following risks in connection with an
investment in the Class A Common Stock.
SIGNIFICANT LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company has a significant amount of outstanding indebtedness. As of
June 29, 1996, after giving effect to (i) the consummation of the Offerings,
(ii) the payment to Mafco Consolidated Group of the net proceeds from the
Offerings, (iii) the payment to Mafco Consolidated Group of the $5.6 million
dividend funded by borrowings under the Credit Agreement and (iv) the issuance
of the Promissory Note, the outstanding indebtedness of the Company would have
been $187.1 million and the Company would have had a stockholders' deficit of
$17.3 million. The Company and, subject to certain limitations contained in
their outstanding debt instruments, the subsidiaries of the Company may incur
additional indebtedness to finance working capital needs, capital
expenditures, acquisitions or for other purposes. See "Description of Certain
Indebtedness."
The Company's level of consolidated indebtedness could have important
consequences to the holders of Class A Common Stock, including the following:
(i) a substantial portion of the Company's consolidated cash flows from
operations must be dedicated to the payment of the interest on and principal
of its outstanding indebtedness and will not be available for other purposes,
including payment of dividends; (ii) the ability of the Company to obtain
financing in the future for working capital needs, capital expenditures,
acquisitions or other purposes may be materially limited or impaired; (iii)
the Company's level of indebtedness may reduce the Company's flexibility to
respond to changing business and economic conditions; and (iv) certain of the
Company's borrowings are and will continue to be at variable rates of
interest, which could result in higher interest expense in the event of
increases in interest rates.
The Company intends to satisfy anticipated cash requirements, including for
debt service, through cash flows from operations and funds from borrowings
under credit facilities. There can be no assurance, however, that cash flows
from operations and funds from available borrowings under the Company's
existing credit facilities will be sufficient to meet the Company's cash
requirements on a consolidated basis. If the Company is unable to satisfy such
cash requirements, the Company could be required to adopt one or more
alternatives, such as reducing or delaying capital expenditures, refinancing
or restructuring its indebtedness, selling assets or operations, seeking
capital contributions or loans from affiliates of the Company or issuing
additional shares of capital stock. There can be no assurance that any of such
actions could be effected, that they would enable the Company to continue to
satisfy its capital requirements or that they would be permitted under the
terms of the Company's various debt instruments then in effect. See "--Impact
of Holding Company Structure."
RESTRICTIONS IMPOSED BY THE TERMS OF THE COMPANY'S INDEBTEDNESS; CONSEQUENCES
OF FAILURE TO COMPLY
The terms and conditions of the debt instruments of Consolidated Cigar,
including its credit agreement (the "Credit Agreement") and its 10 1/2% Senior
Subordinated Notes due 2003 (the "Senior Subordinated Notes"), impose
restrictions on Consolidated Cigar and its subsidiaries that affect, among
other things, their ability to incur debt, pay dividends or make
distributions, make acquisitions, create liens, sell assets, create
restrictions on the payment of dividends and other payments and make certain
investments. The terms of the Credit Agreement also require Consolidated Cigar
to maintain specified financial ratios and satisfy certain tests, including
maximum leverage ratios and minimum interest coverage ratios. As of June 29,
1996, there was approximately $21.5 million outstanding and $17.4 million
available under the Credit Agreement and $90.0 million aggregate principal
amount of Senior Subordinated Notes outstanding. After giving effect to the
borrowings under the Credit Agreement to fund the $5.6 million dividend to
Mafco Consolidated Group, there would have been approximately $27.1 million
outstanding and $11.8 million available under the Credit Agreement as of June
29, 1996.
9
<PAGE>
Consolidated Cigar's obligations under the Credit Agreement are guaranteed
by the Company and by all of the domestic subsidiaries of Consolidated Cigar.
Such guarantees and borrowings under the Credit Agreement are, and following
consummation of the Offerings will continue to be, secured by first priority
liens on all of the material assets of Consolidated Cigar and its domestic
subsidiaries and pledges of the capital stock of all of Consolidated Cigar's
subsidiaries (with certain exceptions for the capital stock of foreign
subsidiaries) and a pledge of all of the shares of common stock of
Consolidated Cigar owned by the Company (collectively, the "Collateral"). The
occurrence of a change of control of the Company would be an event of default
under the Credit Agreement and would permit the lenders under the Credit
Agreement to accelerate the debt outstanding thereunder and, if the debt is
not paid, to proceed to realize on the Collateral. Moreover, such event would
permit the holders of outstanding Senior Subordinated Notes to require the
repurchase of their notes.
The ability of the Company and its subsidiaries to comply with the terms of
their respective debt instruments can be affected by events beyond their
control, including events such as changes in prevailing economic conditions,
changes in consumer preferences and changes in the competitive environment,
which could have the effect of impairing the Company's operating performance,
and there can be no assurance that the Company and its subsidiaries will be
able to comply with the provisions of their respective debt instruments,
including compliance by Consolidated Cigar with the financial ratios and tests
contained in the Credit Agreement. Breach of any of these covenants or the
failure to fulfill the obligations thereunder and the lapse of any applicable
grace periods would result in an event of default under the applicable debt
instruments, and the holders of such indebtedness could declare all amounts
outstanding under their debt instruments to be due and payable immediately.
Any such declaration under a debt instrument is likely to result in an event
of default under one of the other debt instruments of the Company and its
subsidiaries. There can be no assurance that the assets or cash flows of the
Company or its subsidiaries would be sufficient to repay in full borrowings
under their respective outstanding debt instruments, whether upon maturity or
if such indebtedness were to be accelerated upon an event of default, or upon
a required repurchase in the event of a change of control, or that the Company
would be able to refinance or restructure the payments on such indebtedness.
In the case of the Credit Agreement, if such indebtedness were not so repaid,
refinanced or restructured, the lenders could proceed to realize on the
Collateral. See "--Significant Level of Indebtedness; Ability to Service
Indebtedness," "--Impact of Holding Company Structure" and "Description of
Certain Indebtedness."
IMPACT OF HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations of its own.
The Company's only material asset is all the outstanding capital stock of
Consolidated Cigar, through which the Company conducts its business
operations. Accordingly, the Company will be dependent upon the earnings and
cash flows of, and dividends and distributions from, Consolidated Cigar to pay
its expenses and meet its obligations, including principal payments on the
$70.0 million Promissory Note, and to pay any cash dividends or distributions
on the Common Stock that may be authorized by the Board of Directors of the
Company. There can be no assurance that Consolidated Cigar will generate
sufficient earnings and cash flows to pay dividends or distribute funds to the
Company to enable the Company to pay its expenses and meet its obligations,
including principal payments on the Promissory Note, or that applicable state
law and contractual restrictions, including negative covenants contained in
the debt instruments of the Company's subsidiaries, including Consolidated
Cigar, then in effect, will permit such dividends or distributions. The terms
of each of the Credit Agreement and the Senior Subordinated Notes currently
restrict Consolidated Cigar from paying dividends or making distributions to
the Company, each subject to certain limited exceptions. See "--Significant
Level of Indebtedness; Ability to Service Indebtedness" and "--Restrictions
Imposed by the Terms of the Company's Indebtedness; Consequences of Failure to
Comply."
10
<PAGE>
DECLINING MARKET FOR CIGARS THROUGH 1993
According to industry sources, the cigar industry experienced declining
consumption between 1964 and 1993 at a compound annual rate of 3.6% (and, with
respect to large cigar consumption, at a compound annual rate of 5.0%). The
Company experienced similar trends in the unit volume of its cigars during
such period. While the cigar industry has experienced significantly better
trends in unit consumption since 1993 compared to this historical trend, there
can be no assurance that the recent positive trends will continue or that the
Company would be able to offset any future decline in consumption. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Market Overview."
EXTENSIVE AND INCREASING REGULATION OF TOBACCO PRODUCTS
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation in the United States at the federal, state and local levels.
Federal law has required health warnings on cigarettes since 1965 and has
recently required states, in order to receive full funding for federal
substance abuse block grants, to establish a minimum age of 18 years for the
sale of tobacco products, together with an appropriate enforcement program.
The recent trend is toward increasing regulation of the tobacco industry. A
variety of bills relating to tobacco issues have been recently introduced in
the Congress of the United States, including bills that would have (i)
prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of such advertising expenses; (ii)
increased labeling requirements on tobacco products to include, among other
things, addiction warnings and lists of additives and toxins; (iii) modified
federal preemption of state laws to allow state courts to hold tobacco
manufacturers liable under common law or state statutes; (iv) shifted
regulatory control of tobacco products and advertisements from the U.S.
Federal Trade Commission (the "FTC") to the U.S. Food and Drug Administration
(the "FDA"); (v) increased tobacco excise taxes; and (vi) required tobacco
companies to pay for health care costs incurred by the federal government in
connection with tobacco related diseases. Hearings have been held on certain
of these proposals; however, to date, none of such proposals have been passed
by Congress. In addition, various federal agencies, including the FDA, have
recently proposed to regulate the tobacco industry. Under the FDA proposal,
the FDA would, among other things, regulate the marketing, promotion and
advertisement of certain tobacco products. The FDA has indicated that it
expects to adopt a final rule during the summer of 1996. The regulation of the
tobacco industry by the FDA could have a material adverse effect on the
Company's business. Numerous proposals have also been considered at the state
and local legislative level and by regulatory bodies, including requiring
little cigars to be "fire-safe" (i.e., cigars that extinguish themselves if
not continuously smoked), restricting smoking in certain public areas and
requiring cigar or pipe tobacco to carry health warnings. There can be no
assurance as to the ultimate content, timing or effect of any additional
regulation of tobacco products by any federal, state, local or regulatory
body, and there can be no assurance that any such legislation or regulation
would not have a material adverse affect on the Company's business. See
"Business--The Tobacco Industry--Regulation."
TOBACCO INDUSTRY LITIGATION
The cigarette and smokeless tobacco industries have experienced and are
experiencing significant health-related litigation involving tobacco and
health issues. Plaintiffs in such litigation have and are seeking compensation
and, in some cases, punitive damages, for various injuries resulting from the
use of tobacco products or exposure to tobacco smoke, including health care
costs. Although, to date, the Company has not been the subject of any such
material health-related litigation and the cigar industry has not experienced
material health-related litigation, there can be no assurance that there will
not be an increase in health-related litigation against the cigarette and
smokeless tobacco industries or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against
11
<PAGE>
manufacturers of cigars, cigarettes or smokeless tobacco or suppliers to the
tobacco industry could have a material adverse effect on the Company's
business. See "Business--The Tobacco Industry--Litigation."
EFFECTS OF INCREASES IN EXCISE TAXES
Cigars and pipe tobacco have long been subject to federal, state and local
excise taxes, and such taxes have frequently been increased or proposed to be
increased, in some cases significantly, to fund various legislative
initiatives. In particular, there have been proposals by the federal
government in the past to reform health care through a national program to be
funded principally through increases in federal excise taxes on tobacco
products. Enactment of new or significant increases in existing federal, state
or local excise taxes would result in decreased unit sales of cigars and pipe
tobacco, which could have a material adverse effect on the Company's business.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Taxation and Regulation--Excise Taxes" and "Business--The
Tobacco Industry--Excise Taxes."
SUBSTANTIAL EFFECTS OF FAILURE TO RECEIVE POSSESSIONS TAX CREDIT
The Company derives a significant amount of its income from its Puerto Rico
operations. Prior to December 31, 1993, income earned by the Company from its
Puerto Rico operations was generally exempt from United States federal income
tax. Section 936 of the Internal Revenue Code of 1986, as amended (the
"Code"), allows a "possessions tax credit" against United States federal
income tax for the amount of United States federal income tax attributable to
the Puerto Rico taxable earnings. As part of the Omnibus Budget Reconciliation
Act of 1993 ("OBRA 93"), the possessions tax credit has been limited based
upon a percentage of qualified wages in Puerto Rico, plus certain amounts of
depreciation (the "Current Limitation"). While the Company believes that it
qualified for the possessions tax credit during 1995, 1994 and 1993, the
future eligibility and the amounts of the credit will depend on the facts and
circumstances of the Company's Puerto Rico operations during each of the
taxable years subsequent to 1995. Failure to receive the Section 936 exemption
or possessions tax credit attributable to the Company's Puerto Rico operations
would have a material adverse effect on the Company.
On August 2, 1996, Congress passed the Small Business Job Protection Act of
1996 (the "SBJPA Bill"), which, if enacted into law, would repeal Section 936
of the Code. Under the SBJPA Bill, the Section 936 "possessions tax credit"
would be repealed, subject to special grandfather rules for which the Company
would be eligible, provided that the Company does not add a "substantial new
line of business." Under the grandfather rules, for the Company's taxable
years beginning after December 31, 2001 and before January 1, 2006, the
Company's business income from its Puerto Rico operations eligible for the
possessions tax credit would, in addition to the Current Limitation, generally
be limited to its average annual income from its Puerto Rico operations,
adjusted for inflation, computed during the Company's five most recent taxable
years ending before October 14, 1995 and excluding the highest and lowest
years. For taxable years after December 31, 2005, the possessions tax credit
would be eliminated. The repeal of Section 936 in the manner described above
could have a material adverse effect on the Company for taxable years
beginning after December 31, 2001 and before January 1, 2006 to the extent
that the Company's annual income from its Puerto Rico operations exceeds its
average annual income from its Puerto Rico operations (as computed in the
manner described in the preceding sentence), and for taxable years after
December 31, 2005. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Taxation and Regulation--Possessions Tax
Credit."
SUBSTANTIAL EFFECTS OF ELIMINATION OF PUERTO RICO TAX EXEMPTION
Pursuant to a grant of industrial tax exemption which expires in 2002,
income earned by Congar International Corporation, a wholly owned subsidiary
of the Company ("CIC"), from the manufacture of cigars in Puerto Rico enjoys a
90% income tax exemption from Puerto Rican income taxes. The remaining 10% of
such income is taxed at a maximum surtax rate of 45%, resulting in an
effective income tax rate for such income of approximately 4.5% under current
tax rates. Funds repatriated to the Company are subject to a maximum Puerto
Rican tollgate tax of 10%. Legislation enacted in Puerto Rico
12
<PAGE>
in 1993 included a provision for prepaying a portion of these tollgate taxes
effective for the 1993 fiscal year and subsequent periods. There can be no
assurance that the Puerto Rico tax exemption will not be limited or eliminated
in the future. Any significant limitation on or elimination of the Puerto Rico
tax exemption would have a material adverse effect on the Company. See Note I
of the Notes to the Consolidated Financial Statements of the Company included
elsewhere in this Prospectus.
CONSTRAINTS ON ABILITY TO SATISFY DEMAND
As a result of the increased demand for its hand made premium cigars, the
Company had backorders at the end of 1994 and 1995 of 3.2 million and 4.3
million cigars, respectively, and 12.0 million cigars at June 29, 1996. The
Company's ability to increase its production of premium cigars and decrease
its backorders is constrained by a shortage of experienced skilled laborers.
Although the Company is hiring and training new skilled laborers, the training
process averages up to one year and not all trainees are able to successfully
complete the Company's training program. While the Company is pursuing
measures to increase its production of premium cigars, there can be no
assurance that these measures will be successful or that they will enable the
Company to meet any future level of demand for its premium cigars. Any
material inability of the Company to fill its premium cigar backorders in a
timely manner could have a material adverse effect on the Company's business,
including the loss of sales by the Company.
The Company's ability to manufacture premium and mass market cigars may
also be constrained by the ability of tobacco growers and suppliers to meet
the Company's demands for its raw materials in a timely manner. Tobacco, as a
crop that is harvested annually, restricts the ability of tobacco growers to
adjust acreage grown in any given year to meet changes in market demands. In
addition, increases in acreage of tobacco grown requires significant capital,
which growers may be unable or unwilling to invest. If the rate of escalation
in consumption of cigars and other tobacco products continues, but the supply
of tobacco remains constant or increases at a lower rate than demand, the
Company's ability to increase its production of cigars, and thereby reduce its
backorders, could be inhibited. See "--Social, Political and Economic Risks
Associated with Foreign Operations and International Trade" and
"Business--Backorders."
SOCIAL, POLITICAL AND ECONOMIC RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND
INTERNATIONAL TRADE
A substantial portion of the manufacturing operations of the Company are
located in territories and countries outside of the United States, including
Puerto Rico, the Dominican Republic, Jamaica and Honduras, and the
manufacturer and supplier of the Company's TE-AMO cigars is located in Mexico.
In addition, the Company buys tobacco directly from a large number of
suppliers located in territories and countries outside the United States,
including Brazil, Cameroon, the Central African Republic, Costa Rica, Germany,
Italy, the Dominican Republic, Paraguay, the Philippines, Indonesia, Honduras
and Mexico. The Company is exposed to the risk of changes in social, political
and economic conditions inherent in foreign operations and international
trade, including changes in the laws and policies that govern foreign
investment and international trade in territories and countries where it
currently has operations and conducts international trade, as well as, to a
lesser extent, changes in United States laws and regulations relating to
foreign investment and trade. Any such social, political or economic changes
could pose, among other things, the risk of finished product and raw material
supply interruption or significant increases in finished product and raw
material prices. Accordingly, there can be no assurance that any such changes
in social, political or economic conditions will not have a material adverse
effect on the Company's business.
13
<PAGE>
CONTROL BY MAFCO CONSOLIDATED GROUP
Holders of the Company's Class A Common Stock are entitled to one vote per
share and holders of the Company's Class B Common Stock are entitled to ten
votes per share. Each share of Class B Common Stock is convertible at any time
into one share of Class A Common Stock and converts automatically into one
share of Class A Common Stock upon a transfer to any person other than a
Permitted Transferee, which generally consists of affiliates of Mafco
Consolidated Group. Immediately after consummation of the Offerings, Mafco
Consolidated Group will beneficially own all of the 25,500,000 outstanding
shares of Class B Common Stock, which will represent approximately 98.3% of
the combined voting power of the outstanding shares of Common Stock
(approximately 98.0% if the Underwriters' over-allotment options are exercised
in full). Accordingly, Mafco Consolidated Group will be able to elect the
entire Board of Directors of the Company and control the vote on all matters
submitted to a vote of the Company's stockholders. Mafco Consolidated Group is
85% owned through Mafco Holdings by Ronald O. Perelman.
All of the shares of common stock of Mafco Consolidated Group owned by
Mafco Holdings are, and will continue to be, pledged by Mafco Holdings to
secure the obligations of certain of its affiliates under outstanding
indebtedness. Subject to applicable law and the terms of such indebtedness,
Mafco Holdings could sell any or all of the shares of common stock of Mafco
Consolidated Group owned by it from time to time for any reason. In addition,
such shares may be sold in the event that Mafco Holdings or its affiliates
fail to comply with their obligations under the indebtedness which is secured
by the pledge of such shares and the lenders thereunder proceed to realize on
such security. A sale of a sufficient number of shares of Class A Common Stock
held by Mafco Consolidated Group or acquired upon conversion of its shares of
Class B Common Stock or a sale of a sufficient number of shares of common
stock of Mafco Consolidated Group owned by Mafco Holdings would result in a
change of control of the Company. The occurrence of a change of control of the
Company would be an event of default under the Credit Agreement and would give
the holders of the Senior Subordinated Notes the right to require the
repurchase of their Notes, which could require a potential acquiror to either
repay or refinance such indebtedness. See "--Restrictions Imposed by the Terms
of the Company's Indebtedness; Consequences of Failure to Comply" and
"--Anti-Takeover Effects of Dual Classes of Stock" and "Ownership of Common
Stock," "Certain Relationships and Related Transactions--Relationship with
Mafco Consolidated Group and Mafco Holdings."
ANTI-TAKEOVER EFFECTS OF DUAL CLASSES OF STOCK
Following consummation of the Offerings, through its ownership of all the
outstanding shares of Class B Common Stock, Mafco Consolidated Group will be
able to control the vote on all matters submitted to a vote of the Company's
stockholders, including extraordinary transactions such as mergers, sales of
all or substantially all of the Company's assets or going private
transactions. Such control by Mafco Consolidated Group may discourage certain
types of transactions involving an actual or potential change of control of
the Company, including transactions in which the holders of Class A Common
Stock might receive a premium for their shares over prevailing market prices.
See "--Control by Mafco Consolidated Group" and "Description of Capital
Stock."
POSSIBLE FUTURE SALES OF SHARES BY MAFCO CONSOLIDATED GROUP
Immediately after consummation of the Offerings, the Company will have
outstanding 4,500,000 shares of Class A Common Stock and 25,500,000 shares of
Class B Common Stock. Subject to the restrictions described under "Shares
Eligible for Future Sale" and applicable law, Mafco Consolidated Group could
sell any or all of the shares of Common Stock owned by it from time to time
for any reason. Pursuant to a Registration Rights Agreement between the
Company and Mafco Consolidated Group (the "Registration Rights Agreement"),
Mafco Consolidated Group has the right to require the Company to register the
shares of Class A Common Stock acquired upon conversion of its shares of Class
B Common Stock to facilitate their possible sale. Although the Company can
make no prediction as to the effect, if any, that sales of shares of Class A
Common Stock by Mafco Consolidated Group would have on the market price
prevailing from time to time, sales of substantial amounts of Class A Common
Stock or the availability of such shares for sale could adversely affect
prevailing market prices. See "Shares Eligible for Future Sale."
14
<PAGE>
NO PRIOR MARKET FOR CLASS A COMMON STOCK; DETERMINATION OF PUBLIC OFFERING
PRICE
Prior to the Offerings, there has been no public market for the Class A
Common Stock. Although the Class A Common Stock has been approved for listing
on the New York Stock Exchange ("NYSE"), subject to official notice of
issuance, there can be no assurance as to the development or liquidity of any
trading market for the Class A Common Stock following the Offerings or that
investors in the Class A Common Stock will be able to resell their shares at
or above the initial public offering price. The initial public offering price
for the shares of Class A Common Stock will be determined through negotiations
between the Company and the representatives of the Underwriters, and may not
be indicative of the market price of the Class A Common Stock after the
Offerings. See "Underwriting."
DILUTION
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution in net tangible book value per share of Common Stock from
the initial public offering price. To the extent outstanding options to
purchase Class A Common Stock are exercised, there will be further dilution.
See "Dilution."
USE OF PROCEEDS TO PAY DIVIDEND
The net proceeds from the Offerings will be paid as a dividend to Mafco
Consolidated Group. Accordingly, none of the proceeds from the Offerings will
be available for use in the Company's business. See "Use of Proceeds."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares of Class A Common
Stock offered by the Company hereby are estimated to be $79.6 million ($92.0
million if the Underwriters' over-allotment option is exercised in full),
after deducting the underwriting discount and estimated offering expenses
payable by the Company, assuming an initial public offering price of $19.50
per share. All the net proceeds of the Offerings will be paid as a dividend to
Mafco Consolidated Group. Accordingly, none of the proceeds from the Offerings
will be available for use in the Company's business.
DIVIDEND POLICY
The net proceeds from the Offerings will be paid as a dividend to Mafco
Consolidated Group. The Company does not anticipate that, after the Offerings,
any dividends will be declared on the Class A Common Stock in the foreseeable
future. The Company intends to retain earnings to finance the expansion of its
business. In the year ended December 31, 1995 and the twenty-six week period
ended June 29, 1996, the Company paid cash dividends of $5.0 million and $7.2
million, respectively. Simultaneously with or prior to consummation of the
Offerings, the Company intends to pay to Mafco Consolidated Group a cash
dividend of approximately $5.6 million funded by borrowings under the Credit
Agreement.
The Company, as a holding company with no business operations of its own,
is dependent on dividends and distributions from Consolidated Cigar to pay any
cash dividends or distributions on the Common Stock. The terms of the Senior
Subordinated Notes limit the payment of dividends or distributions to the
Company by Consolidated Cigar to an amount (based on a formula set forth in
the indenture (the "Senior Subordinated Notes Indenture") pursuant to which
the Senior Subordinated Notes were issued) equal to approximately $5.6 million
as of June 29, 1996, which amount will be paid by Consolidated Cigar as a
dividend to the Company in connection with the $5.6 million dividend described
above. Consolidated Cigar recently entered into an amendment to the Credit
Agreement, which, among other things, permits Consolidated Cigar to pay the
$5.6 million dividend to the Company and to pay dividends and make
distributions on terms substantially similar to those contained in the Senior
Subordinated Notes Indenture. So long as the Credit Agreement is in effect and
the Senior Subordinated Notes are outstanding, each in their current form, the
Company's ability to obtain distributions from Consolidated Cigar to enable it
to fund dividend payments will be limited. Subject to such restrictions, any
future declaration of cash dividends will be at the discretion of the
Company's Board of Directors and will be dependent upon the Company's results
of operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors of the Company. See "Risk
Factors--Restrictions Imposed by the Terms of the Company's Indebtedness;
Consequences of Failure to Comply" and "Description of Certain Indebtedness."
16
<PAGE>
DILUTION
As of June 29, 1996, the Company had a book value of approximately $58.3
million or $2.29 per share of Common Stock and a deficit in net tangible book
value of approximately $(37.3) million or $(1.46) per share of Common Stock.
"Net tangible book value" per share of Common Stock represents the total
amount of tangible assets of the Company, less the total amount of liabilities
of the Company, divided by the number of shares of Common Stock outstanding.
Without taking into account any changes in net tangible book value after June
29, 1996, other than to give effect to (i) the sale by the Company of the
4,500,000 shares of Class A Common Stock offered hereby (at an assumed initial
public offering price of $19.50 per share), (ii) the payment to Mafco
Consolidated Group of the net proceeds from the Offerings, (iii) the payment
to Mafco Consolidated Group of the $5.6 million dividend funded by borrowings
under the Credit Agreement and (iv) the issuance of the Promissory Note, the
pro forma deficit in net tangible book value of the Common Stock as of June
29, 1996 would have been approximately $(112.8) million or $(3.76) per share.
This represents an immediate dilution of $23.26 per share to new stockholders.
"Dilution" per share represents the difference between the price per share to
be paid by the new stockholders and the pro forma deficit in net tangible book
value per share as of June 29, 1996. The following table illustrates this per
share dilution.
<TABLE>
<CAPTION>
<S> <C> <C>
Initial public offering price per share ................... $ 19.50
Deficit in net tangible book value per share as of
June 29, 1996 ............................................ $(1.46)
Decrease in net tangible book value per share attributable
to the payment to Mafco Consolidated Group of the net
proceeds from the Offerings, the payment to Mafco
Consolidated Group of the $5.6 million dividend and the
issuance of the Promissory Note .......................... (6.08)
Increase in net tangible book value per share attributable
to the Offerings ......................................... 3.78
---------
Pro forma deficit in net tangible book value per share as
of June 29, 1996 after giving effect to the Offerings,
the payment to Mafco Consolidated Group of the net
proceeds from the Offerings, the payment to Mafco
Consolidated Group of the $5.6 million dividend and the
issuance of the Promissory Note .......................... (3.76)
--------
(Dilution) per share to new stockholders .................. $(23.26)
========
</TABLE>
The following table sets forth, on a pro forma basis as of June 29, 1996,
the number of shares of Common Stock purchased from the Company, the effective
cash cost to the existing stockholder and the average price per share paid by
the existing stockholder and to be paid by new stockholders.
<TABLE>
<CAPTION>
NUMBER OF AVERAGE
SHARES CONSIDERATION PRICE
PURCHASED PAID PER SHARE
------------ -------------- -----------
<S> <C> <C> <C>
Existing stockholder ....... 25,500,000 $ 30,000,000(a) $ 1.18
New stockholders ........... 4,500,000 87,750,000 19.50
------------ -------------- -----------
Total ..................... 30,000,000 $117,750,000 $ 3.93
============ ============== ===========
</TABLE>
- ---------------
(a) Reflects the effective cash cost of the Common Stock of the Company less
distributions from the Company to Mafco Consolidated Group that were not
funded by retained earnings prior to the payment to Mafco Consolidated
Group of the net proceeds from the Offerings, the payment to Mafco
Consolidated Group of the $5.6 million dividend and the issuance of the
Promissory Note. After giving effect to the payment to Mafco Consolidated
Group of the net proceeds of the Offerings, the payment to Mafco
Consolidated Group of the $5.6 million dividend and the issuance of the
Promissory Note, the effective cash return would be ($101,744,250).
The calculations in the tables set forth above do not reflect an aggregate
of 3,000,000 shares of Class A Common Stock reserved for issuance under the
Stock Plan, including 1,150,000 shares of Class A Common Stock subject to
outstanding options granted at the initial public offering price of the Class
A Common Stock. See "Management--Stock Plan."
17
<PAGE>
CAPITALIZATION
The following table sets forth the unaudited actual capitalization of the
Company as of June 29, 1996 and the unaudited pro forma capitalization of the
Company as of June 29, 1996, as adjusted to reflect (i) the sale by the
Company of the 4,500,000 shares of Class A Common Stock offered hereby (at an
assumed initial public offering price of $19.50 per share), (ii) the payment
to Mafco Consolidated Group of the net proceeds from the Offerings, (iii) the
payment to Mafco Consolidated Group of the $5.6 million dividend funded with
borrowings under the Credit Agreement and (iv) the issuance of the Promissory
Note. This table should be read in conjunction with the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 29, 1996
-------------------------
PRO FORMA AS
ACTUAL ADJUSTED
------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Long-term debt:
Credit Agreement ............................................ $ 21,500 $ 27,088(a)
Senior Subordinated Notes ................................... 90,000 90,000
Promissory Note (including current portion) ................. -- 70,000
---------- -------------
Total long-term debt ....................................... 111,500 187,088
---------- -------------
Stockholder's equity (deficit):
Preferred stock, par value $0.01 per share, 20,000,000 shares
authorized, no shares issued and outstanding ............ -- --
Common stock, par value $1.00 per share, 1,000 shares
authorized, 1,000 shares issued and outstanding ......... 1 --
Class A Common Stock, par value $0.01 per share; 300,000,000
shares authorized; 4,500,000 shares issued and outstanding,
pro forma as adjusted(b) ................................. -- 45
Class B Common Stock, par value $0.01 per share; 250,000,000
shares authorized, 25,500,000 shares issued and outstanding,
pro forma as adjusted ..................................... -- 255
Additional paid-in-capital (capital deficiency) ............ 34,834 (17,563)
Retained earnings ........................................... 23,490 --
---------- -------------
Total stockholder's equity (deficit) ...................... 58,325 (17,263)
---------- -------------
Total capitalization .................................... $169,825 $169,825
========== =============
</TABLE>
- ------------
(a) Reflects borrowings under the Credit Agreement to fund the $5.6 million
dividend to Mafco Consolidated Group.
(b) Excludes an aggregate of 3,000,000 shares of Class A Common Stock reserved
for issuance under the Stock Plan, including 1,150,000 shares of Class A
Common Stock subject to outstanding options granted at the initial public
offering price of the Class A Common Stock. See "Management--Stock Plan."
18
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The selected historical financial data of the Company for, and as of the
end of, each of the periods indicated in the five-year period ended December
31, 1995 have been derived from the audited Consolidated Financial Statements
of the Company. The selected historical financial data for each of the
twenty-six week periods ended July 1, 1995 and June 29, 1996 and as of June
29, 1996 have been derived from the unaudited Consolidated Financial
Statements of the Company, included elsewhere in this Prospectus, which
reflect, in the opinion of management of the Company, all adjustments (which
include only normal recurring adjustments) necessary for the fair presentation
of the financial data for such periods. The results for such interim periods
are not necessarily indicative of the results for the full fiscal year. The
selected unaudited pro forma balance sheet data as of June 29, 1996 give pro
forma effect to (i) the Offerings, (ii) the payment to Mafco Consolidated
Group of the net proceeds from the Offerings, (iii) the payment to Mafco
Consolidated Group of the $5.6 million dividend funded with borrowings under
the Credit Agreement and (iv) the issuance of the Promissory Note, assuming
that the Offerings, the payment to Mafco Consolidated Group of the net
proceeds from the Offerings and the payment to Mafco Consolidated Group of the
$5.6 million dividend funded with borrowings under the Credit Agreement had
been consummated and the Promissory Note had been issued on June 29, 1996. The
pro forma adjustments are based upon available information and certain
assumptions that the management of the Company believes are reasonable. The
selected unaudited pro forma data do not purport to represent the results of
operations or the financial position of the Company that actually would have
occurred had the Offerings, the payment to Mafco Consolidated Group of the net
proceeds from the Offerings and the payment to Mafco Consolidated Group of the
$5.6 million dividend funded with borrowings under the Credit Agreement been
consummated and the Promissory Note been issued on June 29, 1996, or project
the results of operations or financial position of the Company and its
subsidiaries for any future date.
The Company's only material asset is all of the outstanding capital stock
of Consolidated Cigar, through which the Company conducts its business
operations. The selected historical and pro forma financial data therefore
reflect the consolidated results of Consolidated Cigar and its predecessors.
Prior to March 3, 1993, Consolidated Cigar was a wholly owned subsidiary of
Triple C Acquisition Corp. ("Triple C"). On March 3, 1993, Mafco Holdings
acquired (the "Acquisition") all of the outstanding shares of Triple C and
merged Triple C into Consolidated Cigar, with Consolidated Cigar being the
surviving corporation. Accordingly, the selected historical financial data
reflect for the periods (i) prior to March 3, 1993, the results of Triple C
and (ii) subsequent to March 2, 1993, the consolidated results of Consolidated
Cigar, as adjusted to account for the Acquisition under the purchase
accounting method. The results of operations and financial condition of the
Company subsequent to the Acquisition ("Post-Acquisition") have been
significantly affected by adjustments resulting from the Acquisition,
including adjustments for the substantial increase in debt associated with the
Acquisition, the allocation of the purchase price and related amortization. As
a result, the Post-Acquisition results of operations and financial position of
the Company are not comparable with the results of operations and financial
position of the Company prior to the Acquisition ("Pre-Acquisition").
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company included elsewhere in this Prospectus.
19
<PAGE>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-ACQUISITION
--------------------------------------------
YEAR ENDED YEAR ENDED TWO MONTHS
DECEMBER 31, DECEMBER 31, ENDED MARCH 2,
1991 1992 1993
-------------- -------------- ------------
<S> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ............. $124,633 $127,107 $15,563
Cost of sales ......... 78,853 77,852 9,088
-------------- -------------- ------------
Gross profit .......... 45,780 49,255 6,475
Selling, general and
administrative
expenses ............. 26,116 27,836 4,580
-------------- -------------- ------------
Operating income ...... 19,664 21,419 1,895
-------------- -------------- ------------
Other (expenses)
income:
Interest expense, net (13,192) (10,527) (1,660)
Gain on sale of
trademarks ........... -- 6,830 --
Minority interest .... -- (3,345) 5
Miscellaneous, net ... (1,414) (1,364) (226)
-------------- -------------- ------------
Income before
provision for income
taxes and
extraordinary items . 5,058 13,013 14
Provision for income
taxes ................ 633 2,370 91
Extraordinary items .. (220) (514) --
-------------- -------------- ------------
Net income (loss) .... $ 4,645 $ 11,157 $ (77)
============== ============== ============
Pro forma earnings per
share(a) .............
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST-ACQUISITION
-------------------------------------------------------------------------------
TEN MONTHS
ENDED YEAR ENDED YEAR ENDED TWENTY-SIX TWENTY-SIX
DECEMBER 31, DECEMBER 31, DECEMBER 31, WEEKS ENDED WEEKS ENDED
1993 1994 1995 JULY 1, 1995 JUNE 29, 1996
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ............. $110,384 $131,510 $158,166 $71,449 $92,200
Cost of sales ......... 69,871 78,836 94,347 42,166 53,416
-------------- -------------- -------------- -------------- ---------------
Gross profit .......... 40,513 52,674 63,819 29,283 38,784
Selling, general and
administrative
expenses ............. 24,956 29,413 32,393 15,295 17,578
-------------- -------------- -------------- -------------- ---------------
Operating income ...... 15,557 23,261 31,426 13,988 21,206
-------------- -------------- -------------- -------------- ---------------
Other (expenses)
income:
Interest expense, net (10,930) (12,838) (12,635) (6,650) (5,301)
Gain on sale of
trademarks ........... -- -- -- -- --
Minority interest .... 209 78 (262) (45) (141)
Miscellaneous, net ... (690) (828) (1,000) (438) (444)
-------------- -------------- -------------- -------------- ---------------
Income before
provision for income
taxes and
extraordinary items . 4,146 9,673 17,529 6,855 15,320
Provision for income
taxes ................ 1,267 1,989 3,599 1,266 4,143
Extraordinary items .. -- -- -- -- --
-------------- -------------- -------------- -------------- ---------------
Net income (loss) .... $ 2,879 $ 7,684 $ 13,930 $ 5,589 $11,177
============== ============== ============== ============== ===============
Pro forma earnings per
share(a) ............. $ 0.45 $ 0.37
============== ===============
</TABLE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
------------------------------
DECEMBER 31, DECEMBER 31,
1991 1992
-------------- --------------
<S> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Total assets ......................... $126,780 $110,725
Long-term debt (including current
portion and the Promissory Note) .... 98,984 79,416
Total stockholder's equity (deficit) 3,157 14,314
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST-ACQUISITION
-----------------------------------------------------------------------
PRO FORMA
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 29, JUNE 29,
1993 1994 1995 1996 1996
-------------- -------------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Total assets ......................... $205,906 $196,909 $191,730 $200,518 $200,518
Long-term debt (including current
portion and the Promissory Note) ... 145,300 126,200 110,600 111,500 187,088
Total stockholder's equity (deficit) 32,879 40,563 54,328 58,325 (17,263)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRE-ACQUISITION
--------------------------------------------
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, MARCH 2,
1991 1992 1993
-------------- -------------- ------------
<S> <C> <C> <C>
OTHER DATA:
Gross margin(b) ....... 36.7% 38.8% 41.6%
Operating margin(b) .. 15.8 16.9 12.2
Cash flows provided by
operating activities $ 16,699 $ 20,638 $ 3,462
Cash flows provided by
(used for) investing
activities ........... (528) (701) (247)
Cash flows used for
financing activities (15,901) (19,574) (2,078)
Capital expenditures . 572 926 115
Amortization of
goodwill ............. 104 110 18
EBITDA(c) ............. 28,817 29,330 2,792
EBITDA margin(c) ...... 23.1% 23.1% 17.9%
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST-ACQUISITION
-------------------------------------------------------------------------------
TEN MONTHS
ENDED YEAR ENDED YEAR ENDED TWENTY-SIX TWENTY-SIX
DECEMBER 31, DECEMBER 31, DECEMBER 31, WEEKS ENDED WEEKS ENDED
1993 1994 1995 JULY 1, 1995 JUNE 29, 1996
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin(b) ....... 36.7% 40.1% 40.3% 41.0% 42.1%
Operating margin(b) .. 14.1 17.7 19.9 19.6 23.0
Cash flows provided by
operating activities $ 8,842 $ 14,259 $ 19,801 $ 6,328 $10,668
Cash flows provided by
(used for) investing
activities ........... (611) 5,036 (989) (170) (3,538)
Cash flows used for
financing activities (12,143) (18,810) (19,367) (6,084) (7,328)
Capital expenditures . 881 788 983 370 3,170
Amortization of
goodwill ............. 1,399 1,771 1,771 886 826
EBITDA(c) ............. 25,156 30,046 38,125 17,292 24,409
EBITDA margin(c) ...... 22.8% 22.8% 24.1% 24.2% 26.5%
</TABLE>
(footnotes on following page)
20
<PAGE>
(a) The pro forma per share data give effect to the consummation of the
Offerings and the $5.6 million dividend funded by borrowings under the
Credit Agreement and are calculated assuming that 30,000,000 shares of
Common Stock had been outstanding for each period presented as a result of
the conversion of the outstanding shares of the Company's current common
stock into approximately 25,500,000 shares of its newly created Class B
Common Stock and the issuance of 4,500,000 shares of its newly created
Class A Common Stock in the Offerings. On a pro forma basis, net income
would have been $13.5 million and $11.0 million for the year ended
December 31, 1995 and for the twenty-six weeks ended June 29, 1996,
respectively.
(b) Gross margin is defined as gross profit as a percentage of net sales and
operating margin is defined as operating income as a percentage of net
sales.
(c) EBITDA is defined as earnings before interest expense, net, taxes,
extraordinary items, depreciation and amortization and minority interest.
The Company believes that EBITDA is a measure commonly used by analysts,
investors and others interested in the cigar industry. Accordingly, this
information has been disclosed herein to permit a more complete analysis
of the Company's operating performance. EBITDA should not be considered in
isolation or as a substitute for net income or other consolidated
statement of operations or cash flows data prepared in accordance with
generally accepted accounting principles as a measure of the profitability
or liquidity of the Company. EBITDA does not take into account the
Company's debt service requirements and other commitments and,
accordingly, is not necessarily indicative of amounts that may be
available for discretionary uses. EBITDA margin is defined as EBITDA as a
percentage of net sales.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated Financial
Statements of the Company included elsewhere in this Prospectus.
OVERVIEW
The Company is the largest manufacturer and marketer of cigars sold in the
United States in terms of dollar sales, with a 1995 market share of
approximately 23% according to the Company's estimates. The Company markets
its cigar products under a number of well-known brand names at all price
levels and in all segments of the growing cigar market. The Company is also a
leading producer of pipe tobacco and is the largest supplier of private label
and branded generic pipe tobacco to mass market retailers. In addition, the
Company distributes a variety of pipe and cigar smokers' accessories. For the
year ended December 31, 1995 and the twenty-six week period ended June 29,
1996, cigars accounted for approximately 90% of the Company's net sales.
The United States cigar industry experienced declining consumption between
1964 and 1993 at a compound annual rate of 3.6%. Recently, cigar smoking has
gained popularity in the United States, resulting in a significant increase in
consumption and retail sales of cigars, particularly for premium cigars.
Management believes that this increase in cigar consumption and retail sales
is the result of a number of factors, including: (i) the increase in the
number of adults over the age of 50 (a demographic group believed to smoke
more cigars than any other demographic segment) and (ii) the emergence of an
expanding base of younger affluent adults who have recently started smoking
cigars and who tend to smoke premium cigars. The growth in industry retail
sales of cigars has outpaced unit growth since 1991 primarily as a result of a
combination of increased prices and a shift in the sales mix to more expensive
cigars. There can be no assurance that unit consumption and retail sales of
cigars will continue to increase in the future. See "Risk Factors--Declining
Market for Cigars through 1993" and "--Extensive and Increasing Regulation of
Tobacco Products."
The increased demand for cigars, especially premium cigars, and the
shortage of experienced skilled laborers caused as a result thereof have
resulted in the Company's backorders of premium cigars to increase from 3.2
million cigars at December 31, 1994 to 4.3 million cigars at December 31,
1995, and to further increase to 12.0 million cigars at June 29, 1996. The
Company is hiring and training new rollers and bunchers and is building
additional plant capacity to meet future growth in demand for its premium
cigars. Although the Company believes that these measures will enable it to
increase its production of premium cigars and that the backorders outstanding
at June 29, 1996 will be filled during the second half of 1996, there can be
no assurance that the Company will be able to meet any future level of demand
for its premium cigars. The Company's ability to manufacture premium and mass
market cigars may also be constrained by the ability of tobacco growers and
suppliers to meet the Company's demands for its raw materials in a timely
manner.
As a result of the strong demand for the Company's products, the Company
reported net sales of $158.2 million, operating income of $31.4 million and
net income of $13.9 million in 1995 and for the first twenty-six weeks of 1996
net sales of $92.2 million, operating income of $21.2 million and net income
of $11.2 million.
RESULTS OF OPERATIONS
The discussion set forth below relates to the results of operations and
financial condition of the Company for, and as of the end of, the twenty-six
week periods ended June 29, 1996 and July 1, 1995 and the years ended December
31, 1995 and 1994, the ten months ended December 31, 1993 and the two months
ended March 2, 1993.
The Company is a holding company with no business operations of its own.
The Company's only material asset is all of the outstanding capital stock of
Consolidated Cigar, through which the Company conducts its business
operations. The results of operations and financial position of the Company
therefore reflect the consolidated results of operations and financial
position of Consolidated Cigar and its predecessors. Prior to March 3, 1993,
Consolidated Cigar was a wholly owned subsidiary of Triple C. On March 3,
1993, Mafco Holdings acquired all of the outstanding shares of Triple C and
merged Triple C into Consolidated Cigar, with Consolidated Cigar being the
surviving corporation. The Post-Acquisition results of operations and
financial condition of the Company have been significantly affected by
adjustments resulting from the Acquisition, including adjustments for the
substantial increase in debt associated with the Acquisition, the allocation
of the purchase price and related amortization. As a result,
22
<PAGE>
the Post-Acquisition results of operations and financial position of the
Company are not comparable with the Pre-Acquisition results of operations and
financial position of the Company. However, in order to facilitate the
comparison of the results of operations of the Company for the year ended
December 31, 1993 with the year ended December 31, 1994, the Pre-Acquisition
(two months ended March 2, 1993) results of operations of Triple C have been
combined with the Post-Acquisition (ten months ended December 31, 1993)
results of operations of the Company.
The following table sets forth certain statement of operations data and the
related percentage of net sales (dollars in millions):
<TABLE>
<CAPTION>
COMBINED TEN MONTHS
ENDED DECEMBER 31, 1993 YEAR ENDED DECEMBER 31, TWENTY-SIX WEEKS ENDED
AND TWO MONTHS -------------------------------------- ------------------------------------
ENDED MARCH 2, 1993 1994 1995 JULY 1, 1995 JUNE 29, 1996
----------------------- ------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ............ $125.9 100.0% $131.5 100.0% $158.2 100.0% $71.4 100.0% $92.2 100.0%
Cost of sales ........ 78.9 62.7 78.8 59.9 94.4 59.7 42.1 59.0 53.4 57.9
-------- -------- -------- -------- -------- -------- ------- -------- ------- --------
Gross profit ......... 47.0 37.3 52.7 40.1 63.8 40.3 29.3 41.0 38.8 42.1
Selling, general and
administrative
expenses ............ 29.5 23.4 29.4 22.4 32.4 20.4 15.3 21.4 17.6 19.1
-------- -------- -------- -------- -------- -------- ------- -------- ------- --------
Operating income .... 17.5 13.9 23.3 17.7 31.4 19.9 14.0 19.6 21.2 23.0
Interest expense, net 12.6 10.0 12.8 9.7 12.6 8.0 6.6 9.3 5.3 5.7
Minority interest and
miscellaneous
expense, net ........ 0.7 0.6 0.8 0.6 1.3 0.8 0.5 0.7 0.6 0.7
Provision for income
taxes ............... 1.4 1.1 2.0 1.5 3.6 2.3 1.3 1.8 4.1 4.5
-------- -------- -------- -------- -------- -------- ------- -------- ------- --------
Net income ........... $ 2.8 2.2% $ 7.7 5.9% $ 13.9 8.8% $ 5.6 7.8% $11.2 12.1%
======== ======== ======== ======== ======== ======== ======= ======== ======= ========
</TABLE>
TWENTY-SIX WEEKS ENDED JUNE 29, 1996 COMPARED TO TWENTY-SIX WEEKS ENDED
JULY 1, 1995
Net sales were $92.2 million and $71.4 million for the first twenty-six
weeks of 1996 and 1995, respectively, an increase of $20.8 million or 29.0%.
The increase in net sales was primarily due to higher sales of cigars. Cigar
sales increased primarily as a result of both a shift in sales mix to higher
priced cigars and price increases on certain cigar brands and, to a slightly
lesser extent, an increase in cigar units, particularly in the premium market.
Gross profit was $38.8 million and $29.3 million for the first twenty-six
weeks of 1996 and 1995, respectively, an increase of $9.5 million or 32.4%.
The increase in gross profit for the first twenty-six weeks of 1996 was due to
the increase in sales, partially offset by increases in the costs of raw
materials. As a percentage of net sales, gross profit increased to 42.1% for
the first twenty-six weeks of 1996 from 41.0% for the first twenty-six weeks
of 1995, primarily due to fixed manufacturing costs spread over increased net
sales.
Selling, general and administrative ("SG&A") expenses were $17.6 million
and $15.3 million for the first twenty-six weeks of 1996 and 1995,
respectively, an increase of $2.3 million or 14.9% primarily due to increased
marketing and selling expenses. As a percentage of net sales, SG&A expenses
decreased to 19.1% for the first twenty-six weeks of 1996 from 21.4% for the
first twenty-six weeks of 1995. The decrease was primarily due to SG&A
expenses increasing at a lower rate relative to the increase in net sales.
Operating income was $21.2 million and $14.0 million for the first
twenty-six weeks of 1996 and 1995, respectively, an increase of $7.2 million
or 51.6%. As a percentage of net sales, operating income increased to 23.0%
for the first twenty-six weeks of 1996 from 19.6% for the first twenty-six
weeks of 1995, primarily due to higher gross profit margins and a decrease in
SG&A expenses as a percentage of net sales.
Interest expense, net, was $5.3 million and $6.6 million for the first
twenty-six weeks of 1996 and 1995, respectively. The decrease of $1.3 million
or 20.3% was primarily due to a lower amount of debt outstanding for the first
twenty-six weeks of 1996.
23
<PAGE>
The provision for income taxes as a percentage of income before income
taxes was 27.0% and 18.5% for the first twenty-six weeks of 1996 and 1995,
respectively. The increase in the effective rate is primarily due to an
increase in the provision for federal income taxes during the first twenty-six
weeks of 1996 partially offset by tax benefits associated with the Company's
operations in Puerto Rico. Income tax expense for the first twenty-six weeks
of 1996 reflect provisions for federal income taxes, Puerto Rico tollgate
taxes and taxes on Puerto Rico source income, together with state and
franchise taxes. Income tax expense for the first twenty-six weeks of 1995
reflect provisions for federal income taxes, net of tax benefit resulting from
the utilization of net operating loss carryforwards, Puerto Rico tollgate
taxes and taxes on Puerto Rico source income, along with state and franchise
taxes.
As a result of the foregoing, the Company had net income of $11.2 million
in the first twenty-six weeks of 1996, compared to $5.6 million in the first
twenty-six weeks of 1995, an increase of $5.6 million or 100.0%.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net sales were $158.2 million and $131.5 million in 1995 and 1994,
respectively, an increase of $26.7 million or 20.3%. The increase in net sales
was primarily due to higher sales of cigars. Cigar sales increased primarily
as a result of an increase in cigar unit volume, particularly in the premium
market, and, to a slightly lesser extent, a shift in sales mix to higher
priced cigars and price increases on certain cigar brands.
Gross profit was $63.8 million and $52.7 million in 1995 and 1994,
respectively, an increase of $11.1 million or 21.2%. The increase in gross
profit for 1995 was due to the increase in sales, partially offset by
increases in the costs of raw materials. As a percentage of net sales, gross
profit increased to 40.3% in 1995 from 40.1% in 1994, primarily due to fixed
manufacturing costs spread over increased net sales.
SG&A expenses were $32.4 million and $29.4 million in 1995 and 1994,
respectively, an increase of $3.0 million or 10.1%, primarily due to increased
marketing and selling expenses. As a percentage of net sales, SG&A expenses
decreased to 20.4% in 1995 from 22.4% in 1994. The decrease was primarily due
to SG&A expenses increasing at a lower rate relative to the increase in net
sales.
Operating income was $31.4 million and $23.3 million in 1995 and 1994,
respectively, an increase of $8.1 million or 35.1%. As a percentage of net
sales, operating income increased to 19.9% in 1995 from 17.7% in 1994,
primarily due to higher gross profit margins and a decrease in SG&A expenses
as a percentage of net sales.
Interest expense, net, was $12.6 million and $12.8 million in 1995 and
1994, respectively. The decrease of $0.2 million was primarily due to a lower
amount of debt outstanding in 1995, partially offset by higher interest rates.
The provision for income taxes as a percentage of income before income
taxes was 20.5% and 20.6% in 1995 and 1994, respectively. Income tax expense
in 1995 and 1994 reflects provisions for federal income taxes, net of the tax
benefit resulting from the utilization of net operating loss carryforwards,
along with state income and franchise taxes. In addition, income tax expense
includes a provision for Puerto Rico tollgate taxes and taxes on Puerto Rico
source income.
As a result of the foregoing, the Company had net income of $13.9 million
in 1995, compared to $7.7 million in 1994, an increase of $6.2 million or
81.3%.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO COMBINED TEN MONTHS ENDED
DECEMBER 31, 1993 AND TWO MONTHS ENDED MARCH 2, 1993
Net sales were $131.5 million and $125.9 million in 1994 and 1993,
respectively, an increase of $5.6 million or 4.4%. The increase in net sales
was primarily due to an increase in cigar sales partially offset by a decrease
in specialty product sales.
Gross profit was $52.7 million and $47.0 million in 1994 and 1993,
respectively, an increase of $5.7 million or 12.1%. The increase in gross
profit for 1994 was primarily due to a decrease of $3.0 million in the
amortization of the Acquisition purchase price allocated to inventory and also
to the increase in sales. As a percentage of net sales, gross profit increased
to 40.1% in 1994 from 37.3% in 1993.
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SG&A expenses were $29.4 million and $29.5 million in 1994 and 1993,
respectively, a decrease of $0.1 million or 0.4%. As a percentage of net
sales, SG&A expenses decreased to 22.4% in 1994 from 23.4% in 1993. The
decrease was primarily due to SG&A expenses increasing at a lower rate
relative to the increase in net sales.
Operating income was $23.3 million and $17.5 million in 1994 and 1993,
respectively, an increase of $5.8 million or 33.3%. As a percentage of net
sales, operating income increased to 17.7% in 1994 from 13.9% in 1993,
primarily due to higher gross profit margins and a decrease in SG&A expenses
as a percentage of net sales.
Interest expense, net, was $12.8 million and $12.6 million in 1994 and
1993, respectively, an increase of $0.2 million or 2.0%. The increase was
primarily due to increased interest expense resulting from the debt incurred
to finance the Acquisition.
The provision for income taxes as a percentage of income before income
taxes was 20.6% and 32.6% in 1994 and 1993, respectively. The decrease in the
effective rate was primarily due to the realization of a valuation allowance
related to deferred tax assets. Income tax expense in 1994 reflects provisions
for federal income taxes, net of the tax benefit resulting from the
utilization of net operating loss carryforward. In addition, income tax
expense in 1994 and 1993 reflects provisions for state income and franchise
taxes, Puerto Rico tollgate taxes as well as taxes on Puerto Rico source
income.
As a result of the foregoing, the Company had net income of $7.7 million in
1994, compared to $2.8 million in 1993, an increase of $4.9 million or 174.2%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities were $19.8 million, $14.3 million
and $12.3 million for 1995, 1994 and 1993, respectively, and $10.7 million and
$6.3 million for the first twenty-six weeks of 1996 and 1995, respectively.
The increase of $4.4 million from the first twenty-six weeks of 1995 to the
first twenty-six weeks of 1996 was primarily due to an increase in net income
partially offset by increased working capital requirements. The increase of
$5.5 million from 1994 to 1995 was due primarily to the increase in net income
for 1995. The increase of $2.0 million from 1993 to 1994 was due primarily to
the increase in net income and the decrease in working capital during 1994.
Cash flows used in investing in 1995 and 1993 and the first twenty-six
weeks of 1996 and 1995 are primarily related to capital expenditures. In 1994,
however, cash was provided by investing activities as a result of the sale of
a building in Puerto Rico for $5.8 million. Capital expenditures were $1.0
million, $0.8 million and $1.0 million for the years ended December 31, 1995,
1994 and 1993, respectively, and $3.2 million and $0.4 million in the first
twenty-six weeks of 1996 and 1995, respectively. The capital expenditures in
1993, 1994, and 1995 and the first twenty-six weeks of 1995 relate primarily
to investments in cigar manufacturing equipment and are part of the continual
maintenance and upgrading of the Company's manufacturing facilities. The
capital expenditures in the first twenty-six weeks of 1996 primarily relate to
investments in the Company's manufacturing facilities to meet the increased
demand for the Company's premium cigars. The Company's premium cigar
backorders have increased to approximately 12.0 million cigars at June 29,
1996 from 4.3 million cigars at December 31, 1995. To increase production to
meet the increased demand, the Company is expanding its existing manufacturing
facilities in the Dominican Republic and Honduras and is constructing, as part
of a joint venture, new facilities in Jamaica. The Company currently expects
that its facility expansion projects in the Dominican Republic and Honduras
and the construction project in Jamaica will be completed by the end of 1996.
Capital expenditures for the remainder of 1996 are expected to be
approximately $1.9 million. For the first twenty-six weeks of 1996, $0.5
million of cash flows was also invested, as part of an equity investment, in
the Jamaica joint venture.
Cash flows used for financing activities in 1995, 1994 and 1993 were $19.4
million, $18.8 million and $14.2 million, respectively. Cash flows used for
financing activities in the first twenty-six weeks of 1996 and 1995 were $7.3
million and $6.1 million, respectively. In each period, such cash flows were
used to make net repayments of borrowings, primarily under a credit agreement
and in 1996 and 1995 to pay dividends of $7.2 million and $5.0 million,
respectively.
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In 1993 and 1994, Consolidated Cigar entered into two five-year interest
rate swap agreements in an aggregate notional amount of $85.0 million. Under
the terms of the agreements, Consolidated Cigar receives a fixed interest rate
averaging approximately 5.8% and pays a variable interest rate equal to the
six-month London interbank offered rate (LIBOR). Consolidated Cigar entered
into such agreements to take advantage of the differential between long-term
and short-term interest rates and effectively converted the interest rate on
$85.0 million of fixed-rate indebtedness under the Senior Subordinated Notes
to a variable rate. Had Consolidated Cigar terminated these agreements, which
the Company considers to be held for other than trading purposes, on July 17,
1996, the Company would have realized a combined loss of approximately $2.1
million. Future positive or negative cash flows associated with these
agreements will depend upon the trend of short-term interest rates during the
remaining life of the agreements. In the event of non-performance of the
counterparties at anytime during the remaining lives of these agreements,
which expire at December 1998 and January 1999, the Company could lose some or
all of any future positive cash flows. However, the Company does not
anticipate non-performance by such counterparties. The Company does not
currently anticipate terminating these agreements; however, the Company will
from time to time continue to review its financing alternatives with respect
to its fixed and floating rate debt.
The Company intends to fund working capital requirements, capital
expenditures and debt service requirements for the foreseeable future through
cash flows from operations and borrowings under the Credit Agreement. The
Company is dependent on the earnings and cash flows of, and dividends and
distributions from, Consolidated Cigar to pay its expenses and meet its
obligations, including principal payments on the Promissory Note, and to pay
any cash dividends or distributions on the Common Stock that may be authorized
by the Board of Directors of the Company. There can be no assurance that
Consolidated Cigar will generate sufficient earnings and cash flows to pay
dividends or distribute funds to the Company to enable the Company to pay its
expenses and meet its obligations, including principal payments on the
Promissory Note, or that applicable state law and contractual restrictions,
including negative covenants contained in the debt instruments of the
Company's subsidiaries, including Consolidated Cigar, then in effect, will
permit such dividends or distributions. The terms of each of the Credit
Agreement and the Senior Subordinated Notes currently restrict Consolidated
Cigar from paying dividends or making distributions to the Company, each
subject to certain limited exceptions. See "Risk Factors--Restrictions Imposed
by the Terms of the Company's Indebtedness; Consequences of Failure to
Comply."
The Credit Agreement consists of a $60.0 million reducing revolving credit
facility (the "Revolving Credit Facility") and a $20.0 million working capital
facility (the "Working Capital Facility"). The Revolving Credit Facility and
the Working Capital Facility have final maturities on April 3, 1999. The
Revolving Credit Facility is subject to quarterly commitment reductions of
$2.5 million during each year of the term of such facility. The Credit
Agreement is secured by first priority liens on all of the material assets of
Consolidated Cigar and its domestic subsidiaries and pledges of the capital
stock of all of Consolidated Cigar's subsidiaries (with certain exceptions for
the capital stock of foreign subsidiaries). The Credit Agreement is guaranteed
by the Company, and by all of the domestic subsidiaries of Consolidated Cigar.
The guarantee by the Company is, and following consummation of the Offerings
will continue to be, secured by a pledge of all of the shares of common stock
of Consolidated Cigar owned by the Company. The Credit Agreement also contains
various restrictive covenants including, among other things, limitations on
the ability of Consolidated Cigar and its subsidiaries to incur debt, create
liens, pay dividends, sell assets and make investments, acquisitions and
capital expenditures. In addition, the Credit Agreement requires Consolidated
Cigar to maintain specified financial ratios and satisfy certain tests,
including maximum leverage ratios and minimum interest coverage ratios. The
Credit Agreement also contains customary events of default. Consolidated Cigar
recently entered into an amendment to the Credit Agreement, which, among other
things, permits Consolidated Cigar to pay a cash dividend to the Company in
the amount of $5.6 million and to pay dividends and make distributions on
terms substantially similar to those contained in the Senior Subordinated
Notes Indenture. See "Description of Certain Indebtedness--Senior Subordinated
Notes." As of June 29, 1996, there was approximately $17.4 million unused and
available under the Credit Agreement, after taking into account approximately
$1.0 million utilized to support letters of credit. Simultaneously with or
prior to consummation of the Offerings, the Company intends to pay to Mafco
Consolidated Group a cash dividend of approximately $5.6 million funded by
borrowings under the Credit Agreement. As of June 29, 1996, after giving
effect to the borrowings under the Credit Agreement to fund such dividend,
there would have been approximately $11.8 million available under the Credit
Agreement. See "Description of Certain Indebtedness--Credit Agreement." The
Senior Subordinated Notes Indenture contains covenants that, among other
things, limit the issuance of
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<PAGE>
additional debt and redeemable stock by Consolidated Cigar, the issuance of
debt and preferred stock by Consolidated Cigar's subsidiaries, the payment of
dividends on and redemption of capital stock of Consolidated Cigar and its
subsidiaries and the redemption of certain subordinated obligations of
Consolidated Cigar, the sale of assets and stock of Consolidated Cigar's
subsidiaries, transactions with affiliates and consolidations, mergers and
transfers of all or substantially all of Consolidated Cigar's assets. The
Senior Subordinated Notes Indenture also prohibits certain restrictions on
distributions from subsidiaries of Consolidated Cigar and contains customary
events of default. See "Description of Certain Indebtedness--Senior
Subordinated Notes."
Simultaneously with or prior to consummation of the Offerings, the Company
intends to issue the Promissory Note in an original principal amount of $70.0
million to Mafco Consolidated Group. The Promissory Note is expected to be
noninterest bearing, unsecured, subordinated to senior indebtedness (as
defined in the Promissory Note) and repayable in whole or in part at any time
or from time to time without premium or penalty. The Promissory Note is
payable in quarterly installments of $2.5 million, beginning March 31, 1997
with the final installment payable on December 31, 2003. The failure by the
Company to make any payment on the Promissory Note when due and the failure by
the Company to cure such non-payment during the 60-day period following such
due date would result in an event of default thereunder, and Mafco
Consolidated Group could declare all remaining amounts outstanding under the
Promissory Note to be immediately due and payable. See "Description of Certain
Indebtedness--Promissory Note."
INFLATION
The Company has historically been able to pass inflationary increases for
raw materials and other costs onto its customers through price increases and
anticipates that it will be able to do so in the future.
TAXATION AND REGULATION
EXCISE TAXES
Cigars and pipe tobacco have long been subject to federal, state and local
excise taxes, and such taxes have frequently been increased or proposed to be
increased, in some cases significantly, to fund various legislative
initiatives. In particular, there have been proposals by the federal
government in the past to reform health care through a national program to be
funded principally through increases in federal excise taxes on tobacco
products. Enactment of significant increases in or new federal, state or local
excise taxes would result in decreased unit sales of cigars and pipe tobacco,
which would have a material adverse effect on the Company's business. See
"Business--The Tobacco Industry--Excise Taxes."
POSSESSIONS TAX CREDIT
Prior to December 31, 1993, income earned by the Company from its Puerto
Rico operations was generally exempt from United States federal income tax.
Section 936 of the Code allows a "possessions tax credit" against United
States federal income tax for the amount of United States federal income tax
attributable to the Puerto Rico taxable earnings. As part of OBRA 93, the
possessions tax credit has been limited based upon a percentage of qualified
wages in Puerto Rico, plus certain amounts of depreciation. The Company
believes that it qualified for the possessions tax credit during 1995, 1994
and 1993. The Company expects that it will continue to qualify for the
possessions tax credit in such amounts to offset the majority of any United
States federal income tax related thereto, but eligibility and the amounts of
the credit will depend on the facts and circumstances of the Company's Puerto
Rico operations during each of the taxable years subsequent to 1995. Failure
to receive the Section 936 exemption or possessions tax credit attributable to
the Company's Puerto Rico operations would have a material adverse effect on
the Company.
On August 2, 1996, Congress passed the SBJPA Bill, which, if enacted into
law, would repeal Section 936 of the Code. Under the SBJPA Bill, the Section
936 "possessions tax credit" would be repealed, subject to special grandfather
rules for which the Company would be eligible, provided that the Company does
not add a "substantial new line of business." Under the grandfather rules, for
the Company's taxable years beginning after December 31, 2001 and before
January 1, 2006, the Company's business income from its Puerto Rico operations
eligible for the possessions tax credit would, in addition to the Current
Limitation, generally be limited to its average annual income from its Puerto
Rico operations, adjusted for inflation, computed during the Company's five
most recent taxable years ending before October 14, 1995 and excluding the
highest and lowest years. For taxable years after December 31, 2005, the
possessions tax credit would be eliminated. The repeal of Section 936 in
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<PAGE>
the manner described above could have a material adverse effect on the Company
for taxable years beginning after December 31, 2001 and before January 1,
2006, to the extent that the Company's annual income from its Puerto Rico
operations exceeds its average annual income from its Puerto Rico operations
(as computed in the manner described in the preceding sentence), and for
taxable years after December 31, 2005. See "Risk Factors--Substantial Effects
of Failure to Receive Possessions Tax Credit."
PUERTO RICO TAX EXEMPTION
Pursuant to a grant of industrial tax exemption which expires in 2002,
income earned by CIC from the manufacture of cigars in Puerto Rico enjoys a
90% income tax exemption from Puerto Rican income taxes. The remaining 10% of
such income is taxed at a maximum surtax rate of 45%, resulting in an
effective income tax rate for such income of approximately 4.5% under current
tax rates. Funds repatriated to the Company are subject to a maximum Puerto
Rican tollgate tax of 10%. Legislation enacted in Puerto Rico in 1993 included
a provision for prepaying a portion of these tollgate taxes effective for the
1993 fiscal year and subsequent periods. There can be no assurance that the
Puerto Rico tax exemption will not be limited or eliminated in the future. Any
significant limitation on or elimination of the Puerto Rico tax exemption
would have a material adverse effect on the Company. See Note I of the Notes
to Consolidated Financial Statements of the Company included elsewhere in this
Prospectus.
REGULATION
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation in the United States at the federal, state and local levels. The
recent trend is toward increasing regulation of the tobacco industry. There
can be no assurance as to the ultimate content, timing or effect of any
additional regulation of tobacco products by any federal, state, local or
regulatory body, and there can be no assurance that any such legislation or
regulation would not have a material adverse effect on the Company's business.
See "Business--The Tobacco Industry--Regulation."
SEASONALITY
The Company's business is generally non-seasonal. However, slight increases
in cigar unit volume are experienced prior to Father's Day and the Christmas
season.
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BUSINESS
GENERAL
The Company is the largest manufacturer and marketer of cigars sold in the
United States in terms of dollar sales, with a 1995 market share of
approximately 23% according to the Company's estimates. The Company markets
its cigar products under a number of well-known brand names at all price
levels and in all segments of the growing cigar market, including premium
large cigars, mass market large cigars and mass market little cigars. The
Company attributes its leading market position to the following competitive
strengths: (i) well-known brand names, many of which are the leading brands in
their category; (ii) broad range of product offerings within both the premium
and mass market segments of the United States cigar market; (iii) commitment
to and reputation for manufacturing quality cigars; (iv) marketing expertise
and close attention to customer service; (v) efficient manufacturing
operations; and (vi) an experienced management team. The Company is also a
leading producer of pipe tobacco and is the largest supplier of private label
and branded generic pipe tobacco to mass market retailers. In addition, the
Company distributes a variety of pipe and cigar smokers' accessories.
The Company's cigars and pipe tobacco products are marketed under a number
of well-known brand names. The Company's premium cigars include the H. UPMANN,
MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY
and MONTECRUZ brands. The Company's mass market large cigars include the
ANTONIO Y CLEOPATRA (also known as AYC), DUTCH MASTERS, EL PRODUCTO, MURIEL,
BACKWOODS, SUPER VALUE and SUPRE SWEETS brands. The Company's mass market
little cigars include the DUTCH TREATS, SUPER VALUE and SUPRE SWEETS brands.
The Company's pipe tobacco products include the MIXTURE NO. 79 and CHINA BLACK
brands.
The Company's financial results reflect the strength of the cigar industry
and the Company's leadership position in that industry. In 1995, the Company
had net sales of $158.2 million, operating income of $31.4 million, and net
income of $13.9 million, representing increases of 20.3%, 35.1%, and 81.3%,
respectively, from 1994 results. For the first twenty-six weeks of 1996, the
Company had net sales of $92.2 million, operating income of $21.2 million, and
net income of $11.2 million, representing increases of 29.0%, 51.6%, and
100.0%, respectively, from the first twenty-six weeks of 1995. Further,
because of the high demand for the Company's cigars, especially its premium
cigars, the Company's backorders increased from 3.2 million cigars at December
31, 1994 to 4.3 million cigars at December 31, 1995, and further increased to
12.0 million cigars at June 29, 1996.
BUSINESS STRATEGY
The Company believes that its competitive strengths, together with the
following initiatives, will enable the Company to accelerate its growth,
increase its profitability, and enhance its market share:
CAPITALIZE ON GROWTH OPPORTUNITIES IN THE PREMIUM CIGAR SEGMENT
The Company intends to capitalize on the rapidly growing premium cigar
market by (i) increasing the Company's production capabilities through its
planned expansion of its existing facilities in the Dominican Republic and
Honduras and the construction of new facilities in Jamaica, (ii) improving the
market's awareness and recognition of its premium cigars through targeted
marketing programs and (iii) expanding its premium cigar product offerings
through the introduction of new super-premium cigars, such as H. UPMANN
CHAIRMAN'S RESERVE and PLAYBOY by DON DIEGO, and the extension of its existing
brands.
INCREASE PREMIUM CIGAR PRODUCTION. To increase production to meet existing
and expected growth in demand for its premium cigars, the Company is (i)
adding workers for second shifts at its manufacturing facilities in the
Dominican Republic, (ii) actively hiring experienced, skilled rollers and
bunchers, as well as training new rollers and bunchers, (iii) expanding its
manufacturing facilities in the Dominican Republic and Honduras and building
new manufacturing facilities in Jamaica, (iv) evaluating joint venture
opportunities in countries where it may be advantageous to produce premium
cigars and (v) continuing to improve manufacturing efficiencies.
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IMPROVE BRAND AWARENESS AND RECOGNITION. In order to further strengthen and
broaden the brand recognition of its premium cigars and to support new product
introductions, the Company is increasing its marketing and advertising
expenditures for its premium cigar products. This advertising is designed to
enhance the Company's image and to promote specific brands.
EXPAND PREMIUM CIGAR BRANDS. As part of its strategy to capitalize on the
significant growth in the premium cigar market and the increased demand for
its premium cigars, the Company plans to continue to introduce new
super-premium cigars. Recently, the Company introduced two super-premium
cigars, H. UPMANN CHAIRMAN'S RESERVE and PLAYBOY by DON DIEGO. In addition,
the Company plans to introduce, in December 1996, a limited edition,
collectible "Leroy Neiman Selection" cigar box featuring a reproduction of an
original painting by Mr. Neiman. The Company intends to extend its premium
cigar lines, including the MONTECRISTO and SANTA DAMIANA brands, through the
introduction of new sizes, shapes, packaging and other new features. As a
result of increased demand for cigars by women, the Company plans to introduce
into various of the Company's brands cigar shapes designed specifically for
women. The Company believes that such introductions and extensions will enable
it to increase sales by shifting its premium cigar mix to more expensive
cigars.
EXPAND MASS MARKET CIGAR AND PIPE PRODUCTS BUSINESSES
The Company will seek to expand further its mass market cigar business and
pipe tobacco products business by continuing to capitalize on its well-known
brand names and introducing new products that extend the Company's existing
product lines. The Company plans to expand its ANTONIO Y CLEOPATRA line by
introducing CHURCHILL MADURO, a full size machine made, natural wrapper cigar
with a band placed on each cigar resembling those on hand made cigars. In
addition, the Company intends to introduce new flavors, sizes, packaging and
other new features and improvements to its existing mass market cigar and pipe
tobacco products. Since 1989, the Company has introduced new cigar brands that
include DUTCH MASTERS COLLECTION, SUPRE SWEETS and RUSTLERS to the mass market
and extended its existing brands with new cigar products that included ANTONIO
Y CLEOPATRA MINIS, WHIFFS, CONNECTICUT SHADE WRAPPER and BACKWOODS SWEET
AROMATIC. The Company has also introduced new pipe tobacco products that
include MURIEL PIPE TOBACCO and BLACK'N NATURAL.
BROADEN MASS MARKET CIGAR DISTRIBUTION CHANNELS
As a result of its existing relationships with mass market retailers, the
Company is well-positioned to take advantage of the increase in consumer
demand for mass market cigars sold through that channel of distribution. The
Company distributes certain of its cigar and pipe tobacco products to, and
develops new private label brands for, mass market retailers, such as WONDER
BLEND for Kmart and other such products for Wal-Mart, Eckerd Drug stores, CVS
stores, Thrifty Drug Stores and numerous other retail chains. The Company
intends to broaden its existing relationships and actively develop new
relationships with other mass market retailers and is pursuing opportunities
in other distribution channels, including actively marketing its mass market
cigars to convenience stores to take advantage of the increase in consumer
demand for mass market cigars at such locations.
IMPROVE MANUFACTURING PROCESSES AND RAW MATERIAL PROCUREMENT
The Company continually seeks ways to improve further the efficiency of its
manufacturing operations in order to ensure quality and realize cost savings.
To ensure the quality of its raw materials while also maximizing cost savings,
the Company will (i) continue to develop long-term relationships with tobacco
suppliers, (ii) expand its commercial and technical ties with local growers,
(iii) obtain its tobacco raw materials from a variety of suppliers and growers
and (iv) take advantage of its large purchasing requirements to negotiate
favorable terms from suppliers.
PURSUE SELECTIVELY STRATEGIC ACQUISITIONS
The Company intends to pursue selectively strategic acquisitions in the
cigar and pipe tobacco products industry to expand its market share and
product lines and benefit from synergies. However, the
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Company's ability to acquire additional tobacco businesses and brands is
limited by, among other things, a dwindling number of potential acquisition
candidates resulting from the consolidation in the tobacco industry as well as
other economic, regulatory and industry factors. The Company also intends to
pursue joint venture opportunities to enhance its overall cigar and pipe
tobacco businesses.
MARKET OVERVIEW
In recent years, cigar smoking has gained popularity in the United States,
resulting in a significant increase in consumption and retail sales of cigars,
particularly for premium cigars. Management believes that this increase in
cigar consumption and retail sales is the result of a number of factors,
including: (i) the increase in the number of adults over the age of 50 (a
demographic group believed to smoke more cigars than any other demographic
segment) and (ii) the emergence of an expanding base of younger affluent
adults who have recently started smoking cigars and who tend to smoke premium
cigars. The Company believes the increase in cigar smoking is in large part
attributable to a positive and improving image of cigar smoking resulting from
increased publicity, including the success of Cigar Aficionado magazine, the
increased visibility of use by celebrities and the proliferation of "Cigar
Smokers" dinners and other special events for cigar smokers.
Consumption of cigars is currently increasing following a decline in
consumption at a compound annual rate of 3.6% from 1964 to 1993. Consumption
of cigars increased to 4.0 billion units in 1995 from 3.4 billion units in
1993, with substantial growth in premium cigars. Consumption of premium cigars
increased at a compound annual unit growth rate of 2.4% from 1976 to 1991, at
a compound annual unit growth rate of 8.9% from 1991 to 1994 and at a unit
growth rate of 30.6% from 1994 to 163.9 million units in 1995. Growth in the
premium segment has continued to accelerate in 1996. The mass market segment
of the industry has also experienced increased consumption with a compound
annual unit growth rate of 7.2% from 1993 to 3.8 billion units in 1995. Retail
sales of cigars, which generally declined from 1964 to 1987 and grew modestly
from 1987 to 1993, experienced significant growth from 1993 to 1995 with
retail sales of cigars outpacing unit growth since 1991. This growth in retail
sales of cigars was primarily the result of a combination of increased prices
and a shift in the sales mix to more expensive cigars. Total retail sales have
increased at a compound annual growth rate of 9.3% from 1991 to $1.0 billion
in 1995, while the corresponding compound annual unit growth rate was only
3.6%. There can be no assurance that unit consumption and retail sales of
cigars will continue to increase in the future. See "Risk Factors--Declining
Market for Cigars through 1993" and "--Extensive and Increasing Regulation of
Tobacco Products."
The following table illustrates the trends in unit consumption and retail
sales experienced by the premium and mass market segments of the U.S. cigar
industry from 1991 to 1995.
U.S. CIGAR INDUSTRY(A)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Unit Consumption:
Premium(b) ...... 97.2 98.9 109.6 125.5 163.9
Mass market ..... 3,433.3 3,419.2 3,313.8 3,592.6 3,806.4
--------- --------- --------- --------- ---------
Total .......... 3,530.5 3,518.1 3,423.4 3,718.1 3,970.3
========= ========= ========= ========= =========
Retail Sales ..... $ 705.0 $ 715.0 $ 730.0 $ 860.0 $ 1,005.0
========= ========= ========= ========= =========
</TABLE>
- ------------
(a) Source: Cigar Association of America, Inc. ("CAA").
(b) CAA's premium cigar data includes cigars imported from seven leading
supplier countries and does not include any premium cigars produced in
other countries, including the United States. CAA includes such U.S.
premium cigar production, which approximated 5.0 million units in 1995, in
mass market cigar data.
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PRODUCTS
MASS MARKET CIGARS
Mass market cigars are machine made and generally have a retail price point
of $1.00 or less per cigar. Mass market cigars use less expensive tobacco than
premium cigars. The Company uses a variety of techniques and grades of tobacco
to produce mass market cigars which compete at all the price points in the
mass cigar market. Mass market cigars include large cigars (weighing three
pounds per 1,000 cigars or more) and little cigars (weighing less than three
pounds per 1,000 cigars).
Mass market large cigars generally consist of "filler" tobacco that is
wrapped first with a "binder" and then with a "wrapper." The more expensive
mass market large cigars combine natural leaf wrapper and man-made binder made
from tobacco ingredients instead of natural binder, with filler threshed into
short, uniform pieces. In less expensive mass market large cigars, man-made
wrapper made primarily from tobacco ingredients replaces natural tobacco leaf.
The Company adds flavors and/or plastic tips to certain of its popularly
priced mass market large cigars. The Company's major mass market brands in the
middle price range include ANTONIO Y CLEOPATRA, DUTCH MASTERS, EL PRODUCTO,
BACKWOODS, SUPER VALUE and SUPRE SWEETS. The Company's MURIEL brand is in the
less expensive range.
Little cigars consist of filler tobacco wrapped only by a wrapper with a
filter tip. Little cigars are made on a high-speed machine with man-made
wrapper made from tobacco ingredients and no binder. Little cigars are
flavored and produced with a filter. Generally, little cigars are the lowest
priced segment of the mass market category. The Company's little cigar brands
include DUTCH TREATS, SUPER VALUE and SUPRE SWEETS.
The Company manufactures its own cigar boxes and man-made wrapper, filler
and binder and little cigar filters.
PREMIUM CIGARS
Premium cigars are generally hand made and primarily sell at retail price
points above $1.00 per cigar. The Company's premium cigars are primarily
long-filler, large cigars that have high quality natural leaf wrappers and
binders. The Company uses tobaccos of the best grades for its premium cigars.
Such tobaccos are combined according to brand-specified formulas to create the
filler of each cigar. In order to make hand made cigars, binder tobacco is
hand-wrapped around filler to create the "bunch" which is placed into a mold.
Then, "wrapper" tobacco is hand-wrapped around the bunch, creating a premium
cigar. In the Company's premium cigars, the wrapper, binder and filler are
natural tobacco leaf.
The Company's premium cigars include the well-known H. UPMANN, MONTECRISTO,
DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY and MONTECRUZ
brands as well as other recognized brand names. The Company's premium cigars
are manufactured in its Dominican Republic and Honduras facilities, except for
TE-AMO, which is manufactured in Mexico and purchased from a third party.
PIPE TOBACCO AND ACCESSORIES
In addition to its cigars, the Company manufactures pipe tobaccos for sale
under its own brand names, such as MIXTURE NO. 79 and CHINA BLACK, and for
sale in bulk to tobacconists, as well as private label brands for chain stores
and wholesale distributors. The Company also distributes smokers' accessories,
such as lighters, tobacco pouches, pipe cleaners and cigar cutters.
The Company uses tobaccos of various types, grades, countries of origin and
crop years for its pipe tobacco, which are moisturized with steam and then
blended according to specific formulas ("primary blends"). The primary blends
are "cased" (sprayed or dipped) in liquids containing water, humectant,
sugars, licorice, cocoa, fruit juices or other flavorings in order to keep the
tobacco in pliable condition and to enhance its aroma and taste. The cased
tobaccos are cut and dried and then held in bins to allow the casing and
moisture to be distributed uniformly throughout the tobacco. Thereafter, the
tobacco blends are flavored with natural and artificial flavors, herbs or
spices, and blends are held for a short period of time prior to packaging into
pouches, bags, cans or other selling containers.
32
<PAGE>
SPECIALTY AND OTHER PRODUCTS
The Company's other products include various tobacco and non-tobacco
related products manufactured by the Company in order to utilize excess
manufacturing capacity at certain of its facilities and improve overall
efficiency. See "Certain Relationships and Related Transactions--Specialty
Products Division."
BACKORDERS
The increased demand for cigars, especially premium cigars, has caused the
Company's back orders of premium cigars to increase from 3.2 million cigars at
December 31, 1994 to 4.3 million cigars at December 31, 1995, and to further
increase to 12.0 million cigars at June 29, 1996. The Company's ability to
increase its production of premium cigars and decrease its backorders is
constrained by a shortage of experienced skilled laborers. Although the
Company is hiring and training new rollers and bunchers, the training process
averages up to one year and not all trainees are able to successfully complete
the Company's training program. The Company is also building additional plant
capacity to meet future growth in demand for its premium cigars. Although the
Company believes that these measures will enable it to increase its production
of premium cigars and that the backorders outstanding at June 29, 1996, which
approximated 12.0 million cigars, will be filled during the second half of
1996, there can be no assurance that the Company will be able to meet any
future level of demand for its premium cigars. There can be no assurance,
however, that demand for the Company's premium cigars will continue to grow in
the future.
The Company's ability to manufacture premium and mass market cigars may
also be constrained by the ability of tobacco growers and suppliers to meet
the Company's demands for its raw materials in a timely manner. Tobacco, as a
crop that is harvested annually, restricts the ability of tobacco growers to
adjust acreage grown in any given year to meet changes in market demands. In
addition, increases in acreage of tobacco grown requires significant capital,
which growers may be unable or unwilling to invest. If the rate of escalation
in consumption of cigars and other tobacco products continues, but the supply
of tobacco remains constant or increases at a lower rate than demand, the
Company's ability to increase its production of cigars, and thereby reduce its
backorders, could be inhibited.
SALES AND MARKETING
The Company sells its cigar and pipe tobacco products throughout the United
States to over 2,500 customers, consisting of wholesale distributors, direct
buying chains, including drug store chains and mass market retailers, and
tobacconists. The Company employs a full-time in-house sales organization to
develop and service its sales to wholesalers, distributors, direct buying
chains and tobacconists. The Company's sales force is organized into two sales
units: a mass market division and a premium division. The Company believes
that the organization of its sales force into two divisions positions it to
maintain a high degree of focus on each of its principal product categories.
The mass market sales force calls on distributors and retail and chain store
accounts, including Kmart, Wal-Mart, Eckerd Drug Stores, CVS stores and
Thrifty Drug Stores, across the United States. Approximately 89% of the
Company's mass market cigar products are sold through wholesale distributors
while approximately 11% are sold to direct buying chains or independent
retailers that warehouse for themselves. The premium cigar sales force calls
directly on tobacconists and distributors. The Company's sales force operates
regionally and locally from home and car, maintaining close familiarity with
local customers. Most salesmen maintain a small stock of inventory which is
used primarily to replace local distributors' old or damaged products and to
display new product introductions or promotions.
The Company supplies cigar merchandising fixtures to retailers at no cost
and believes that it is the primary supplier of such fixtures to the United
States retail trade. These fixtures help to maintain an attractive product
display and to increase shelf space available for the Company's products.
The Company advertises its mass market cigar products primarily through
coupons and other promotions distributed at point of sale and through direct
mail. The Company advertises its premium cigar products in magazines, such as
Cigar Aficionado, Playboy and The New York Times Sunday Magazine, as well as
in newspapers and on radio. In order to strengthen and broaden further the
brand
33
<PAGE>
recognition of its premium cigars and to maximize the business opportunities
created by the resurgence in popularity of and increased demand for premium
cigars, the Company has increased its marketing and advertising expenditures
in connection with its existing premium cigar brands. The increased
advertising and marketing expenditures are being used to support new product
introductions and increase awareness and recognition of the Company's premium
brands.
Sales of the Company's cigar products outside of the United States are
currently not material, although the Company has begun to strengthen its
presence in the international market for premium and mass market cigars,
particularly in Europe, the Middle East, Latin America and Asia, by increasing
management's focus on the Company's direct export business. The Company has
hired an experienced international marketing manager to concentrate on foreign
sales and promotions and currently has a total of 47 agents and distributors
in Europe, the Middle East, Latin America and Asia.
TRADEMARKS
Trademarks and brand name recognition are important to the Company's
business. The Company generally owns the trademarks under which its products
are sold. The Company has registered its trademarks in the United States and
many other countries and will continue to do so as new trademarks are
developed or acquired. The Company does not hold or own the right to use
certain of its well-known trademarks and brand names in certain foreign
markets. The Company's ability to expand into such markets by capitalizing on
the strength of its brand names in the United States may be limited by its
right to use or acquire such brand names in those foreign markets. Unless
otherwise indicated, the Company owns the trademarks listed below:
<TABLE>
<CAPTION>
MASS MARKET CIGAR TRADEMARKS
<S> <C>
Antonio y Cleopatra Headline
Backwoods La Corona
Ben Franklin Muriel
Dutch Masters Roi-Tan
Dutch Treats Super Value
El Producto Supre Sweets
Harvester Wonder Blend
PREMIUM CIGAR TRADEMARKS
Cabanas Montecruz
Don Diego Por Larranaga(a)
Don Marcos Primo Del Rey
Don Miguel Santa Damiana
Flor de Canarias Santa Ynez
H. Upmann(a) Super Value
Henry Clay Te-Amo
Las Cabrillas Wonder Blend
Malaguena
Montecristo(a)
PIPE TOBACCO TRADEMARKS
China Black Super Value
Dutch Masters Three Star Royal
Kriswill Wonder Blend
Mixture No. 79
</TABLE>
- -------------------
(a) Trademark is owned by Cuban Cigar Brands, N.V., a 51% owned subsidiary
of the Company.
While the Company does not believe that any single trademark is material to
the vitality of its business, it believes that its trademarks taken as a whole
are material to its business. Accordingly, the Company has taken, and will
continue to take, action to protect its interests in all such trademarks.
34
<PAGE>
RAW MATERIALS
The Company has developed and is developing long-term relationships with
tobacco suppliers and is expanding its commercial and technical ties with
local growers to secure a variety of sources for raw materials, ensure the
quality of its raw materials and maximize cost savings.
The Company buys tobacco directly from a large number of suppliers in
Brazil, Cameroon, the Central African Republic, Costa Rica, Germany, Italy,
the Dominican Republic, Paraguay, the Philippines, Indonesia, the United
States, Ecuador, Honduras, Mexico and other countries and does not believe
that it is dependent on any single source for tobacco. The Company has
recently experienced shortages in certain types of its natural wrapper and
premium cigar tobaccos due to the increase in demand for high quality natural
wrapped cigars. These shortages have caused the price of natural wrapper and
premium cigar tobaccos to increase. The shortages of the tobacco have not yet
impacted cigar manufacturing or the Company's profitability, but could if the
Company is unable to purchase additional quantities of certain tobaccos in the
future or is unable to pass increases for such raw materials onto its
customers. See "Risk Factors--Social, Political and Economic Risks Associated
with Foreign Operations and International Trade" and "--Backorders."
COMPETITION
The Company is the largest manufacturer and marketer of cigars in the
United States in terms of dollar sales and believes that it is the only
participant in the cigar industry that is a major competitor in all
subcategories of cigars at all price levels. The other three significant
competitors in the cigar market in terms of market share, in order of size,
are General Cigar Co. Inc., a division of Culbro Corporation,
Havatampa/Phillies Cigar Corporation, a privately held corporation, and
Swisher International, also a privately held corporation. In addition, Tobacco
Exporters International Limited (a subsidiary of Rothmans International) is a
significant competitor in the little cigar market. The Company believes that
its leading market position in the cigar industry is due to its strong,
well-known brand names, broad range of product offerings within both the mass
market and premium segments of the United States cigar market, commitment to
and reputation for manufacturing quality cigars, marketing expertise, close
attention to customer service, efficient manufacturing operations and an
experienced management team.
Through its Allied Tobacco Division in Richmond, Virginia, the Company
competes in all areas of the U.S. pipe tobacco business including branded,
private label and bulk tobacco. The Company believes it is the fourth largest
manufacturer in the U.S. of pipe tobacco, in terms of dollar sales, and its
largest competitors in order of size are Lane Limited, John Middleton Inc.
and UST Inc.
THE TOBACCO INDUSTRY
REGULATION
Cigar manufacturers, like other producers of tobacco products, are subject
to regulation in the United States at federal, state and local levels.
Together with changing public attitudes towards smoking, a constant expansion
of smoking regulations since the early 1970's has been a major cause of the
overall decline in consumption of tobacco products. Moreover, the trend is
toward increasing regulation of the tobacco industry.
Federal law has required health warnings on cigarettes since 1965 and has
recently required states, in order to receive full funding for federal
substance abuse block grants, to establish a minimum age of 18 years for the
sale of tobacco products together with an appropriate enforcement program. In
recent years, a variety of bills relating to tobacco issues have been
introduced in the Congress of the United States, including bills that would
have (i) prohibited the advertising and promotion of all tobacco products
and/or restricted or eliminated the deductibility of such advertising
expenses; (ii) increased labeling requirements on tobacco products to include,
among other things, addiction warnings and lists of additives and toxins;
(iii) modified federal preemption of state laws to allow state courts to hold
tobacco manufacturers liable under common law or state statutes; (iv) shifted
regulatory control of tobacco
35
<PAGE>
products and advertisements from the FTC to the FDA; (v) increased tobacco
excise taxes; and required tobacco companies to pay for health care costs
incurred by the federal government in connection with tobacco related
diseases. Hearings have been held on certain of these proposals; however, to
date, none of such proposals have been passed by Congress. Future enactment of
such proposals or similar bills may have an adverse effect on the sales or
operations of the Company. In addition, various federal agencies, including
the FDA, have recently proposed to regulate the tobacco products industry. The
regulation of the tobacco industry by the FDA could have a material adverse
effect on the Company's business. As described more fully below, under the FDA
proposal the FDA would, among other things, regulate the marketing, promotion
and advertisement of certain tobacco products.
In addition, the majority of states restrict or prohibit smoking in certain
public places and restrict the sale of tobacco products to minors. Local
legislative and regulatory bodies have also increasingly moved to curtail
smoking by prohibiting smoking in certain buildings or areas or by requiring
designated "smoking" areas. In a few states, legislation has been introduced,
but has not yet passed, which would require all little cigars sold in those
states to be "fire-safe" (i.e., cigars which extinguish themselves if not
continuously smoked). Passage of this type of legislation could have a
material adverse effect on the Company's little cigar sales because of the
technological difficulties in complying with such legislation. There is
currently an effort by the U.S. Consumer Product Safety Commission to
establish such standards for cigarettes. The enabling legislation, as
originally proposed, included little cigars; however, little cigars were
deleted due to the lack of information on fires caused by these products.
Although federal law has required health warnings on cigarettes since 1965,
there is no federal law requiring that cigars or pipe tobacco carry such
warnings. However, California requires "clear and reasonable" warnings to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, known as Proposition 65, can result in a
civil penalty not to exceed $2,500 per day for each violation. Although
similar legislation has been introduced in other states, no action has been
taken.
During 1988, the Company and 25 manufacturers of tobacco products entered
into a settlement of legal proceedings filed against them pursuant to
Proposition 65. Under the terms of the settlement, the Company and such other
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with a specified warning label. To guarantee
compliance with the California requirements, to eliminate errors in
distribution and to maintain the efficiencies of the manufacturing process,
the Company and most of its competitors have begun using the label on all of
their tobacco products shipped to customers in all states, except for a few
premium cigar customers. Massachusetts recently enacted legislation requiring
manufacturers of cigarettes, chewing tobacco and snuff to provide the state
annually with a list of the additives (in descending order of weight) and the
nicotine yield ratings of each brand they produce, which information will,
subject to certain conditions, be made publicly available.
The U.S. Environmental Protection Agency (the "EPA") published a report in
January 1993 with respect to the respiratory health effects of passive
smoking, which concluded that widespread exposure to environmental tobacco
smoke presents a serious and substantial public health concern. In June 1993,
Philip Morris Companies Inc. and five other representatives of the tobacco
manufacturing and distribution industries filed suit against the EPA seeking a
declaration that the EPA does not have the statutory authority to regulate
environmental tobacco smoke, and that, in view of the available scientific
evidence and the EPA's failure to follow its own guidelines in making the
determination, the EPA's final risk assessment was arbitrary and capricious.
The court ruled in May 1995 that plaintiffs have standing to pursue this
action. Whatever the outcome of this litigation, issuance of the report, which
is based primarily on studies of passive cigarette smokers, may lead to
further legislation designed to protect non-smokers.
In February 1994, the FDA, in a letter to an anti-smoking group, claimed
that it may be possible for the FDA to regulate cigarettes under the drug
provisions of the Food, Drug, and Cosmetic Act (the "FDC Act"). The FDA's
claim is based upon allegations that manufacturers may intend that their
products contain nicotine to satisfy an alleged addiction on the part of some
of their customers. The letter indicated
36
<PAGE>
that regulation of cigarettes under the FDC Act could ultimately result in the
removal from the market of products containing nicotine at levels that cause
or satisfy addiction. In March 1994, the FDA began investigating whether
cigarettes should be regulated as a drug. In July 1995, the FDA announced that
it has concluded for the first time that nicotine is a drug that should be
regulated and proposed to regulate smokeless tobacco and cigarettes. The FDA
definition of cigarettes would include little cigars. Both the CAA and the
Bureau of Alcohol, Tobacco and Firearms oppose the inclusion of little cigars.
The FDA recently published a proposal to regulate tobacco products, including
the marketing, promotion and advertisement of such products. The initial
comment period on the proposal ran through January 2, 1996 with an additional
comment period ending on April 19, 1996. The FDA has indicated that it expects
to adopt a final rule during the summer of 1996. A number of tobacco companies
and other entities have filed legal proceedings challenging the FDA's
assertion of jurisdiction to regulate tobacco products. One tobacco company
has proposed, as an alternative to FDA regulation of tobacco products, a more
limited set of restrictions on cigarette sales and advertising aimed at
curbing youth smoking. The Company is unable to predict the effect on its
business and profitability in the event that the FDA proposal is adopted but,
if such proposal is adopted, it could have a material adverse effect on the
operations of the Company.
LITIGATION
Historically, the cigar industry has not experienced material
health-related litigation and, to date, the Company has not been the subject
of any material health-related litigation. However, the cigarette and
smokeless tobacco industries have experienced and are experiencing significant
health-related litigation involving tobacco and health issues.
Litigation against the cigarette industry has historically been brought by
individual cigarette smokers. In 1992, the United States Supreme Court in
Cippollone v. Liggett Group, Inc. ruled that federal legislation relating to
cigarette labeling requirements preempts claims based on failure to warn
consumers about the health hazards of cigarette smoking, but does not preempt
claims based on express warranty, misrepresentation, fraud or conspiracy. To
date, individual cigarette smokers' claims against the cigarette industry have
been generally unsuccessful; however, a jury in Florida recently determined
that a cigarette manufacturer was negligent in the production and sale of its
cigarettes and sold a product that was unreasonably dangerous and defective,
awarding the plaintiffs a total of $750,000 in damages. The verdict is
expected to be appealed.
Current tobacco litigation generally falls within one of three categories:
class actions, individual actions (which have been filed mainly in the State
of Florida), or actions brought by individual states generally to recover
Medicaid costs allegedly attributable to tobacco-related illnesses. The
pending actions allege a broad range of injuries resulting from the use of
tobacco products or exposure to tobacco smoke and seek various remedies,
including compensatory and, in some cases, punitive damages together with
certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. The major tobacco companies are vigorously
defending these actions, including by challenging the authority of state
attorney generals to bring Medicaid actions attributable to tobacco-related
illnesses and, in some states, bringing preemptive lawsuits to enjoin the
state attorney general from instituting litigation.
In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette
smokers. Notwithstanding the dismissal, new class actions asserting claims
similar to those in Castano have recently been filed in certain states. To
date, two pending class actions against major cigarette manufacturers have
been certified. The first case is limited to Florida citizens allegedly
injured by their addiction to cigarettes; the other is limited to flight
attendants allegedly injured through exposure to secondhand smoke.
There can be no assurance that there will not be an increase in
health-related litigation involving tobacco and health issues against the
cigarette industry or similar litigation in the future against cigar
37
<PAGE>
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's business.
EXCISE TAXES
Cigars and pipe tobacco have long been subject to federal, state and local
excise taxes, and such taxes have frequently been increased or proposed to be
increased, in some cases significantly, to fund various legislative
initiatives.
From 1977 until December 31, 1990, cigars were subject to a federal excise
tax of 8.5% of wholesale list price, capped at $20.00 per thousand cigars.
Effective January 1, 1991, the federal excise tax rate on large cigars
(weighing more than three pounds per thousand cigars) increased to 10.625%,
capped at $25.00 per thousand cigars, and increased to 12.75%, capped at
$30.00 per thousand cigars, effective January 1, 1993. However, the base on
which the federal excise tax is calculated was lowered effective January 1,
1991 to the manufacturer's selling price, net of the federal excise tax and
certain other exclusions. In addition, the federal excise tax on pipe tobacco
increased from $0.45 per pound to $0.5625 per pound effective January 1, 1991.
The excise tax on pipe tobacco increased effective January 1, 1993, to $0.675
per pound. The federal excise tax on little cigars (weighing less than three
pounds per thousand cigars) increased from $0.75 per thousand cigars to
$0.9375 per thousand cigars effective January 1, 1991. The excise tax on
little cigars increased to $1.125 per thousand cigars effective January 1,
1993. The increase in the federal excise tax rate in 1991 and again in 1993
did not have a material adverse effect on the Company's product sales.
In the past, there have been various proposals by the federal government to
fund legislative initiatives through increases in federal excise taxes on
tobacco products. In 1993, the Clinton Administration proposed a significant
increase in excise taxes on cigars, pipe tobacco, cigarettes and other tobacco
products to fund the Clinton Administration's health care reform program. The
Company believes that the volume of cigars and pipe tobacco sold would have
been dramatically reduced if excise taxes were enacted as originally proposed
as part of the Clinton Administration's health care reform program. Future
enactment of significant increases in excise taxes, such as those initially
proposed by the Clinton Administration or other proposals not linked
specifically to health care reform, would have a material adverse effect on
the business of the Company. The Company is unable to predict the likelihood
of the passage or the enactment of future increases in tobacco excise taxes.
Tobacco products are also subject to certain state and local taxes. Deficit
concerns at the state level continue to exert pressure to increase tobacco
taxes. Since 1964, the number of states that tax cigars has risen from six to
forty-one. Since 1988, the following eleven states have enacted excise taxes
on cigars, where no prior tax had been in effect: California, Connecticut, New
Jersey, New York, North Carolina, Ohio, South Dakota, Rhode Island, Illinois,
Missouri and Michigan. State excise taxes generally range from 2% to 75% of
the wholesale purchase price. In addition, the following nine states have
increased existing taxes on large cigars since 1988: Arizona, Arkansas, Idaho,
Iowa, Maine, New York, North Dakota, Vermont and Washington. The following
five states tax little cigars at the same rates as cigarettes: California,
Connecticut, Iowa, Oregon and Tennessee. Except for Tennessee, all of these
states have increased their cigarette taxes since 1988.
State cigar excise taxes are not subject to caps similar to the federal
cigar excise tax. From time to time, the imposition of state and local taxes
has had some impact on sales regionally. The enactment of new state excise
taxes and the increase in existing state excise taxes are likely to have an
adverse effect on regional sales as cigar consumption generally declines.
EMPLOYEES
The Company employs approximately 4,000 persons. The Company believes that
its relations with its employees are satisfactory. Union contracts, expiring
at various dates, cover salesmen in New York and hourly employees in McAdoo,
Pennsylvania and Richmond, Virginia. The McAdoo agreement with the Teamsters
Local 401 expires in December 1998 and the Richmond agreement with the
Warehouse Employees Local 322 expires in January 1999. The Company has
experienced no work stoppages in the last ten years.
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<PAGE>
PROPERTIES
As of June 29, 1996, the principal properties owned or leased by the
Company for use in its business included:
<TABLE>
<CAPTION>
APPROXIMATE
OWNED OR FLOOR SPACE
LOCATION PRINCIPAL USE LEASED (SQ. FT.)
- -------- ------------- ------ ---------
<S> <C> <C> <C>
Cayey, Puerto Rico Mass market cigar manufacturing Owned 280,000
Comerio, Puerto Rico Tobacco processing Owned 151,000
Danli, Honduras Premium cigar manufacturing Owned 25,000
Fort Lauderdale, Florida Administrative office Leased 19,000
La Romana, Dominican Republic Premium cigar manufacturing Leased 133,000
Maypen, Jamaica(a) Premium cigar manufacturing Owned 25,000
McAdoo, Pennsylvania Mass market cigar manufacturing and Owned 369,000
distribution
Richmond, Virginia Pipe tobacco manufacturing and Leased 90,000
premium cigar distribution
</TABLE>
- ------------
(a) Facility is under construction and is expected to be completed by the
end of 1996.
The Company believes that its existing and planned manufacturing
facilities and distribution centers are adequate for the current level of the
Company's operations. The Company believes that additional facilities, if
necessary, would be readily available on a timely basis on commercially
reasonable terms. Further, the Company believes that the leased space that
houses its existing manufacturing and distribution facilities is not unique
and could be readily replaced, if necessary, at the end of the terms of its
existing leases on commercially reasonable terms. The Company's leases have
expiration dates ranging from 1999 to 2000, many of which are renewable at the
option of the Company.
All of the principal properties owned by the Company are subject to first
priority liens granted in favor of the lenders under the Credit Agreement. See
"Description of Certain Indebtedness--Credit Agreement."
The Company has excess capacity in all of its cigar and pipe tobacco
plants. The Company's ability to take advantage of such excess capacity by
increasing shift operations and the production of premium and mass market
cigars may be limited by the availability of trained laborers and shortages in
the supply of tobacco. See "--Backorders."
The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.
LEGAL PROCEEDINGS
The Company is a party to lawsuits incidental to its business. The Company
believes that the outcome of such pending legal proceedings in the aggregate
will not have a material adverse effect on the Company's consolidated
financial position. The Company carries general liability insurance but has no
health hazard policy, which, to the best of the Company's knowledge, is
consistent with industry practice. There can be no assurance, however, that
the Company will not experience material health-related litigation in the
future.
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<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
THE COMPANY
The following table sets forth certain information (ages as of July 30,
1996) concerning the Directors and executive officers of the Company. All
Directors serve terms of one year or until the election of their respective
successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald O. Perelman ............... 53 Chairman of the Board of Directors and a Director
Howard Gittis .................... 62 Vice Chairman of the Board of Directors and a Director
Donald G. Drapkin ................ 48 Director
Theo W. Folz ..................... 52 President, Chief Executive Officer and a Director
Barry F. Schwartz ................ 47 Executive Vice President and General Counsel
Gary R. Ellis .................... 43 Senior Vice President, Chief Financial Officer and
Treasurer
James M. Parnofiello ............. 47 Vice President and Controller
</TABLE>
CONSOLIDATED CIGAR
The following table sets forth certain information (ages as of July 30,
1996) concerning the Directors and executive officers of Consolidated Cigar.
All Directors serve terms of one year or until the election of their
respective successors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Ronald O. Perelman .............. 53 Chairman of the Board of Directors and a Director
Howard Gittis ................... 62 Vice Chairman of the Board of Directors and a Director
Donald G. Drapkin ............... 48 Director
Theo W. Folz .................... 52 President, Chief Executive Officer and a Director
Richard L. DiMeola .............. 61 Executive Vice President and Chief Operating Officer
Gary R. Ellis ................... 43 Senior Vice President and Chief Financial Officer,
Secretary and Treasurer
James L. Colucci ................ 50 Senior Vice President -- Sales and Marketing
George F. Gershel, Jr. .......... 66 Senior Vice President -- Tobacco
Denis F. McQuillen .............. 50 Senior Vice President -- Manufacturing
James M. Parnofiello ............ 47 Vice President and Controller
</TABLE>
Mr. Perelman has been Chairman of the Board and a Director of the Company
and Consolidated Cigar since 1993. Mr. Perelman has been Chairman of the Board
and Chief Executive Officer of Mafco Holdings and MacAndrews & Forbes Holdings
Inc. ("MacAndrews & Forbes Holdings" and, together with Mafco Holdings,
"MacAndrews & Forbes") and various of its affiliates since 1980. Mr. Perelman
also is Chairman of the Board of Andrews Group Incorporated ("Andrews Group"),
Mafco Consolidated Group, Mafco Worldwide Corporation ("Mafco Worldwide"),
Marvel Entertainment Group, Inc. ("Marvel"), Meridian Sports Incorporated
("Meridian Sports"), New World Communications Group Incorporated ("New
World"), New World Television Incorporated ("New World Television"), Power
Control Technologies Inc. ("PCT") and Toy Biz, Inc. ("Toy Biz") and is the
Chairman of the Executive Committee of the Boards of Directors of Revlon
Consumer Products Corporation ("Revlon Products") and Revlon, Inc. ("Revlon").
Mr. Perelman is a Director of the following corporations which file reports
pursuant to the Exchange Act: Andrews Group, The Coleman Company, Inc.
("Coleman"), Coleman Holdings Inc. ("Coleman Holdings"), Coleman Worldwide
Corporation ("Coleman Worldwide"), First Nationwide Bank, a Federal Savings
Bank ("First Nationwide Bank"), First Nationwide Holdings, Inc. ("First
Nationwide"), First Nationwide (Parent) Holdings Inc. ("First Nationwide
Parent"), Mafco Consolidated Group, Mafco Worldwide, Marvel, Marvel Holdings
Inc. ("Marvel Holdings"), Marvel (Parent) Holdings Inc. ("Marvel
40
<PAGE>
Parent"), Marvel III Holdings Inc. ("Marvel III"), Meridian Sports, New
World, New World Television, NWCG Holdings Corporation ("NWCG Holdings"),
PCT, Revlon, Revlon Products, Revlon Worldwide Corporation ("Revlon
Worldwide") and Toy Biz.
Mr. Gittis has been a Director of the Company and Consolidated Cigar since
1993 and Vice Chairman of the Board of Directors of the Company and
Consolidated Cigar since July 1996. Mr. Gittis has been Vice Chairman and a
Director of MacAndrews & Forbes and various of its affiliates since 1985. Mr.
Gittis is a Director of the following corporations which file reports pursuant
to the Exchange Act: Andrews Group, First Nationwide, First Nationwide Bank,
First Nationwide Parent, Jones Apparel Group, Inc., Loral & Space
Communications Ltd., Mafco Consolidated Group, Mafco Worldwide,
Rutherford-Moran Oil Corporation, New World, New World Television, NWCG
Holdings, PCT, Revlon, Revlon Products and Revlon Worldwide.
Mr. Drapkin has been a Director of the Company and Consolidated Cigar
since August 1996. Mr. Drapkin has been Vice Chairman and a Director of
MacAndrews & Forbes Holdings and various of its affiliates since March 1987.
Mr. Drapkin was a partner in the law firm of Skadden, Arps, Slate, Meagher &
Flom for more than five years prior to March 1987. Mr. Drapkin is a Director
of the following corporations which file reports pursuant to the Exchange Act:
Andrews Group, Coleman, Coleman Holdings, Coleman Worldwide, Marvel, Marvel
Holdings, Marvel Parent, Marvel III, Revlon, Revlon Products, Revlon
Worldwide, The Claridge Hotel and Casino Corporation, Toy Biz and VIMRx
Pharmaceuticals Inc.
Mr. Folz has been President, Chief Executive Officer and a Director of the
Company and Consolidated Cigar since June 1996 and August 1984, respectively.
Mr. Folz has been a Director and President and Chief Executive Officer of the
Tobacco Products Group of Mafco Consolidated Group since June 1995 and Vice
Chairman, Director and Chief Executive Officer of Mafco Worldwide since
January 1995. From January 1987 until June 1988, Mr. Folz was also Chairman
and Chief Executive Officer of Brooks Drug, Inc. ("Brooks"). From June 1982
through July 1984, Mr. Folz was President, a Director and part owner of
Phillies Cigar Company and a Director of Havatampa, Inc.
Mr. Schwartz has been Executive Vice President and General Counsel of the
Company since January 1993. He has been Executive Vice President and General
Counsel of MacAndrews & Forbes and various of its affiliates since 1993. Mr.
Schwartz was Senior Vice President of MacAndrews & Forbes from 1989 to 1993.
Mr. Ellis has been Senior Vice President, Chief Financial Officer and
Treasurer of the Company since June 1996 and Senior Vice President, Chief
Financial Officer, Secretary and Treasurer of Consolidated Cigar since
November 1988. Mr. Ellis has been Senior Vice President and Chief Financial
Officer of the Tobacco Products Group of Mafco Consolidated Group since June
1995. From 1987 to 1988 Mr. Ellis was the Executive Vice President, Chief
Financial Officer and Treasurer of Brooks and from 1985 to 1987 he was the
Vice President and Controller of MacAndrews & Forbes Holdings.
Mr. Parnofiello has been Vice President and Controller of the Company
since June 1996. Mr. Parnofiello has been Vice President of Consolidated Cigar
since January 1996 and Controller of Consolidated Cigar since September 1989.
Mr. Parnofiello was Assistant Controller of Consolidated Cigar from March 1989
to September 1989.
Mr. DiMeola has been Executive Vice President and Chief Operating Officer
of Consolidated Cigar since November 1988. Mr. DiMeola joined Consolidated
Cigar in January 1985 as President of the Premium Products Division.
Mr. Colucci has been Senior Vice President of Sales and Marketing of
Consolidated Cigar since November 1988. Mr. Colucci was Vice President of
Sales and Marketing of Consolidated Cigar from 1985 to 1988. From 1982 to
1985, Mr. Colucci was Senior Vice President and General Manager of Design
Wire, Inc. (a company selling wire racks to supermarkets). Prior to 1985, for
eight years, Mr. Colucci held various sales and marketing positions with
Consolidated Cigar.
Mr. Gershel has been Senior Vice President --Tobacco of Consolidated Cigar
since June 1977. Mr. Gershel joined Consolidated Cigar in 1961.
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Mr. McQuillen has been Senior Vice President of Manufacturing of
Consolidated Cigar since December 1985. Mr. McQuillen joined Consolidated
Cigar in 1981.
After consummation of the Offerings, the Company intends to seek the
election of at least two Directors who are neither officers nor employees of
Mafco Consolidated Group or any of its affiliates.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established an Executive Committee and a
Compensation Committee and expects to establish an Audit Committee.
The Executive Committee has all powers and rights necessary to exercise
the full authority of the Board of Directors in the management of the business
and affairs of the Company when necessary in between meetings of the Board of
Directors. The members of the Executive Committee are Messrs. Perelman, Gittis
and Folz.
The Compensation Committee has the responsibility of reviewing the
performance of the executive officers of the Company and recommending to the
Board of Directors of the Company annual salary and bonus amounts for all
officers of the Company. The Compensation Committee shall consist of at least
two Directors who are "outside directors" within the meaning of Section 162(m)
of the Code. The members of the Compensation Committee are Messrs. Gittis and
Drapkin.
The Audit Committee will have the responsibility of reviewing and
supervising the financial controls of the Company. The Audit Committee's
responsibilities will include (i) making recommendations to the Board of
Directors of the Company with respect to the Company's financial statements
and the appointment of independent auditors, (ii) reviewing significant audit
and accounting policies and practices of the Company, (iii) meeting with the
Company's independent public accountants concerning, among other things, the
scope of audits and reports and (iv) reviewing the performance of overall
accounting and financial controls of the Company. The Audit Committee will
consist of two Directors who are neither officers nor employees of the
Company.
COMPENSATION OF DIRECTORS
Directors who do not receive compensation as officers or employees of the
Company or any of its affiliates will be paid an annual retainer fee of
$25,000 and a fee of $1,000 for each meeting of the Board of Directors or any
committee thereof they attend, plus reasonable out-of-pocket expenses.
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EXECUTIVE COMPENSATION
The Company, as a holding company with no business operations of its own,
conducts its business through Consolidated Cigar. The executive officers of
the Company receive no compensation for their services to the Company.
Accordingly, the following table presents certain information concerning
compensation paid or accrued for services rendered to Consolidated Cigar in
all capacities during the three years ended December 31, 1995 for the Chief
Executive Officer and the four other most highly compensated executive
officers of Consolidated Cigar whose total annual salary and bonus in the last
fiscal year exceeded $100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
ALL OTHER
YEAR SALARY BONUS COMPENSATION(A)
---- ------ ----- ---------------
<S> <C> <C> <C> <C>
Theo W. Folz
President and Chief Executive Officer 1995 $700,000 $700,000 $3,000
1994 675,000 400,000 3,000
1993 638,000 300,000 4,717
Richard L. DiMeola
Executive Vice President and Chief
Operating Officer ..................... 1995 $260,000 $260,000 $3,000
1994 245,000 120,000 3,000
1993 232,500 90,000 4,717
Gary R. Ellis
Senior Vice President, Chief Financial
Officer, Secretary and Treasurer ..... 1995 $200,000 $200,000 $3,000
1994 185,000 100,000 3,000
1993 175,000 75,000 4,717
James L. Colucci
Senior Vice President of Sales and
Marketing ............................. 1995 $200,000 $200,000 $3,000
1994 185,000 100,000 3,000
1993 175,000 70,000 4,717
George F. Gershel, Jr.
Senior Vice President Tobacco ......... 1995 $230,000 $170,000 $3,000
1994 214,000 75,000 3,000
1993 203,000 57,500 4,717
</TABLE>
- ------------
(a) Represents the Company's matching contribution to the employee's
account under Consolidated Cigar's 401(k) plan.
EMPLOYMENT AGREEMENTS
Mafco Consolidated Group entered into an employment agreement (the "MCG
Employment Agreement") with Mr. Folz with respect to an employment term
commencing on July 1, 1995 and ending on December 31, 1998 unless sooner
terminated by Mr. Folz's death, disability, gross neglect or willful
misconduct (in which case Mafco Consolidated Group may terminate Mr. Folz's
employment immediately upon written notice), or breach by Mafco Consolidated
Group of the agreement. In the event of Mr. Folz's death or disability, a
pro-rated performance bonus and 60% of his base compensation is to be paid to
Mr. Folz or his beneficiaries, as the case may be, for the longer of the
remaining term of the agreement or twelve months. In the event that Mafco
Consolidated Group breaches the MCG Employment Agreement, Mr. Folz is entitled
to terminate his employment under the agreement; in that event, a pro-rated
performance bonus and the remaining base compensation specified in the
agreement is to be
43
<PAGE>
paid to Mr. Folz offset by any other compensation Mr. Folz receives during
this period, and Mr. Folz is entitled to group life, health and pension plan
coverage, for the longer of the remaining term of the agreement or twelve
months. During the year ended December 31, 1995, Mr. Folz served the Company
and Consolidated Cigar pursuant to the MCG Employment Agreement. The
allocation of base compensation for the year ended December 31, 1995, to
Consolidated Cigar, was $700,000. The MCG Employment Agreement also provides
for a performance bonus under the Tobacco Products Group Performance Bonus
Plan based on achievement of certain EBITDA targets. As of August 1, 1996, for
the services to be rendered by Mr. Folz to the Company and Consolidated Cigar,
Consolidated Cigar has assumed the obligations of Mafco Consolidated Group
under the MCG Employment Agreement with respect to a portion of the base
salary and employee benefits to be provided to Mr. Folz under the MCG
Employment Agreement and, simultaneously therewith, has entered into a new
employment agreement with Mr. Folz memorializing such assumption and expiring
on December 31, 1999. Consolidated Cigar has assumed 70% of the obligations of
Mafco Consolidated Group under the MCG Employment Agreement with respect to
any payments or benefits payable upon Mr. Folz's severance, death or
disability. The base salary which will be paid by Consolidated Cigar to Mr.
Folz will be $770,000 for the year ended December 31, 1996. In addition, Mr.
Folz will be eligible to participate in the Consolidated Cigar Performance
Bonus Plan, subject to stockholder approval of the plan. See "--Consolidated
Cigar Performance Bonus Plan."
Consolidated Cigar entered into an employment agreement with each of
Messrs. DiMeola, Ellis, Colucci and Gershel, each of which commenced on July
1, 1995 and expires on December 31, 1998, unless sooner terminated by the
employee's death, disability (in which case Consolidated Cigar may elect to
terminate the employment agreement), gross neglect or willful misconduct (in
which case Consolidated Cigar may terminate the employment agreement
immediately upon written notice), the employee's willful and material failure
to perform his contractual obligations or by Consolidated Cigar's material
breach of the agreement. In the event of Consolidated Cigar's breach, the
employee is entitled to terminate the employment agreement; in that event,
full compensation and benefits are to be paid to the employee for the longer
of the remaining term of the employment agreement or twelve months, offset by
any other compensation the employee receives during this period. The
employment agreements provide for initial annual base salaries of $260,000 for
Mr. DiMeola, $200,000 for each of Messrs. Ellis and Colucci and $230,000 for
Mr. Gershel. The employment agreements also provide for performance bonus
payments, based on achievement by Consolidated Cigar of certain EBITDA
targets. Following consummation of the Offerings, such bonus payments shall be
made pursuant to the Consolidated Cigar Performance Bonus Plan, subject to
stockholder approval of the plan. On or about the date of consummation of the
Offerings, Consolidated Cigar will enter into new employment agreements with
each of Messrs. DiMeola, Ellis, Colucci and Gershel having terms substantially
similar to their existing employment agreements, but which will expire on
December 31, 1999.
CONSOLIDATED CIGAR PERFORMANCE BONUS PLAN
The Company has adopted, subject to stockholder approval, the Consolidated
Cigar Performance Bonus Plan. Compensation payable under the Consolidated
Cigar Performance Bonus Plan is intended to qualify as "performance based
compensation" under Section 162(m) of the Code. Senior executive officers of
the Company and Consolidated Cigar, selected for participation in the
Consolidated Cigar Performance Bonus Plan by the Compensation Committee, will
be entitled to participate in the Consolidated Cigar Performance Bonus Plan.
The performance goals under the Consolidated Cigar Performance Bonus Plan will
be based on achievement of EBITDA targets established by the Compensation
Committee with respect to each calendar year. The payments under the
Consolidated Cigar Performance Bonus Plan to any one individual during any
calendar year may not exceed $2,000,000.
DEFINED BENEFIT PLAN
Domestic (United States) salaried employees of Consolidated Cigar are
eligible to participate in the Consolidated Cigar Domestic Salaried Employees'
Defined Benefit Plan, a defined benefit pension plan (the "Plan"), which,
effective as of the end of 1995, was merged into a defined benefit pension
plan
44
<PAGE>
sponsored by a subsidiary of Mafco Consolidated Group. The merger of the Plan
did not change the level of pension benefits provided to Consolidated Cigar
employees. Plan benefits are a factor of service (up to a maximum of 33 years)
with Consolidated Cigar and "Average Final Compensation" (average monthly
compensation during the 60 consecutive months in which compensation was
highest in the ten years prior to termination of employment). Compensation
includes total wages, overtime, bonuses and 401(k) salary deferrals, and
excludes fringe benefits and employer contributions to other deferred
compensation plans. Benefits in the Plan are reduced by (i) any annuity
purchased under the Gulf Western Consumer Products Salaries Employees
Retirement Plan (the "Gulf & Western Plan") as of March 8, 1983 and (ii) the
actuarial equivalent of any Consolidated Cigar-provided benefits received
under Consolidated Cigar's 401(k) plan.
Consolidated Cigar established a benefit restoration plan effective
January 1, 1994 (the "BRP") which was designed to restore retirement benefits
to those employees whose eligible pension earnings were limited to $150,000
under regulations recently enacted by the Internal Revenue Service. The BRP is
not funded and all other vesting and payment rules follow the Plan.
The monthly payment under the Plan and BRP, expressed as a straight life
annuity, before adjustment for social security beginning at age 65 and before
reduction for benefits payable under the Gulf & Western Plan or the Company's
401(k) plan, are as follows:
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------------------------------
REMUNERATION 5 10 15 20 25 33
------- ------- ------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 315 $ 631 $ 946 $1,262 $1,575 $ 2,083
75,000 473 946 1,419 1,893 2,365 3,124
100,000 631 1,262 1,893 2,525 3,156 4,160
250,000 1,578 3,156 4,734 6,313 7,891 10,416
</TABLE>
Benefits under the Plan are subject to the maximum limitations imposed by
federal law on pension benefits. The annual limitation in 1995 was $120,000 or
$10,000 per month, based on a maximum annual compensation of $150,000. The
maximum annual remuneration considered for purposes of the BRP will be
increased to $500,000 in 1996.
As of December 31, 1995, the credited years of service under the Plan were
12 years for Mr. Folz, 11 years for Mr. DiMeola, seven years for Mr. Ellis, 19
years for Mr. Colucci and 35 years for Mr. Gershel.
STOCK PLAN
The Company has adopted and Mafco Consolidated Group, as the sole
stockholder of the Company, has approved the Stock Plan. A maximum of
3,000,000 shares of Class A Common Stock are reserved for issuance under the
Stock Plan, subject to equitable adjustment upon the occurrence of any stock
dividend, stock split, recapitalization, combination, exchange of shares,
merger, consolidation, liquidation, split-up, spin-off or other similar change
in capitalization, any distribution to common stockholders, including a rights
offering, other than cash dividends, or similar corporate transaction. Unless
otherwise determined by the Board of Directors, the Stock Plan will be
administered by the Compensation Committee. Grants of stock options, stock
appreciation rights, restricted stock and unrestricted stock (collectively,
"Awards") may be made under the Stock Plan (subject to specified aggregate
limits and annual individual limits on certain types of awards) to selected
employees, consultants and Directors of the Company and its present or future
affiliates.
The Compensation Committee and the Board of Directors each have authority,
subject to the terms of the Stock Plan, to determine, among other things, when
and to whom to grant Awards under the plan, the number of shares to be covered
by Awards, the types and terms of options, stock appreciation rights,
restricted stock and unrestricted stock granted and the exercise price of the
stock options and stock appreciation rights and to prescribe, amend and
rescind the rules and regulations relating to the Stock Plan.
Stock options granted under the Stock Plan may be either "incentive stock
options," as such term is defined in Section 422 of the Code, or nonqualified
stock options. The exercise price of nonqualified stock options may be above,
at or below the fair market value per share of Class A Common Stock on
45
<PAGE>
the date of grant. With respect to any participant who owns stock possessing
more than 10% of the voting power of all classes of the Company's outstanding
capital stock (a "10% Stockholder"), the exercise price of any incentive stock
option granted must equal at least 110% of the fair market value of the Class
A Common Stock on the date of the grant. The exercise price of incentive stock
options for all other employees must be at or above the fair market value per
share of Class A Common Stock on the date of the grant. The maximum term of
any incentive stock option granted under the Stock Plan is ten years (five
years in the case of an incentive stock option granted to a 10% Stockholder).
Stock appreciation rights may be granted alone or in tandem with stock
options under the Stock Plan. A stock appreciation right is a right to be paid
an amount equal to the excess of the fair market value of a share of Class A
Common Stock on the date the stock appreciation right is exercised over either
the grant price determined by the Compensation Committee or the Board of
Directors (in the case of a free standing stock appreciation right) or the
exercise price of the related stock option (in the case of a tandem stock
appreciation right), with payment to be made in cash, Class A Common Stock, or
both, as specified in the agreement granting the Award (the "Award Agreement")
or as otherwise determined by the Compensation Committee or the Board of
Directors.
No person may be granted stock options or stock appreciation rights under
the Stock Plan in any calendar year representing an aggregate of more than
750,000 shares of Class A Common Stock. Stock options and stock appreciation
rights shall be exercisable at the times and upon the conditions that the
Compensation Committee or the Board of Directors may determine, as reflected
in the applicable Award Agreement.
Restricted or unrestricted stock awards, either alone or in tandem with
other awards, may be granted under the Stock Plan. Vesting of restricted stock
awards may be conditioned upon the completion of a specified period of
service, the attainment of specific performance goals or such other factors as
the Compensation Committee or the Board of Directors may determine. During the
restricted period, the grantee may not transfer, assign or otherwise encumber
or dispose of the restricted stock, except as permitted by the Compensation
Committee or the Board of Directors. During the restricted period, the grantee
will have the right to vote the restricted stock and to receive any dividends
if and to the extent so provided in the applicable Award Agreement.
Unless otherwise provided in a grantee's Award Agreement, (i) upon
termination of such grantee's employment or service as a consultant or a
Director due to death or disability, any unvested options, stock appreciation
rights and restricted stock shall vest in full, all options and stock
appreciation rights shall remain exercisable for a period of one year and
shall terminate thereafter and (ii) upon termination of such grantee's
employment or service as a consultant or a Director for any reason other than
death or disability, any unvested options, stock appreciation rights and
restricted stock shall terminate and all vested options and stock appreciation
rights shall remain exercisable for a period of three months and shall
terminate thereafter.
Unless otherwise provided in a grantee's Award Agreement, awards granted
under the Stock Plan may be transferred by the grantee only by will or by the
laws of descent and distribution, and may be exercised only by the grantee
during his or her lifetime. The Stock Plan may, at any time and from time to
time, be altered, amended, suspended or terminated by the Board of Directors,
in whole or in part; provided that no amendment which requires stockholder
approval in order for the Stock Plan to continue to comply with Section 162(m)
of the Code will be effective unless such amendment has received the requisite
approval by the Company's stockholders. In addition, no amendment may be made
which adversely affects any of the rights of the grantee under any Award
theretofore granted without such grantee's consent. No awards will be made
under the Stock Plan following the tenth anniversary of the date of adoption
of the Stock Plan.
NEW PLAN BENEFITS
The Company will make initial grants under the Stock Plan of nonqualified
options having terms of ten years to purchase Class A Common Stock at an
exercise price equal to the initial public offering price, of which options to
purchase 250,000, 55,000, 50,000, 50,000, 50,000, 455,000 and 650,000 shares
of
46
<PAGE>
Class A Common Stock will be granted to Messrs. Folz, DiMeola, Ellis, Colucci
and Gershel, all executive officers as a group, and all employees as a group,
respectively. These initial grants will vest one-third each year beginning on
the first anniversary of the date of grant and will become 100% vested on the
third anniversary of the date of grant. In addition, the Company will grant
options to purchase 500,000 shares of Class A Common Stock to Mr. Perelman on
the same terms as the options granted to executive officers of the Company.
See "Certain Relationships and Related Transactions--Relationship with Mafco
Consolidated Group." In addition, on June 25, 1996, Mafco Consolidated Group
granted to Mr. Folz options to purchase 100,000 shares of its common stock at
an exercise price of $22.00 per share. These options have a term of ten years
and vest 25% upon the date of grant and 25% on each of the first, second and
third anniversaries of the date of grant.
FEDERAL INCOME TAX CONSEQUENCES
The following sets forth a summary of federal income tax consequences of
participation in the Stock Plan.
A holder of an incentive stock option will generally realize taxable
income only upon disposition of shares acquired upon exercise of the incentive
stock option rather than upon the grant or timely exercise of the incentive
stock option. Tax consequences of an untimely exercise of an incentive stock
option are determined in accordance with the rules applicable to nonqualified
stock options. The amount by which the fair market value of the Class A Common
Stock on the exercise date of an incentive stock option exceeds the exercise
price generally will increase the option holder's "alternative minimum taxable
income."
A holder of a nonqualified stock option generally will not be subject to
tax at the time of the grant of the nonqualified stock option. Rather, upon
exercise of a nonqualified stock option, the optionee generally will include
in ordinary income the excess, if any, of the fair market value of the Class A
Common Stock purchased over the exercise price. The Company generally will be
entitled to a deduction at the time and in the amount that the holder
recognizes ordinary income.
The grant of stock appreciation rights has no federal income tax
consequences at the time of grant. Upon the exercise of stock appreciation
rights, the amount received is generally taxable as ordinary income, and the
Company is entitled to a corresponding deduction.
Generally, the grant of restricted stock has no federal income tax
consequences at the time of grant. Rather, at the time the shares are no
longer subject to a substantial risk of forfeiture (as defined in the Code)
the holder will recognize income in an amount equal to the fair market value
of such shares. A holder may, however, elect to be taxed at the time of the
grant in accordance with Section 83(b) of the Code. The Company generally will
be entitled to a deduction at the time and in the amount that the holder
recognizes ordinary income.
The foregoing constitutes a brief summary of the principal federal income
tax consequences of the transactions based on current federal income tax laws.
This summary is not intended to be exhaustive and does not describe state,
local or foreign tax consequences. Participants in the Stock Plan are urged to
consult their own tax advisors with respect to the consequences of their
participation in the Stock Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company and Consolidated Cigar did not have a Compensation Committee
during 1995. Officers' compensation during 1995 was determined by the
Compensation Committee of Mafco Consolidated Group, comprised of Mr. Howard
Gittis, Ms. Jewel S. Lafontant-Mankarious and Mr. Robert Sargent Shriver III.
47
<PAGE>
OWNERSHIP OF COMMON STOCK
Ronald O. Perelman, 35 East 62nd Street, New York, New York 10021, through
Mafco Holdings' ownership of Mafco Consolidated Group, beneficially owns 85%
of the outstanding shares of Common Stock of the Company. Immediately after
consummation of the Offerings, Mafco Consolidated Group will beneficially own
all of the 25,500,000 outstanding shares of Class B Common Stock, which
represent approximately 98.3% of the combined voting power of the outstanding
shares of Common Stock (approximately 98.0% if the Underwriters'
over-allotment option is exercised in full). Accordingly, Mr. Perelman will
beneficially own approximately 83.5% of the combined voting power of the
outstanding shares of Common Stock immediately following consummation of the
Offerings. No other director, executive officer or other person beneficially
owns any shares of Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MAFCO CONSOLIDATED GROUP AND MAFCO HOLDINGS
As a result of Mafco Consolidated Group's stock ownership, the Company's
Board of Directors is, and is expected to continue to be, comprised entirely
of designees of Mafco Consolidated Group, and Mafco Consolidated Group is, and
is expected to continue to be, able to direct and control the policies of the
Company and its subsidiaries, including with respect to mergers, sales of
assets and similar transactions.
Mafco Consolidated Group is 85% owned through Mafco Holdings by Ronald O.
Perelman, who is Chairman of the Board of Directors of the Company. Mafco
Holdings is a diversified holding company with interests in several
industries. Through its 85% ownership of the Company, Mafco Holdings is
engaged in the manufacture and distribution of cigars and pipe tobacco. Mafco
Holdings is engaged in the cosmetics and skin care, fragrance and personal
care products business through its 83% ownership of Revlon. Mafco Holdings
owns 83% of Coleman, which is engaged in the manufacture and marketing of
recreational outdoor products, portable generators, power-washing equipment,
spas and hot tubs and 65% of Meridian Sports, a manufacturer and marketer of
specialized boats and water sports equipment. Marvel, a youth entertainment
company, is 80% owned by Mafco Holdings. Mafco Holdings is also engaged in the
television broadcast and programming production business through its
approximate 42% ownership of New World Communications, and, through its 85%
ownership of Mafco Worldwide, in the processing and distribution of licorice
and other flavoring agents. Mafco Holdings also is in the financial services
business through its 80% ownership of First Nationwide. The principal
executive offices of Mafco Holdings are located at 35 East 62nd Street, New
York, New York 10021.
The Company is insured under policies maintained by Mafco Holdings, and
the Company reimburses Mafco Holdings for the portion of the cost of such
policies attributable to the Company. Management of the Company believes that
such cost is lower than would be incurred were such entities to be separately
insured. In addition, the Company reimburses Mafco Holdings for the Company's
allocable portion of certain costs such as legal, accounting and other
professional fees and other services and related expenses.
Immediately prior to the consummation of the Offerings, the Company will
grant options to purchase 500,000 shares of Class A Common Stock to Mr.
Perelman as compensation for services rendered and to be rendered to the
Company by Mr. Perelman in his capacity as Chairman of the Board of Directors.
Such options will be granted pursuant to the Stock Plan on the same terms as
the initial grants made by the Board of Directors to the Company's executive
officers. See "Management--Stock Plan--New Plan Benefits."
TAX SHARING AGREEMENT
The Company, Consolidated Cigar and Mafco Consolidated Group have been,
for federal income tax purposes, members of an affiliated group of
corporations of which Mafco Holdings is the common parent (the "Tax Group").
As a result of such affiliation, the Company, Consolidated Cigar, and Mafco
48
<PAGE>
Consolidated Group have been included in the consolidated federal income tax
returns and, to the extent permitted by applicable law, included in combined
state or local income tax returns filed on behalf of the Tax Group. Pursuant
to a tax sharing agreement among the Company, Consolidated Cigar, and Mafco
Consolidated Group and a tax sharing agreement between Mafco Consolidated
Group and Mafco Holdings (collectively, the "Tax Sharing Agreements"), the
Company has been required to pay to Mafco Consolidated Group with respect to
each taxable year an amount equal to the consolidated federal and state and
local income taxes that would have been incurred by the Company had it not
been included in the consolidated federal and any combined state or local
income tax returns filed by the Tax Group. The net amounts paid by
Consolidated Cigar, through the Company, during the years ended December 31,
1993, 1994 and 1995 were approximately $0, $383,710 and $345,467,
respectively. After consummation of the Offerings, the Company, Consolidated
Cigar and Mafco Consolidated Group will continue to be included in the Tax
Group.
Under existing federal income tax regulations the Company, Consolidated
Cigar and Mafco Consolidated Group are liable for the consolidated federal
income taxes of the Tax Group for any taxable year in which they are a member
of the Tax Group. Pursuant to the Tax Sharing Agreements, Mafco Holdings has
agreed to indemnify the Company and Consolidated Cigar for any such federal
income tax liability.
PROMISSORY NOTE
Simultaneously with or prior to the consummation of the Offerings, the
Company intends to issue the Promissory Note in an original principal amount
of $70 million to Mafco Consolidated Group. The Promissory Note is expected to
be noninterest bearing, unsecured, subordinated to senior indebtedness (as
defined in the Promissory Note) and repayable in whole or in part at any time
or from time to time without premium or penalty. The Promissory Note is
payable in quarterly installments of $2.5 million beginning March 31, 1997
with the final installment payable on December 31, 2003. See "Description of
Certain Indebtedness."
PURCHASE OF LICORICE EXTRACT
The Company purchases all of the licorice extract used as flavoring and
moistening agents in its manufacturing processes from Mafco Worldwide, an
indirect wholly owned subsidiary of Mafco Consolidated Group. During the years
ended December 31, 1993, 1994 and 1995, the Company purchased approximately
$110,000, $265,000 and $269,000 of licorice extract from Mafco Worldwide. The
Company believes that the licorice extract purchased from Mafco Worldwide was
purchased on terms no less favorable to the Company than those obtainable in
an arm's length transaction with an independent third party.
SPECIALTY PRODUCTS DIVISION
The Company's Specialty Products Division assembles lipstick containers
for Revlon Products, an 83% owned subsidiary of Mafco Holdings. Revlon
Products purchased lipstick containers from the Company for approximately
$481,000, $763,000 and $874,000 for the ten months ended December 31, 1993 and
the years ended December 31, 1994 and 1995, respectively. The Company believes
that the terms of such arrangements with Revlon Products were no less
favorable to the Company than those obtainable in an arm's length transaction
with an independent third party.
REGISTRATION RIGHTS AGREEMENT
Prior to the consummation of the Offerings, the Company and Mafco
Consolidated Group will enter into the Registration Rights Agreement pursuant
to which Mafco Consolidated Group and certain transferees of Common Stock held
by Mafco Consolidated Group (the "Holders") will have the right to require the
Company to register (a "Demand Registration") all or part of the Class A
Common Stock issuable upon conversion of the Class B Common Stock owned by
such Holders under the Securities Act of 1933, as amended (the "Securities
Act"); provided that the Company (i) will not be obligated to effect
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a Demand Registration within 180 days of the closing date of the Offerings
unless Goldman, Sachs & Co. has given its consent and (ii) may postpone giving
effect to a Demand Registration for up to a period of 30 days if the Company
believes such registration might have a material adverse effect on any plan or
proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or the Company
is in possession of material non-public information that, if publicly
disclosed, could result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company. Mafco Consolidated Group has advised the
Company that it does not have any present intention to request any such
registration. In addition, the Holders will have the right to participate in
registrations by the Company of its Class A Common Stock (a "Piggyback
Registration"). The Company will pay any expenses incurred in connection with
any Demand Registration or Piggyback Registration, except for underwriting
discounts, commissions and certain expenses attributable to the shares of
Class A Common Stock sold by such Holders.
DESCRIPTION OF CAPITAL STOCK
Immediately prior to the closing of the Offerings, the Company will amend
its Certificate of Incorporation to change its authorized capital stock to
300,000,000 shares of Class A Common Stock, 250,000,000 shares of Class B
Common Stock and 20,000,000 shares of preferred stock, par value $0.01 per
share (the "Preferred Stock"), and to convert each outstanding share of its
current common stock into 25,500 shares of its newly created Class B Common
Stock (totaling 25,500,000 shares of Class B Common Stock). The following
summary description of the capital stock of the Company is qualified in its
entirety by reference to the form of Amended and Restated Certificate of
Incorporation of the Company (the "Amended Certificate") and Amended and
Restated By-Laws of the Company (the "By-Laws"), a copy of each of which is
filed as an exhibit to the Registration Statement (as defined herein) of which
this Prospectus forms a part.
CLASS A COMMON STOCK AND CLASS B COMMON STOCK
The Amended Certificate provides for two classes of common stock, Class A
Common Stock and Class B Common Stock, the two classes of which are
substantially identical, except for disparity in voting power. See "Risk
Factors--Control by Mafco Consolidated Group."
Each share of Class A Common Stock entitles the holder of record to one
vote and each share of Class B Common Stock entitles the holder of record to
ten votes at each annual or special meeting of stockholders, in the case of
any written consent of stockholders, and for all other purposes. The holders
of Class A Common Stock and Class B Common Stock will vote as a single class
on all matters submitted to a vote of the stockholders, except as otherwise
provided by law. Neither the holders of Class A Common Stock nor the holders
of Class B Common Stock have cumulative voting or preemptive rights. The
Company may, as a condition to counting the votes cast by any holder of Class
B Common Stock at any annual or special meeting of stockholders, in the case
of any written consent of stockholders, or for any other purpose, require the
furnishing of such affidavits or other proof as it may reasonably request to
establish that the Class B Common Stock held by such holder has not, by virtue
of the provisions of the Amended Certificate, been converted into Class A
Common Stock.
The holders of the Class A Common Stock and Class B Common Stock will be
entitled to receive dividends and other distributions as may be declared
thereon by the Board of Directors of the Company out of assets or funds of the
Company legally available therefor, subject to the rights of the holders of
any series of Preferred Stock and any other provision of the Amended
Certificate. The Amended Certificate provides that if at any time a dividend
or other distribution in cash or other property is paid on Class A Common
Stock or Class B Common Stock, a like dividend or other distribution in cash
or other property will also be paid on Class B Common Stock or Class A Common
Stock, as the case may be, in an equal amount of shares. The Amended
Certificate provides that if shares of Class A Common Stock are paid on Class
A Common Stock and shares of Class B Common Stock are paid on Class B Common
Stock, in an equal amount per share of Class A Common Stock and Class B Common
Stock, such payment will be deemed to be a like dividend or other
distribution. In the case of any split, subdivision, combination or
reclassification of Class A Common Stock or Class B Common Stock, the shares
of Class B Common
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Stock or Class A Common Stock, as the case may be, will also be split,
subdivided, combined or reclassified so that the number of shares of Class A
Common Stock and Class B Common Stock outstanding immediately following such
split, subdivision, combination or reclassification will bear the same
relationship to each other as that which existed immediately prior thereto.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Class A Common Stock and the holders of Class B Common Stock
will be entitled to receive the assets and funds of the Company available for
distribution after payments to creditors and to the holders of any Preferred
Stock of the Company that may at the time be outstanding, in proportion to the
number of shares held by them, respectively, without regard to class.
In the event of any corporate merger, consolidation, purchase or
acquisition of property or stock, or other reorganization in which any
consideration is to be received by the holders of Class A Common Stock or the
holders of Class B Common Stock, the holders of Class A Common Stock and the
holders of Class B Common Stock will receive the same consideration on a per
share basis; except that, if such consideration shall consist in any part of
voting securities (or of options or warrants to purchase, or of securities
convertible into or exchangeable for, voting securities), the holders of Class
B Common Stock may receive, on a per share basis, voting securities with ten
times the number of votes per share as those voting securities to be received
by the holders of Class A Common Stock (or options or warrants to purchase, or
securities convertible into or exchangeable for, voting securities with ten
times the number of votes per share as those voting securities issuable upon
exercise of the options or warrants, or into which the convertible or
exchangeable securities may be converted or exchanged, received by the holders
of Class A Common Stock).
The Amended Certificate provides that no person holding record or
beneficial ownership of shares of Class B Common Stock (a "Class B Holder")
may transfer (as defined in the Amended Certificate), and the Company will not
register the transfer of, such shares of Class B Common Stock, except to a
Permitted Transferee. A Permitted Transferee generally means an affiliate of
the Class B Holder. In certain circumstances set forth in the Amended
Certificate, the change in ownership or control of a record or beneficial
holder of Class B Common Stock will also result in the conversion of such
holder's Class B Common Stock into Class A Common Stock. The Amended
Certificate also provides that the Company will not register the transfer of
any shares of Class B Common Stock unless the transferee and the transferor of
such Class B Common Stock have furnished such affidavits and other proof as
the Company may reasonably request to establish that such proposed transferee
is a Permitted Transferee. In addition, upon any purported transfer of shares
of Class B Common Stock not permitted under the Amended Certificate, all
shares of Class B Common Stock purported to be so transferred will be deemed
to be converted into shares of Class A Common Stock, and stock certificates
formerly representing such shares of Class B Common Stock will thereupon and
thereafter be deemed to represent such number of shares of Class A Common
Stock as equals the number of shares of Class A Common Stock into which such
shares of Class B Common Stock could be converted pursuant to the terms of the
Amended Certificate.
In the event that the number of shares of Class B Common Stock and Class A
Common Stock held by the Class B Holders and their Permitted Transferees
issued and outstanding at any time shall constitute less than ten percent of
the total combined number of shares of Class A Common Stock and Class B Common
Stock of the Company, all shares of Class B Common Stock then issued and
outstanding will be deemed to be converted into shares of Class A Common
Stock, and stock certificates formerly representing such shares of Class B
Common Stock will thereupon and thereafter be deemed to represent such number
of shares of Class A Common Stock as equals the number of shares of Class A
Common Stock into which such shares of Class B Common Stock could be converted
pursuant to the terms of the Amended Certificate.
The Class A Common Stock has been approved for listing on the NYSE under
the symbol "CIG," subject to official notice of issuance.
PREFERRED STOCK
The Board of Directors, without further stockholder authorization, is
authorized to issue, from time to time, Preferred Stock in one or more series,
to establish the number of shares to be included in any
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such series and to fix the designations, powers, preferences and rights of the
shares of each such series and any qualifications, limitations or restrictions
thereof, including dividend rights and preferences over dividends on the
Common Stock, conversion rights, voting rights, redemption rights, the terms
of any sinking fund therefor and rights upon liquidation. The ability of the
Board of Directors of the Company to issue Preferred Stock, while providing
flexibility in connection with financing, acquisitions and other corporate
purposes, could have the effect of discouraging, deferring or preventing a
change in control of the Company or an unsolicited acquisition proposal, since
the issuance of Preferred Stock could be used to dilute the share ownership of
a person or entity seeking to obtain control of the Company. In addition,
because the Board of Directors of the Company has the power to establish the
preferences, powers and rights of the shares of any such series of Preferred
Stock, it may afford the holders of any Preferred Stock preferences, powers
and rights (including voting rights) senior to the rights of the holders of
Common Stock, which could adversely affect the rights of holders of Common
Stock.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
Section 203 ("Section 203") of the General Corporation Law of the State of
Delaware (the "DGCL") provides, in general, that a stockholder acquiring more
than 15% of the outstanding voting stock of a corporation subject to Section
203 (an "Interested Stockholder") but less than 85% of such stock may not
engage in certain Business Combinations (as defined in Section 203) with the
corporation for a period of three years subsequent to the date on which the
stockholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or
the transaction in which the stockholder became an Interested Stockholder or
(ii) the Business Combination is approved by the corporation's board of
directors and authorized by a vote of at least 66 2/3% of the outstanding
voting stock of the corporation not owned by the Interested Stockholder. The
Amended Certificate contains a provision electing not to be governed by
Section 203.
LIMITATIONS ON DIRECTORS' LIABILITY
The Amended Certificate contains a provision which eliminates the personal
liability of a director to the Company and its stockholders for certain
breaches of his or her fiduciary duty of care as a director. This provision
does not, however, eliminate or limit the personal liability of a director (i)
for any breach of such director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Delaware
statutory provisions making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock repurchases or redemptions,
or (iv) for any transaction from which the director derived an improper
personal benefit. This provision offers persons who serve on the Board of
Directors of the Company protection against awards of monetary damages
resulting from breaches of their duty of care (except as indicated above),
including grossly negligent business decisions made in connection with
takeover proposals for the Company. As a result of this provision, the ability
of the Company or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care has been limited. However,
the provision does not affect the availability of equitable remedies such as
an injunction or recision based upon a director's breach of his duty of care.
The Securities and Exchange Commission (the "Commission") has taken the
position that the provision will have no effect on claims arising under the
federal securities laws.
In addition, the Amended Certificate and By-Laws provide mandatory
indemnification rights, subject to limited exceptions, to any person who was
or is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that such person is
or was a director or officer of the Company, or is or was serving at the
request of the Company as a director or officer of another corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
Such indemnification rights include reimbursement for expenses incurred by
such person in advance of the final disposition of such proceeding in
accordance with the applicable provisions of the DGCL.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Co. is the transfer agent and registrar
for the Common Stock.
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SHARES ELIGIBLE FOR FUTURE SALE
Immediately after consummation of the Offerings, the Company will have
outstanding 4,500,000 shares of Class A Common Stock and 25,500,000 shares of
Class B Common Stock, assuming no exercise of the over-allotment options
granted to the Underwriters. Of these shares, the 4,500,000 shares of Class A
Common Stock sold in the Offerings (or a maximum of 5,175,000 shares if the
over-allotment options are exercised in full) will be freely tradeable without
restrictions or further registration under the Securities Act, unless
purchased by "affiliates" of the Company (as that term is defined under the
Securities Act). The 25,500,000 shares of Class B Common Stock owned by Mafco
Consolidated Group are, and the 25,500,000 shares of Class A Common Stock
issuable upon conversion of such shares of Class B Common Stock will be,
"restricted securities" as defined in Rule 144 under the Securities Act, and
may not be sold in the absence of registration under the Securities Act other
than pursuant to Rule 144 under the Securities Act or another exemption from
registration under the Securities Act.
In general, under Rule 144, as currently in effect, (i) a person (or
persons whose shares are required to be aggregated) who has beneficially owned
shares of Class A Common Stock as to which at least two years have elapsed
since such shares were sold by the Company or by an affiliate of the Company
in a transaction or chain of transactions not involving a public offering
("restricted securities") or (ii) an affiliate of the Company who holds shares
of Class A Common Stock that are not restricted securities may sell, within
any three-month period, a number of such shares that does not exceed the
greater of 1% of the Company's Class A Common Stock then outstanding or the
average weekly trading volume in the Class A Common Stock during the four
calendar weeks preceding the date on which notice of such sale required under
Rule 144 was filed. Sales under Rule 144 are also subject to certain
provisions relating to the manner and notice of sale and availability of
current public information about the Company. Affiliates of the Company must
comply with the requirements of Rule 144, including the two-year holding
period requirement, to sell shares of Class A Common Stock that are restricted
securities. Furthermore, if a period of at least three years has elapsed from
the date restricted securities were acquired from the Company or an affiliate
of the Company, a holder of such restricted securities who is not an affiliate
of the Company at the time of the sale and has not been an affiliate of the
Company at any time during the three months prior to such sale would be
entitled to sell such shares without regard to the volume limitation and other
conditions described above.
All shares of Class B Common Stock owned by Mafco Consolidated Group and
all shares of Class A Common Stock issuable upon conversion of such shares of
Class B Common Stock will immediately after consummation of the Offerings be
eligible (subject to the 180-day lock-up arrangement described below) for sale
in the public market pursuant to, and in accordance with the volume, manner of
sale and other conditions of, Rule 144 described above. Pursuant to the
Registration Rights Agreement, Mafco Consolidated Group has the right to
require the Company to register the shares of Class A Common Stock acquired
upon conversion of its shares of Class B Common Stock to facilitate their
possible sale, although Mafco Consolidated Group has advised the Company that
it does not have any present intention to request any such registration. See
"Certain Relationships and Related Transactions --Registration Rights
Agreement."
The Company and Mafco Consolidated Group have agreed that, subject to
certain exceptions, they will not offer, sell or otherwise dispose of any
shares of Class A Common Stock, other than in the Offerings, or any security
convertible into or exchangeable or exercisable for shares of Class A Common
Stock without the prior written consent of Goldman, Sachs & Co. on behalf of
the Underwriters for a period of 180 days after the date of this Prospectus.
See "Underwriting."
The shares of Class A Common Stock authorized for issuance pursuant to
Awards that may be granted under the Stock Plan may be either authorized but
unissued shares or treasury shares obtained by the Company through market or
private purchases. See "Management--Stock Plan." The Company intends to
register under the Securities Act the shares of Class A Common Stock issuable
upon the exercise of options granted pursuant to the Stock Plan.
Prior to the Offerings, there has been no public market for the Class A
Common Stock. Although the Company can make no prediction as to the effect, if
any, that sales of shares of Class A Common Stock by Mafco Consolidated Group
would have on the market price prevailing from time to time, sales of
substantial amounts of Class A Common Stock or the availability of such shares
for sale could adversely affect prevailing market prices. See "Risk
Factors--Possible Future Sales of Shares by Mafco Consolidated Group."
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DESCRIPTION OF CERTAIN INDEBTEDNESS
Each of the following summaries of certain provisions of certain debt
instruments of the Company does not purport to be complete and is subject to,
and is qualified in its entirety by reference to, all the provisions of such
debt instruments.
CREDIT AGREEMENT
The Credit Agreement entered into by Consolidated Cigar with The Chase
Manhattan Bank (the "Bank") consists of the $60.0 million Revolving Credit
Facility and the $20.0 million Working Capital Facility. The Revolving Credit
Facility and the Working Capital Facility have final maturities in April 1999.
The Revolving Credit Facility is subject to quarterly commitment reductions of
$2.5 million during each year of the term of such facility. The Credit
Agreement is secured by first priority liens on all of the material assets of
Consolidated Cigar and its domestic subsidiaries and pledges of the capital
stock of all of Consolidated Cigar's subsidiaries (with certain exceptions for
the capital stock of foreign subsidiaries). The Credit Agreement is guaranteed
by the Company, and by all of the domestic subsidiaries of Consolidated Cigar.
The guarantee by the Company is, and following consummation of the Offerings
will continue to be, secured by a pledge of all of the shares of common stock
of Consolidated Cigar owned by the Company. As of June 29, 1996, there was
approximately $17.4 million unused and available under the Credit Agreement,
after taking into account approximately $1.0 million utilized to support
letters of credit. Simultaneously with or prior to consummation of the
Offerings, the Company intends to pay to Mafco Consolidated Group a cash
dividend of approximately $5.6 million funded by borrowings under the Credit
Agreement. As of June 29, 1996, after giving effect to the borrowings under
the Credit Agreement to fund such dividend, there would have been
approximately $11.8 million available under the Credit Agreement.
Loans outstanding under the Credit Agreement bear interest, at
Consolidated Cigar's option, at either (i) the Bank's base rate plus 1.0%;
(ii) the Bank's 30, 60, 90 or 180 day LIBOR rate plus 2.0% or (iii) with
respect to loans to Consolidated Cigar's wholly owned subsidiary CIC, and
subject to availability, the Bank's "936 Rate" plus 2.0%.
The Credit Agreement contains various restrictive covenants including,
among other things, limitations on the ability of Consolidated Cigar and its
subsidiaries to incur debt, create liens, pay dividends, sell assets and make
investments, acquisitions and capital expenditures. In addition, the Credit
Agreement requires Consolidated Cigar to maintain specified financial ratios
and satisfy certain tests, including maximum leverage ratios and minimum
interest coverage ratios. The Credit Agreement also contains customary events
of default. Consolidated Cigar recently entered into an amendment to the
Credit Agreement, which, among other things, permits Consolidated Cigar to pay
the $5.6 million dividend to the Company and to pay dividends and make
distributions on terms substantially similar to those contained in the Senior
Subordinated Notes Indenture.
SENIOR SUBORDINATED NOTES
In February 1993, Consolidated Cigar sold $90 million aggregate principal
amount of its Senior Subordinated Notes and as of June 29, 1996, $90 million
aggregate principal amount of Senior Subordinated Notes were outstanding. The
Senior Subordinated Notes bear interest at the rate of 10 1/2% per annum,
payable semi-annually on March 1 and September 1. The Senior Subordinated
Notes mature on March 1, 2003 and Consolidated Cigar is not required to make
any sinking fund payments with respect to the Senior Subordinated Notes. The
Senior Subordinated Notes are subordinate in right of payment to all senior
debt of Consolidated Cigar, including the liabilities of Consolidated Cigar
under the Credit Agreement, rank pari passu with all future senior
subordinated debt of Consolidated Cigar and rank senior to all future
subordinated debt of Consolidated Cigar.
The Senior Subordinated Notes are redeemable at the option of Consolidated
Cigar, on and after March 1, 1998, in whole or in part, at the following
redemption prices (expressed as percentages of the principal amount) for the
12 month period beginning each March 1: 1998--103.00%; 1999--101.50%; and 2000
and thereafter--100%, plus, in each case, accrued and unpaid interest to the
date fixed for
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redemption. In addition, the Senior Subordinated Notes are redeemable at any
time upon a Change of Control (as defined in the Senior Subordinated Notes
Indenture) at the redemption prices set forth in the Senior Subordinated Notes
Indenture.
The Senior Subordinated Notes Indenture contains certain covenants that,
among other things, limit the issuance of additional debt and redeemable stock
by Consolidated Cigar, the issuance of debt and preferred stock by
Consolidated Cigar's subsidiaries, the payment of dividends on and redemption
of capital stock of Consolidated Cigar and its subsidiaries and the redemption
of certain subordinated obligations of Consolidated Cigar, the sale of assets
and stock of Consolidated Cigar's subsidiaries, transactions with affiliates
and consolidations, mergers and transfers of all or substantially all of
Consolidated Cigar's assets. The Senior Subordinated Notes Indenture also
prohibits certain restrictions on distributions from subsidiaries of
Consolidated Cigar and contains customary events of default.
In addition, upon the occurrence of a Change of Control (as defined in the
Senior Subordinated Notes Indenture), each holder of the Senior Subordinated
Notes has the right, subject to the satisfaction of certain conditions
relating to Consolidated Cigar's bank indebtedness, to require Consolidated
Cigar to repurchase such holder's Senior Subordinated Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
purchase.
PROMISSORY NOTE
Simultaneously with or prior to consummation of the Offerings, the Company
intends to issue the Promissory Note in an original principal amount of $70
million to Mafco Consolidated Group. The Promissory Note is expected to be
noninterest bearing, unsecured, subordinated to senior indebtedness (as
defined in the Promissory Note) and repayable in whole or in part at any time
or from time to time without premium or penalty. The Promissory Note is
payable in quarterly installments of $2.5 million beginning March 31, 1997
with the final installment payable on December 31, 2003. The failure by the
Company to make any payment on the Promissory Note when due and the failure by
the Company to cure such non-payment during the 60-day period following such
due date would result in an event of default thereunder, and Mafco
Consolidated Group could declare all remaining amounts outstanding under the
Promissory Note to be immediately due and payable.
CERTAIN UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general summary of certain United States federal income
and estate tax consequences expected to result under current law from the
purchase, ownership, sale or other taxable disposition of Class A Common Stock
by any person or entity other than (a) a citizen or resident of the United
States, (b) a corporation created or organized in or under the laws of the
United States or of any state thereof, or (c) a person or entity otherwise
subject to United States federal income taxation on income from sources
outside the United States (a "non-U.S. Holder"). This summary does not address
all United States federal income and estate tax considerations that may be
relevant to non-U.S. Holders in light of their particular circumstances or to
certain non-U.S. Holders that may be subject to special treatment under United
States federal income tax laws. Furthermore, this summary does not discuss any
aspects of foreign, state or local taxation. This summary is based on current
provisions of the Code, existing, temporary and proposed regulations
promulgated thereunder and administrative and judicial interpretations
thereof, all of which are subject to change, possibly with retroactive effect.
Each prospective purchaser of Class A Common Stock is advised to consult their
tax advisor with respect to the tax consequences of acquiring, holding and
disposing of Class A Common Stock.
DIVIDENDS
Dividends paid to a non-U.S. Holder of Class A Common Stock generally will
be subject to withholding of United States federal income tax at a 30% rate
(or such lower rate as may be specified by an applicable income tax treaty)
unless the dividend is effectively connected with the conduct of a trade or
business of the non-U.S. Holder within the United States, in which case the
dividend will be taxed at ordinary federal income tax rates. If the non-U.S.
Holder is a corporation, such effectively
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connected income may also be subject to an additional "branch profits tax." A
non-U.S. Holder may be required to satisfy certain certification requirements
in order to claim treaty benefits or otherwise claim a reduction of, or
exemption from, the withholding obligation pursuant to the above described
rules.
SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK
A non-U.S. Holder generally will not be subject to United States federal
income tax in respect of any gain recognized on the sale or other taxable
disposition of Class A Common Stock unless (i) the gain is effectively
connected with a trade or business of the non-U.S. Holder in the United
States; (ii) in the case of a non-U.S. Holder who is an individual and holds
the Class A Common Stock as a capital asset, the holder is present in the
United States for 183 or more days in the taxable year of the disposition and
either (a) the individual has a "tax home" for United States federal income
tax purposes in the United States or (b) the gain is attributable to an office
or other fixed place of business maintained by the individual in the United
States; (iii) the non-U.S. Holder is subject to tax pursuant to the provisions
of United States federal income tax law applicable to certain United States
expatriates; or (iv) the Company is or has been during certain periods
preceding the disposition a "U.S. real property holding corporation" for
United States federal income tax purposes (which the Company does not believe
it is or is likely to become) and, assuming that the Class A Common Stock
continues to be "regularly traded on an established securities market" for tax
purposes, the non-U.S. Holder held, directly or indirectly, at any time during
the five-year period ending on the date of disposition, more than 5% of the
outstanding Class A Common Stock.
BACKUP WITHHOLDING AND REPORTING REQUIREMENTS
DIVIDENDS. United States backup withholding tax will generally not apply
to dividends paid on Class A Common Stock to a non-U.S. Holder at an address
outside the United States. The Company must report annually to the Internal
Revenue Service and to each non-U.S. Holder the amount of dividends paid to,
and the tax withheld with respect to, such holder, regardless of whether any
tax was actually withheld. This information may also be made available to the
tax authorities in the non-U.S. Holder's country of residence.
SALE OR OTHER DISPOSITION OF CLASS A COMMON STOCK. Upon the sale or other
taxable disposition of Class A Common Stock by a non-U.S. Holder to or through
a United States office of a broker, the broker must backup withhold at a rate
of 31% and report the sale to the Internal Revenue Service, unless the holder
certifies its non-U.S. status under penalties of perjury or otherwise
establishes an exemption. Upon the sale or other taxable disposition of Class
A Common Stock by a non-U.S. Holder to or through the foreign office of a
United States broker, or a foreign broker with certain types of relationships
to the United States, the broker must report the sale to the Internal Revenue
Service (but not backup withhold) unless the broker has documentary evidence
in its files that the seller is a non-U.S. Holder and/or certain other
conditions are met, or the holder otherwise establishes an exemption.
BACKUP WITHHOLDING IS NOT AN ADDITIONAL TAX. Amounts withheld under the
backup withholding rules are generally allowable as a refund or credit against
such non-U.S. Holder's United States federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service.
PROPOSED REGULATIONS. On April 22, 1996, the Internal Revenue Service
issued proposed regulations relating to withholding, backup withholding and
information reporting that, if adopted in their current form, would, among
other things, unify current certification procedures and forms and clarify
reliance standards. The proposed regulations would, among other things,
eliminate the general current law presumption that dividends paid to an
address in a foreign country are paid to a resident of that country and would
impose certain certification and documentation requirements on non-U.S.
Holders claiming the benefit of a reduced withholding rate with respect to
dividends under a tax treaty. These regulations generally are proposed to be
effective with respect to payments made after December 31, 1997, although in
certain cases they are proposed to be effective only with respect to payments
made after December 31, 1999. Proposed regulations are subject to change,
however, prior to their adoption in final form.
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FEDERAL ESTATE TAXES
Class A Common Stock owned or treated as owned by an individual who is not
a citizen or resident (as specially defined for United States federal estate
tax purposes) of the United States at the time of death will be included in
such individual's gross estate for United States federal estate tax purposes,
unless an applicable estate tax treaty provides otherwise.
LEGAL MATTERS
Certain legal matters with respect to the validity of the shares of Class
A Common Stock offered hereby will be passed upon for the Company by Skadden,
Arps, Slate, Meagher & Flom, New York, New York. Cravath, Swaine & Moore, New
York, New York has acted as counsel for the Underwriters. Skadden, Arps,
Slate, Meagher & Flom and Cravath, Swaine & Moore have from time to time
represented, and may continue to represent, the Underwriters in connection
with various legal matters. Both Skadden, Arps, Slate, Meagher & Flom and
Cravath, Swaine & Moore have from time to time represented, and may continue
to represent, Mafco Holdings and certain of its affiliates (including the
Company) in connection with certain legal matters. Joseph H. Flom, a partner
in the firm of Skadden, Arps, Slate, Meagher & Flom, is a director of Revlon
Group Incorporated, a wholly owned subsidiary of Mafco Holdings.
EXPERTS
The Consolidated Financial Statements and schedules of the Company as of
December 31, 1994 and 1995 and for the two month period ended March 2, 1993
(the Pre-Acquisition period), the ten month period ended December 31, 1993 and
the years ended December 31, 1994 and 1995, appearing in this Prospectus and
elsewhere in the Registration Statement (as defined herein), have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report
thereon appearing elsewhere herein, and are included in reliance upon such
report given upon the authority of said firm as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed with the Commission in Washington, D.C. a
Registration Statement on Form S-1 (as amended, the "Registration Statement")
of which this Prospectus is a part under the Securities Act with respect to
the Class A Common Stock offered hereby. This Prospectus does not contain all
of the information set forth in the Registration Statement and the exhibits
and schedules thereto, to which reference is hereby made. Statements made in
this Prospectus as to the contents of any contract, agreement or other
document are summaries of the material terms of such contract, agreement or
other document. With respect to each such contract, agreement or other
document filed as an exhibit to the Registration Statement, reference is made
to the exhibit for a more complete description of the matter involved. The
Registration Statement (including the exhibits and schedules thereto) filed by
the Company with the Commission may be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and will also be
available for inspection and copying at the regional offices of the Commission
located at Seven World Trade Center, 13th Floor, New York, New York 10048 and
at Citicorp Center, 500 West Madison Street (Suite 1400), Chicago, Illinois
60661. Copies of such material may also be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. The Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of such
site is http://www.sec.gov.
Upon completion of the Offerings, the Company will be subject to the
informational requirements of the Exchange Act, and, in accordance therewith,
will file reports, proxy and information statements and other information with
the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the addresses set forth above. The
Company intends to furnish its stockholders with annual reports containing
consolidated financial statements audited by its independent certified public
accountants and with quarterly reports containing unaudited condensed
consolidated financial statements for each of the first three quarters of each
fiscal year.
57
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGES
-----
<S> <C>
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors .................................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 ...................... F-3
Consolidated Statements of Operations
for the two month period ended March 2, 1993, the ten month period ended December
31, 1993 and the years ended December 31, 1994 and 1995 ......................... F-4
Consolidated Statements of Stockholder's Equity
for the two month period ended March 2, 1993, the ten month period ended December
31, 1993 and the years ended December 31, 1994 and 1995 ......................... F-5
Consolidated Statements of Cash Flows
for the two month period ended March 2, 1993, the ten month period ended December
31, 1993 and the years ended December 31, 1994 and 1995 ......................... F-6
Notes to Consolidated Financial Statements ........................................ F-8
UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of June 29, 1996 ................ F-20
Unaudited Condensed Consolidated Statements of Operations for the twenty-six week
periods ended July 1, 1995 and June 29, 1996 .................................... F-21
Unaudited Condensed Consolidated Statements of Cash Flows for the twenty-six week
periods ended July 1, 1995 and June 29, 1996 .................................... F-22
Notes to Unaudited Condensed Consolidated Financial Statements .................... F-23
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Consolidated Cigar Holdings Inc.
We have audited the accompanying consolidated balance sheets of
Consolidated Cigar Holdings Inc. (formerly Consolidated Cigar (Parent)
Holdings Inc.) and subsidiaries as of December 31, 1994 and 1995 and the
related consolidated statements of operations, stockholder's equity, and cash
flows for the two month period ended March 2, 1993, the ten month period ended
December 31, 1993 and the years ended December 31, 1994 and 1995. The two
month period ended March 2, 1993 presents historical Pre-Acquisition financial
statement amounts of Consolidated Cigar Corporation (the "Pre-Acquisition
Company"). These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of the Company at December 31, 1994 and 1995, and the consolidated results of
the Pre-Acquisition Company's operations and cash flows for the two month
period ended March 2, 1993, and the Company's consolidated results of
operations and cash flows for the ten month period ended December 31, 1993 and
the years ended December 31, 1994 and 1995, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
New York, New York
January 24, 1996
F-2
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 1,700 $ 1,145
Accounts receivable, less allowances of $3,602 and $4,322,
respectively ......................................................... 12,912 14,883
Inventories ............................................................ 37,874 39,022
Deferred taxes and other ............................................... 524 3,914
-------------- --------------
Total current assets .................................................. 53,010 58,964
Property, plant and equipment, net ...................................... 38,025 35,370
Trademarks, less accumulated amortization of $1,587 and $2,453,
respectively ........................................................... 32,887 32,021
Goodwill, less accumulated amortization of $3,171 and $4,942,
respectively ........................................................... 67,596 61,374
Other intangibles and assets, less accumulated amortization of $3,244
and $4,670, respectively ............................................... 5,391 4,001
-------------- --------------
Total assets .......................................................... $196,909 $191,730
============== ==============
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable ....................................................... $ 4,073 $ 3,797
Accrued expenses ....................................................... 13,985 16,103
Due to affiliate ....................................................... 452 1,685
-------------- --------------
Total current liabilities ............................................. 18,510 21,585
Long-term debt .......................................................... 126,200 110,600
Deferred taxes .......................................................... 2,844 4,066
Other liabilities ....................................................... 8,792 1,151
-------------- --------------
Total liabilities ..................................................... 156,346 137,402
-------------- --------------
Commitments and contingencies ........................................... -- --
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized, issued and
outstanding ........................................................... 1 1
Additional paid-in capital ............................................. 29,999 34,834
Retained earnings ...................................................... 10,563 19,493
-------------- --------------
Total stockholder's equity ............................................ 40,563 54,328
-------------- --------------
Total liabilities and stockholder's equity ............................ $196,909 $191,730
============== ==============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRE-
ACQUISITION POST-ACQUISITION
------------- ----------------------------------------------
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales ................................ $15,563 $110,384 $131,510 $158,166
Cost of sales ............................ 9,088 69,871 78,836 94,347
------------- -------------- -------------- --------------
Gross profit ............................. 6,475 40,513 52,674 63,819
Selling, general and administrative
expenses ................................ 4,580 24,956 29,413 32,393
------------- -------------- -------------- --------------
Operating income ......................... 1,895 15,557 23,261 31,426
------------- -------------- -------------- --------------
Other (expenses) income:
Interest expense ........................ (1,662) (10,954) (12,847) (12,647)
Interest income ......................... 2 24 9 12
Minority interest ....................... 5 209 78 (262)
Miscellaneous, net ...................... (226) (690) (828) (1,000)
------------- -------------- -------------- --------------
(1,881) (11,411) (13,588) (13,897)
------------- -------------- -------------- --------------
Income before provision for income taxes 14 4,146 9,673 17,529
Provision for income taxes ............... 91 1,267 1,989 3,599
------------- -------------- -------------- --------------
Net income (loss) ........................ $ (77) $ 2,879 $ 7,684 $ 13,930
============= ============== ============== ==============
Pro Forma earnings per
common share (unaudited) ................ $ 0.45
==============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
Pre-Acquisition:
Balance at December 31, 1992 ..... $ -- $12,294 $ 2,020 $14,314
Net loss for the two months ...... -- -- (77) (77)
-------- ------------ ---------- ---------
Balance at March 2, 1993 .......... $ -- $12,294 $ 1,943 $14,237
======== ============ ========== =========
Post-Acquisition:
Initial capitalization ............ $ 1 $29,999 $ -- $30,000
Net income for the ten months .... -- -- 2,879 2,879
-------- ------------ ---------- ---------
Balance at December 31, 1993 ..... 1 29,999 2,879 32,879
-------- ------------ ---------- ---------
Net income ........................ -- -- 7,684 7,684
-------- ------------ ---------- ---------
Balance at December 31, 1994 ..... 1 29,999 10,563 40,563
-------- ------------ ---------- ---------
Net income ........................ -- -- 13,930 13,930
Cash dividends paid ............... -- -- (5,000) (5,000)
Contribution to capital by parent -- 4,835 -- 4,835
-------- ------------ ---------- ---------
Balance at December 31, 1995 ..... $ 1 $34,834 $19,493 $54,328
======== ============ ========== =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-
ACQUISITION POST-ACQUISITION
------------- ----------------------------------------------
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) ....................... $ (77) 2,879 $ 7,684 $13,930
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization .......... 1,123 10,289 7,613 7,699
Deferred income ........................ -- 887 (205) (205)
Gain on the sale of fixed assets ...... -- -- (390) --
Changes in assets and liabilities net
of acquisitions:
(Increase) decrease in:
Accounts receivable .................. 3,245 (3,323) (1,852) (1,971)
Inventories .......................... (3,573) 854 (969) (1,148)
Deferred taxes and other ............. (6) 235 44 (1,367)
Increase (decrease) in:
Accounts payable ..................... 868 48 (326) (276)
Accrued expenses and other
liabilities ......................... 1,882 (3,027) 2,660 3,139
------------- -------------- -------------- --------------
Net cash provided by operating activities 3,462 8,842 14,259 19,801
------------- -------------- -------------- --------------
Cash flows from investing activities:
Capital expenditures .................... (115) (881) (788) (983)
Proceeds from the sale of fixed assets . -- 100 5,832 1
Decrease (increase) in other assets .... (132) (170) (8) (7)
------------- -------------- -------------- --------------
Net cash provided by (used for) investing
activities .............................. (247) (611) 5,036 (989)
------------- -------------- -------------- --------------
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-
ACQUISITION POST-ACQUISITION
------------- ----------------------------------------------
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from acquisitions:
Acquisition financing ................ $ -- $ 156,619 $ -- $ --
Cost of acquisition .................. -- (104,180) -- --
Deferred financing costs ............. -- (6,406) -- --
Accrued fees and expenses ............ -- 3,970 -- --
Initial capitalization ............... -- 30,000 -- --
Repayment of long term debt .......... -- (77,375) -- --
------------- -------------- -------------- --------------
Net cash provided by acquisitions .... -- 2,628 -- --
------------- -------------- -------------- --------------
Cash flow from financing activities:
Repayment of revolving loan, net .... (2,078) (11,319) (19,100) (15,600)
Dividend paid ........................ -- -- -- (5,000)
Due to affiliates and other
borrowings .......................... -- (824) 290 1,233
------------- -------------- -------------- --------------
Net cash used for financing activities (2,078) (12,143) (18,810) (19,367)
------------- -------------- -------------- --------------
(Decrease) increase in cash and cash
equivalents .......................... 1,137 (1,284) 485 (555)
Cash and cash equivalents, beginning
of period ............................ 1,362 2,499 1,215 1,700
------------- -------------- -------------- --------------
Cash and cash equivalents, end of
period ............................... $ 2,499 $ 1,215 $ 1,700 $ 1,145
============= ============== ============== ==============
Supplemental disclosures of cash flow
information:
Interest paid during the period ..... $ 218 $ 10,433 $ 12,921 $ 13,067
Income taxes paid during the period . 161 333 1,444 1,477
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
Consolidated Cigar Holdings Inc. (formerly Consolidated Cigar (Parent)
Holdings Inc.) (the "Company") is a holding company with no business
operations of its own and was formed as a Delaware corporation on January 6,
1993 to hold all of the outstanding capital stock of Consolidated Cigar
Corporation ("Consolidated Cigar"), through which the Company conducts its
business operations. The results of operations and financial position of the
Company therefore reflect the consolidated results of operations and financial
position of Consolidated Cigar and its predecessors. Unless the context
otherwise requires, all references in these notes to the consolidated
financial statements of the Company mean Consolidated Cigar Holdings Inc. and
its subsidiaries.
On December 11, 1992, Triple C Acquisition Corp. ("Triple C"), Mafco
Holdings Inc. ("Mafco Holdings") and a wholly owned subsidiary of Mafco
Holdings entered into an agreement and plan of merger, pursuant to which the
wholly owned subsidiary was merged into Triple C, with Triple C being the
surviving corporation. Pursuant to the merger which was consummated on March
3, 1993, Mafco Holdings acquired all the outstanding shares of Triple C common
stock and warrants to purchase Triple C common stock (the "Acquisition") for
an aggregate purchase price of $188.0 million, including fees and expenses.
The Acquisition was financed with bank borrowings under an $80.0 million
revolving credit agreement with a bank group lead by The Chase Manhattan Bank
("Chase"), the issuance of $90.0 million of 10 1/2% senior subordinated notes
due 2003 and a $30.0 million capital contribution from Mafco Holdings.
Immediately following the Acquisition, Triple C merged into Consolidated Cigar
Corporation ("Consolidated Cigar"), with Consolidated Cigar being the
surviving corporation. As a result, Consolidated Cigar became an indirect
wholly owned subsidiary of Mafco Holdings.
Prior to March 3, 1993 (referred to herein as the "Pre-Acquisition"
period), Consolidated Cigar was a wholly owned subsidiary of Triple C. The
accompanying financial statements for periods subsequent to March 2, 1993
(referred to herein as the "Post Acquisition" period), reflect the results of
the Acquisition.
The Post Acquisition financial statements contained herein are those of
the Company and its subsidiaries which have been adjusted to account for the
Acquisition under the purchase accounting method (i.e., the assets purchased
and liabilities assumed have been adjusted to fair values based upon an
allocation of the purchase price). As a result of adjustments related to the
Acquisition, the financial statements of the Post Acquisition Company are not
directly comparable to the financial statements of the Pre-Acquisition
Company. The Pre-Acquisition financial statements reflect Triple C's cost of
acquiring Consolidated Cigar in November 1988.
NOTE B -- 1995 CHANGE IN OWNERSHIP
On June 15, 1995, Mafco Holdings and Mafco Consolidated Group Inc. ("Mafco
Consolidated Group"), formerly known as Abex Inc. ("Abex"), consummated an
agreement and plan of merger (the "Merger Agreement") executed between the
parties on January 6, 1995. The Merger Agreement provided for, among other
things, the merger of C & F Merger Inc., a subsidiary of Mafco Holdings and
the indirect parent of both the Company and Mafco Worldwide Corporation
("Mafco Worldwide"), with Mafco Consolidated Group, which was the surviving
corporation in the merger. As a result, the Company became an indirect wholly
owned subsidiary of Mafco Consolidated Group.
NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business
The Company operates principally in one segment, manufacturing,
distributing, and selling cigars in all sections of the industry. The Company
also manufactures smoking tobaccos for sale under its own brand names, in bulk
to tobacconists as well as private label brands for chain stores and wholesale
distributors.
F-8
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries after the elimination of all significant
intercompany accounts and transactions. Cuban Cigar Brands, N.V. ("CCB"), a
51% owned subsidiary, has also been accounted for as a consolidated
subsidiary.
Inventories
Leaf tobacco is carried at the lower of average cost or market. In
accordance with generally recognized industry practice, all leaf tobacco
inventory is classified as current although portions of such inventory,
because of the duration of the aging process, ordinarily would not be utilized
within one year. Cigars and other inventories are generally valued at the
lower of cost (using the first-in, first-out method) or market.
Property, Plant and Equipment
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets which range
from 10 years to 20 years. Leasehold improvements are amortized over their
estimated useful lives or the term of the lease, whichever is shorter. Repairs
and maintenance are charged to operations as incurred and expenditures for
additions and improvements are capitalized.
Trademarks
Trademarks consist of registered and unregistered tradenames of cigars or
other tobacco brands which are being amortized on a straight-line basis over
40 years.
Goodwill
Goodwill represents the excess of cost over fair value of net assets
acquired in the Acquisition. Goodwill is being amortized over 40 years on a
straight-line basis which is consistent with industry practice. The Company's
accounting policy regarding the assessment of the recoverability of the
carrying value of goodwill and other intangibles is to review the carrying
value of goodwill and other intangibles if the facts and circumstances suggest
that they may be impaired. If this review indicates that goodwill and other
intangibles will not be recoverable, as determined based on the undiscounted
future cash flows of the Company, the carrying value of goodwill and other
intangibles will be reduced to its estimated fair value.
As discussed in Notes I and J, during 1995, goodwill was reduced by $4.4
million due to the reduction in the valuation allowance for deferred tax
assets and due to the establishment and transfer of deferred tax assets
related to certain pension plan liabilities that were transferred to a related
affiliate.
Impairment of Long-Lived Assets
In March 1995, Statement of Financial Accounting Standards ("SFAS") issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". SFAS 121 requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. SFAS 121 is effective for financial statements for fiscal years
beginning after December 15, 1995, and therefore the Company will adopt SFAS
121 in the first quarter of 1996. The Company does not believe the effect of
this adoption will be material.
F-9
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C --SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue is recognized from product sales upon shipment. Allowances for
sales returns, customer incentive programs and promotions are recorded at the
time of sale.
Interest Rate Swaps
Consolidated Cigar entered into interest rate swap agreements to modify
the interest characteristics of its outstanding debt from a fixed to a
floating rate basis. These agreements involve the receipt of fixed rate
amounts in exchange for floating rate interest payments over the life of the
agreement without an exchange of the underlying principal amount. The
differential to be paid or received is accrued as interest rates change and
recognized as an adjustment to interest expense related to the debt. The
related amount payable to or receivable from counterparties is included in
accrued expenses. To the extent previous interest rate swap agreements have
been terminated, the resulting gain is being recognized over the remaining
original life of the terminated agreements. The fair values of the swap
agreements (which amount is described in Note G) are not recognized in the
financial statements.
Income Taxes
Effective January 1, 1993 the Company adopted SFAS 109, "Accounting for
Income Taxes". SFAS 109 requires the liability method of computing deferred
taxes. The cumulative effect of the change was immaterial, as was the effect
of the 1% federal income tax increase that resulted from the 1993 Consolidated
Omnibus Budget Reconciliation Act passed in August 1993 ("OBRA 1993").
Concentration of Credit Risk
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. The
Company's customers are geographically dispersed but are concentrated in the
tobacco industry. The Company historically has had no material losses on its
accounts receivable from customers in the tobacco industry in excess of
allowances provided.
Cash Flow Information
Cash equivalents are considered to be all highly liquid investments with
maturities of three months or less when acquired and exclude restricted cash.
Use of Estimates
Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
Reclassifications
Certain reclassifications of 1994 amounts have been made to conform to the
1995 financial statement presentation.
Pro Forma Earnings per Share (Unaudited)
Pro forma earnings per share gives effect to the Company's initial public
offering (the "Offering") and the payment to Mafco Consolidated Group of a
$5.6 million cash dividend funded by borrowings under Consolidated Cigar's
Credit Agreement (as defined herein). Pro forma earnings per share is
calculated assuming that 30,000,000 shares of common stock are outstanding
upon the consummation of the Offering as a result of the expected conversion
of the outstanding shares of the Company's current common stock into
approximately 25,500,000 shares of its newly created Class B Common Stock, par
value $0.01 per share, and the expected issuance of 4,500,000 shares of Class
A Common Stock, par value $0.01 per share, upon consummation of the Offering.
On a pro forma basis, net income would have been $13.5 million for the year
ended December 31, 1995.
F-10
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE D -- INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies $27,337 $27,518
Work in process ........... 1,582 1,692
Finished goods ............ 9,716 10,634
-------------- --------------
38,635 39,844
Reserve for obsolescence . (761) (822)
-------------- --------------
$37,874 $39,022
============== ==============
</TABLE>
NOTE E -- PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment, net are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Land .................... $ 1,804 $ 1,804
Buildings ............... 13,202 13,254
Machinery and equipment 27,783 28,597
Leasehold improvements . 276 276
Furniture and fixtures . 1,475 1,555
-------------- --------------
44,540 45,486
Accumulated depreciation (6,515) (10,116)
-------------- --------------
$38,025 $ 35,370
============== ==============
</TABLE>
Depreciation expense was $0.4 million for the two months ended March 2,
1993, $3.2 million for the ten months ended December 31, 1993, $3.7 million
for the 1994 fiscal year and $3.6 million for the 1995 fiscal year.
On September 7, 1994, the Company sold a 250,000 square foot building in
Cayey, Puerto Rico for gross proceeds of approximately $5.8 million. The
Company realized a gain of approximately $0.4 million as a result of the sale
which is included in selling, general and administrative expenses. Net
proceeds of approximately $5.0 million were utilized to repay bank debt.
NOTE F -- ACCRUED EXPENSES
Included in accrued expenses are the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
Employee benefits and other compensation $ 5,436 $ 7,226
Interest ................................ 3,667 3,452
Promotional ............................. 1,387 1,345
Taxes ................................... 1,295 1,592
Other ................................... 2,200 2,488
-------------- --------------
$13,985 $16,103
============== ==============
</TABLE>
F-11
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G -- LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Bank borrowings (a) .......... $ 36,200 $ 20,600
Senior subordinated notes (b) 90,000 90,000
-------------- --------------
$126,200 $110,600
============== ==============
</TABLE>
(a) Represents borrowings under a credit agreement (the "Credit Agreement")
with Chase dated February 23, 1993, providing for a $60.0 million reducing
revolving credit facility (the "Revolving Credit Facility") and a $20.0
million working capital facility (the "Working Capital Facility"). The
Revolving Credit Facility and the Working Capital Facility have final
maturities on April 3, 1999. The Revolving Credit Facility is subject to
quarterly commitment reductions of $2.5 million during each year of the
term of the facility. The Credit Agreement is secured by perfected first
priority liens on all of the material assets of Consolidated Cigar and its
domestic subsidiaries and perfected pledges of the stock of all
Consolidated Cigar's subsidiaries (with certain exceptions for the stock
of foreign subsidiaries). The Credit Agreement is guaranteed by the
Company and by all of the domestic subsidiaries of Consolidated Cigar. The
guarantee by the Company is secured by a pledge of all the outstanding
stock of Consolidated Cigar.
The Credit Agreement established interest payments at the option of
Consolidated Cigar based upon the following rates:
<TABLE>
<CAPTION>
<S> <C> <C>
Base Rate Loans Prime plus 1 3/4%
936 Loans 936 Rate plus 2 3/4%
Eurodollar Funds Eurodollar plus 2 3/4%
</TABLE>
Beginning with the fourth quarter of fiscal 1995 the above rates were
reduced by 1/4% in accordance with the Credit Agreement.
The average interest rate under the Credit Agreement was approximately
8.9% at December 31, 1995.
The Credit Agreement contains various covenants which govern, among other
things, the ability to incur indebtedness, pay dividends, incur lease rental
obligations, make capital expenditures, use proceeds from asset sales,
participate in mergers and other activities. The Credit Agreement also
requires Consolidated Cigar to satisfy certain financial covenants related to
net worth, capital expenditures and various ratios.
The maximum amounts of borrowings that are allowed under the Credit
Agreement at the end of 1995 through its maturity are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
------------ --------------
<S> <C>
1995 ............................. $52,500
1996 ............................. 34,887
1997 ............................. 24,887
1998 ............................. 14,887
</TABLE>
Outstanding letters of credit of approximately $1.6 million reduced the
available borrowings under the Credit Agreement at December 31, 1995.
F-12
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G -- LONG-TERM DEBT (Continued)
(b) Represents $90.0 million in principal amount of 10 1/2% Senior
Subordinated Notes Due 2003 (the "Senior Subordinated Notes") issued in
connection with the Acquisition. The Senior Subordinated Notes bear
interest at the rate of 10 1/2% per annum, mature on March 1, 2003 and are
redeemable at a premium prior to maturity starting March 1, 1998. The
Senior Subordinated Notes are redeemable earlier at a premium in the event
of a change of control. The indenture relating to the Senior Subordinated
Notes limits, among other things, dividends and other distributions,
certain types of indebtedness, certain mergers, consolidations and sales
of assets.
The scheduled repayments of long-term debt for the next five years based
on the outstanding balances at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
-------------- --------------
<S> <C>
1996 ................................ $ 0
1997 ................................ 0
1998 ................................ 5,713
1999 ................................ 14,887
2000 ................................ 0
</TABLE>
The fair value of the Company's long-term debt at December 31, 1995 is
estimated based on the quoted market prices for the same issues or on the
current rates offered to the Company for debt of the same remaining
maturities. The estimated fair value of long-term debt was approximately $2.7
million more than the carrying value of $110.6 million.
Because judgment is required in interpreting market data to develop
estimates of fair value, the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions or estimation methodologies
may be material to the estimated fair value amounts.
Consolidated Cigar entered into two five-year interest-rate swap
agreements in an aggregate notional amount of $85.0 million. Under the terms
of the agreements, Consolidated Cigar receives a fixed interest rate averaging
5 4/5% and pays a variable interest rate equal to the six month LIBOR.
Consolidated Cigar entered into such agreements to take advantage of the
differential between long-term and short-term interest rates and effectively
converted the interest rate on $85.0 million of fixed-rate indebtedness to a
variable rate. From inception of the agreements through January 1996
Consolidated Cigar has paid $0.8 million in settlement, which occurs at the
end of each six month period of the agreements. Had Consolidated Cigar
terminated these agreements, which the Company considers to be held for other
than trading purposes, on December 31, 1995, a combined loss of approximately
$0.3 million would have been realized. Future positive or negative cash flows
associated with these agreements will depend upon the trend of short-term
interest rates during the remaining life of the agreements. In the event of
non-performance of the counterparties at anytime during the remaining lives of
these agreements which expire at December 1998 and January 1999, the Company
could lose some or all of any future positive cash flows. However, the Company
does not anticipate non-performance by such counterparties.
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company rents facilities and equipment under operating lease
agreements which expire at various dates through 2000. Net rental expense
under operating leases was $0.2 million for the two
F-13
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE H -- COMMITMENTS AND CONTINGENCIES (Continued)
months ended March 2, 1993, $1.3 million for the ten months ended December 31,
1993, $1.7 million for the year ended December 31, 1994 and $1.8 million for
the year ended December 31, 1995.
Future minimum rental commitments on a cash basis for all noncancelable
operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
-------------- --------------
<S> <C>
1996 ................................. $834
1997 ................................. 863
1998 ................................. 877
1999 ................................. 715
2000 ................................. 145
</TABLE>
Additional commitments exist resulting from contracts to purchase tobacco
from various suppliers. At the end of fiscal 1995, outstanding contracts to
purchase tobacco amounted to $5.3 million which were all U.S. dollar
obligations.
The Company is a party to various pending legal actions. In the opinion of
management, based upon the advice of its outside counsel, the liability, if
any, from all pending litigation will not materially affect the Company's
consolidated financial position or results of operations.
NOTE I -- INCOME TAXES
The Company, Consolidated Cigar and Mafco Holdings entered into a Tax
Sharing Agreement effective January 1, 1993, pursuant to which, for all
taxable periods beginning on or after the Acquisition, Consolidated Cigar will
be included in the consolidated federal and certain state income tax returns
of Mafco Holdings. The Company will pay to Mafco Holdings amounts equal to the
taxes that the Company would otherwise have to pay if it were to file a
separate federal tax return. For all periods presented, federal and state
income taxes were provided as if the Company filed its own income tax returns.
Pursuant to the Tax Sharing Agreement with Mafco Holdings, tax carryforward
losses that arose prior to the Acquisition are not available to the Company on
a go-forward basis. Effective with the consummation of the Merger Agreement,
the Company, Consolidated Cigar and Mafco Consolidated Group entered into a
revised tax sharing agreement which requires the Company to pay to Mafco
Consolidated Group an amount equal to the federal and certain state income
taxes that the Company would pay if the Company had filed its own federal and
state income tax returns. The Company has generated U.S. tax net operating
loss carryforwards of $2.9 million subsequent to the Acquisition, which were
utilized completely during the 1994 and 1995 fiscal years.
Prior to the Acquisition, Consolidated Cigar was included in the federal
income tax return of Triple C and filed certain state and local tax returns on
its own.
F-14
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I -- INCOME TAXES (Continued)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------ -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current:
Federal .. $ -- $ -- $ 266 $1,880
State ..... 14 86 222 423
Foreign .. 77 764 1,494 1,292
------------ -------------- -------------- --------------
91 850 1,982 $3,595
------------ -------------- -------------- --------------
Deferred:
Federal ... -- -- -- (600)
Foreign .. -- 417 7 604
------------ -------------- -------------- --------------
-- 417 7 4
------------ -------------- -------------- --------------
$ 91 $ 1,267 $1,989 $3,599
============ ============== ============== ==============
</TABLE>
Deferred taxes result from temporary differences in the recognition of
income and expenses for financial and income tax reporting purposes and also
result from the differences between the fair value of assets acquired in
business combinations and their tax basis. The approximate effect of the
temporary differences that gave rise to deferred tax balances were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
-------------- --------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable ............. $1,159 $1,437
Accrued expenses ................ 1,144 1,628
Net operating loss carryforwards 1,119 --
Other ........................... 1,050 1,139
-------------- --------------
Total deferred tax asset ...... 4,472 4,204
Valuation allowance ............. (2,622) --
-------------- --------------
Net deferred tax asset ......... 1,850 4,204
-------------- --------------
Deferred tax liabilities:
Property, plant and equipment .. 3,682 3,474
Unremitted earnings ............. 891 1,579
Other ........................... 121 42
-------------- --------------
Total deferred tax liability .. 4,694 5,095
-------------- --------------
Net deferred tax liability .... $2,844 $ 891
============== ==============
</TABLE>
Of the total valuation allowance of $2.6 million for the 1994 fiscal year,
approximately $2.0 million was accounted for as a reduction of goodwill during
fiscal 1995.
The net deferred tax liability relates mainly to the Company's Puerto Rico
subsidiary which is not consolidated for federal income tax purposes. This
represents the temporary difference attributable to property, plant and
equipment at Puerto Rico's effective local tax and toll gate tax rate.
F-15
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I -- INCOME TAXES (Continued)
As discussed in Note J, during fiscal 1995 certain pension liabilities
were transferred to an affiliate. In connection with this transaction, a
deferred tax asset in the amount of $2.4 million was recorded along with a
reduction of goodwill relating to the unfunded pension liability at the date
of the Acquisition. This deferred tax asset was then transferred to Mafco
Consolidated Group.
A reconciliation of the statutory U.S. income tax rate and the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------ -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Statutory rate ............. $ 5 $ 1,451 $ 3,386 $ 6,135
U.S. loss without benefit . 599 685 -- --
Realization of valuation
reserve and other ......... -- -- (490) (666)
Foreign income not subject
to statutory tax rate .... (530) (1,445) (1,749) (2,765)
State income taxes,
net in 1995 ............... 14 86 222 275
Non-deductible amortization 3 490 620 620
------------ -------------- -------------- --------------
$ 91 $ 1,267 $ 1,989 $ 3,599
============ ============== ============== ==============
</TABLE>
The domestic and foreign components of income (loss) before income taxes
are as follows:
<TABLE>
<CAPTION>
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------ -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
United States . $(1,933) $(4,758) $(2,725) $ 66
Foreign ........ 1,947 8,904 12,398 17,463
------------ -------------- -------------- --------------
$ 14 $ 4,146 $ 9,673 $17,529
============ ============== ============== ==============
</TABLE>
Foreign income primarily consists of Puerto Rico income. Pursuant to a
grant of industrial tax exemption which expires in 2002, 90% of the income
earned from the manufacture of cigars in Puerto Rico is tax exempt from Puerto
Rican income taxes. The remaining 10% of such income is taxed at a maximum
surtax rate of 45%, resulting in an effective income tax rate of approximately
4.5%. The benefit to the Company amounted to approximately $0.7 million for
the two months ended March 2, 1993, $3.1 million for the ten months ended
December 31, 1993, $3.5 million for the year ended December 31, 1994 and $5.1
million for the year ended December 31, 1995.
Funds repatriated to the Company from its Puerto Rico subsidiary are
subject to a maximum Puerto Rican tollgate tax of 10%. Legislation enacted in
Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods.
Income earned from Puerto Rico operations is generally exempt from federal
income tax. Section 936 of the Internal Revenue code allows a "possessions tax
credit" against U.S. income tax attributable to the Puerto Rico taxable
earnings. As part of the OBRA 1993, the Internal Revenue Service has limited
this exemption based upon a percentage of qualified wages in Puerto Rico, plus
certain amounts of depreciation. The Company believes that it qualified for
the possessions tax credit during each of the fiscal years ended 1993, 1994
and 1995.
F-16
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I -- INCOME TAXES (Continued)
During 1995, proposed legislation was introduced before the U.S. Senate
House Committee on Ways and Means regarding tax reform and the possible repeal
of Section 936 of the Internal Revenue Code. The proposal, as drafted, in
September 1995 called for the repeal for taxable years beginning after
December 31, 1995, however a credit would be granted for an additional 10 year
phase in period under a special grandfather rule. The credit would be limited
to the average annual income, adjusted for inflation, claimed over three of
the last five most recent years ended before September 13, 1995, excluding the
highest and lowest years. The Company does not believe the effect of the
proposal would be material during the phase in period because of the special
grandfather rule. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations --Taxation and Regulation --Possessions
Tax Credit."
The Company also manufactures cigars in the Dominican Republic pursuant to
a 100% tax exemption which expires in 2010.
NOTE J -- PENSION PLANS
Consolidated Cigar maintains tax qualified non-contributory defined
benefit pension plans covering substantially all hourly and salaried employees
in the U.S. and Puerto Rico (the "Pension Plans"). In accordance with an
agreement between Consolidated Cigar and MCG Intermediate Holdings Inc.
("MCG"), which is a wholly owned subsidiary of Mafco Consolidated Group who
maintains the Abex Retirement Plan, the Pension Plans were merged with and
into the Abex Retirement Plan, effective December 31, 1995.
The Abex Retirement Plan will be the surviving plan with all the assets
and liabilities of the merged Pension Plans becoming assets and liabilities of
the surviving Abex Retirement Plan. The effect of the merger of the Pension
Plans was recorded as a contribution to capital of $4.8 million by Mafco
Consolidated Group. The capital contribution is net of a $2.4 million deferred
tax asset. The Company will continue to record pension expense related to
these plans in future years.
Consolidated Cigar also provides a separate non-contributory defined
benefit pension plan for hourly employees in its Richmond, Virginia location
and a benefit restoration plan ("BRP") for certain officers.
The pension plans' benefit formulas generally base payments to retired
employees upon their length of service and a percentage of qualifying
compensation during the 60 consecutive months in which compensation was
highest, in the ten years prior to retirement. Pension benefits are limited to
33 years of credited service and are reduced by the actuarial equivalent of
any benefits received under Consolidated Cigar's 401(k) Plans.
The following table sets forth Consolidated Cigar's remaining pension
plans' funded status reflecting the merger with the Abex Retirement Plan. The
Richmond, Virginia plan's assets exceed its liabilities and the BRP is
unfunded. These amounts are recognized in the consolidated financial
statements under the captions "Other Liabilities" and "Accrued Expenses" as
unfunded liabilities with the 1995 data based upon actuarial projections:
F-17
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J -- PENSION PLANS (Continued)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
-------------------------------- --------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
--------------- --------------- --------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Plan assets at fair value .................... $478 $11,027 $ 462 $ --
Actuarial present value of
benefit obligation:
Vested benefits ............................. 353 14,180 368 139
Non-vested benefits ......................... 43 910 32 8
--------------- --------------- --------------- ---------------
Accumulated benefit obligations .............. 396 15,090 400 147
Effect of projected future
salary increases ............................ -- 4,620 -- 148
--------------- --------------- --------------- ---------------
396 19,710 400 295
--------------- --------------- --------------- ---------------
Funded status-over (under) ................... 82 (8,683) 62 (295)
Unrecognized net loss (gain) ................. (11) 290 6 (249)
Prior service cost not yet recognized in net
periodic pension cost ....................... 28 69 27 309
Adjustment for minimum liability ............. -- (7) -- --
Unrecognized net transition asset ............ (71) -- (67) --
--------------- --------------- --------------- ---------------
Net asset (liability) included in the Balance
Sheet ....................................... $ 28 $(8,331) $ 28 $ (235)
=============== =============== =============== ===============
</TABLE>
The discount rate used in determining the actuarial present value of the
projected benefit obligation was 8 1/4% in 1994 and 7 1/4% in 1995. The rate
of increase in future compensation levels reflected in such determinations was
5.0% and 4 1/2% for the U.S. and Puerto Rico Plans, respectively in 1994 and 4
1/2% and 4.0% respectively in 1995. The assumed long-term rate of return on
assets was 8 1/4% in 1993, 1994 and 1995. Consolidated Cigar's funding policy
is to contribute annually an amount necessary to satisfy the Internal Revenue
Service's minimum funding standards. Plan assets consist principally of
equity, fixed income and money market funds.
F-18
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE J -- PENSION PLANS (Continued)
The following table sets forth the periodic net pension expense:
<TABLE>
<CAPTION>
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------ -------------- -------------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Service cost --benefits
earned during the
period ................ $ 103 $ 510 $ 615 $ 490
Interest cost on
projected benefit
obligation ............ 222 1,111 1,506 1,644
Actual return on
plan assets ........... (130) (649) (942) (2,598)
Net amortizations
and deferrals ......... (11) (56) 42 1,661
------------ -------------- -------------- --------------
Net pension expense ... $ 184 $ 916 $1,221 $ 1,197
============ ============== ============== ==============
</TABLE>
Consolidated Cigar has adopted two deferred compensation plans pursuant to
Section 401(k) of the Internal Revenue Code for all domestic salaried
employees and certain union employees who have a minimum of six months of
service (the "401(k) Plans"). It has been Consolidated Cigar's policy to
contribute 2% of each domestic salaried employee's compensation into their
401(k) Plan. Consolidated Cigar does not contribute to the union employees
401(k) Plan. Amounts expensed under the 401(k) Plans for the two months ended
March 2, 1993 were $30,800, for the ten months ended December 31, 1993 were
$154,200, for the year ended December 31, 1994 were $192,000 and for the year
ended December 31, 1995 were $202,000.
NOTE K -- RELATED PARTY TRANSACTIONS
Pursuant to a Reimbursement Agreement between Mafco Holdings and
Consolidated Cigar, Mafco Holdings provides the Company with certain allocated
services upon request. In addition, as discussed in Note I, the Company has
agreed to pay Mafco Holdings and Mafco Consolidated Group certain amounts
related to income tax expense. Amounts due to affiliates totaled $452,000 and
$1.7 million at December 31, 1994 and 1995 respectively, principally relating
to income taxes.
The Company purchases certain raw materials from Mafco Worldwide
Corporation which amounted to $110,000, $265,000 and $269,000 for the ten
months ended December 31, 1993 and the years ended December 31, 1994 and 1995,
respectively. The Company also provides services for Revlon, Inc., a
subsidiary of Mafco Holdings which amounted to $481,000, $763,000 and $874,000
for the ten months ended December 31, 1993 and the years ended December 31,
1994 and 1995, respectively. Amounts due to and from these affiliates were not
significant at December 31, 1994 and 1995.
F-19
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share data)
<TABLE>
<CAPTION>
PRO FORMA
JUNE 29,
JUNE 29, 1996
1996 (UNAUDITED)
(UNAUDITED) NOTE E
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 947 $ 947
Accounts receivable, less allowance of $4,499 ....................... 18,241 18,241
Inventories ......................................................... 42,915 42,915
Prepaid expenses and other .......................................... 4,568 4,568
----------- -----------
Total current assets .............................................. 66,671 66,671
Property, plant and equipment, net ................................... 37,275 37,275
Trademarks, less accumulated amortization of $2,887 .................. 31,588 31,588
Goodwill, less accumulated amortization of $5,768 .................... 60,549 60,549
Other intangibles and assets, less accumulated amortization of $4,205 4,435 4,435
----------- -----------
Total assets ...................................................... $200,518 $200,518
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Current Portion of Promissory Note .................................. $ -- $ 5,000
Accounts payable .................................................... 6,579 6,579
Accrued expenses .................................................... 16,595 16,595
Due to affiliate .................................................... 637 637
----------- -----------
Total current liabilities ......................................... 23,811 28,811
Long-term debt ....................................................... 111,500 117,088
Promissory Note ...................................................... -- 65,000
Deferred tax and other liabilities ................................... 6,882 6,882
----------- -----------
Total liabilities ................................................. 142,193 217,781
----------- -----------
Commitments and contingencies ........................................
Stockholder's equity:
Common stock, $1.00 par value, 1,000 shares authorized, issued
and outstanding .................................................... 1 1
Additional paid-in capital (capital deficiency) ...................... 34,834 (17,264)
Retained earnings .................................................... 23,490 --
----------- -----------
Total stockholder's equity (deficit) .............................. 58,325 (17,263)
----------- -----------
Total liabilities and stockholder's equity ........................ $200,518 $200,518
=========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-20
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
-------------------------------
JULY 1, 1995 JUNE 29, 1996
-------------- ---------------
<S> <C> <C>
Net sales .................................... $71,449 $92,200
Cost of sales ................................ 42,166 53,416
-------------- ---------------
Gross profit ................................. 29,283 38,784
Selling, general and administrative expenses 15,295 17,578
-------------- ---------------
Operating income ............................. 13,988 21,206
Other expenses:
Interest expense, net ....................... (6,650) (5,301)
Minority interest ........................... (45) (141)
Miscellaneous, net .......................... (438) (444)
-------------- ---------------
Income before provision for income taxes .... 6,855 15,320
Provision for income taxes ................... 1,266 4,143
-------------- ---------------
Net income ................................... $ 5,589 $11,177
============== ===============
Pro forma earnings per
common share ................................ $ 0.37
===============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
TWENTY-SIX TWENTY-SIX
WEEKS ENDED WEEKS ENDED
JULY 1, 1995 JUNE 29, 1996
-------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ..................................................... $ 5,589 $11,177
Adjustments to reconcile net income to net cash provided by
(used for) operating activities:
Depreciation and amortization .................................. 3,742 3,647
Deferred income ................................................ (103) (102)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable ........................................... (2,256) (3,358)
Inventories ................................................... (2,331) (3,893)
Prepaid expenses and other .................................... (450) (654)
Increase in:
Accounts payable .............................................. 1,227 2,782
Accrued expenses and other liabilities ........................ 910 1,069
-------------- ---------------
Net cash provided by operating activities ....................... 6,328 10,668
-------------- ---------------
Cash flows used for investing activities:
Capital expenditures ........................................... (370) (3,170)
Investment in joint venture .................................... -- (482)
Increase in other assets ....................................... 200 114
-------------- ---------------
Net cash used for investing activities .......................... (170) (3,538)
-------------- ---------------
Cash flows (used for) provided by financing activities:
(Repayment) borrowings of revolving loan, net .................. (700) 900
Dividends paid ................................................. (5,000) (7,180)
Due from affiliates and other borrowings ....................... (384) (1,048)
-------------- ---------------
Net cash used for financing activities .......................... (6,084) (7,328)
-------------- ---------------
Increase (decrease) in cash and cash equivalents ................ 74 (198)
Cash and cash equivalents, beginning of period .................. 1,700 1,145
-------------- ---------------
Cash and cash equivalents, end of period ........................ $ 1,774 $ 947
============== ===============
Supplemental disclosures of cash flow information:
Interest paid during the period ................................ $ 6,819 $ 5,521
Income taxes paid during the period ............................ 314 4,830
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
Consolidated Cigar Holdings Inc. (formerly Consolidated Cigar (Parent)
Holdings Inc.) (the "Company") is a holding company with no business
operations of its own and was formed as a Delaware corporation on January 6,
1993 to hold all of the outstanding capital stock of Consolidated Cigar
Corporation ("Consolidated Cigar"), through which the Company conducts its
business operations. The results of operations and financial position of the
Company therefore reflect the consolidated results of operations and financial
position of Consolidated Cigar.
On June 15, 1995, Mafco Holdings Inc. ("Mafco Holdings") and Mafco
Consolidated Group Inc. ("Mafco Consolidated Group"), formerly known as Abex
Inc. ("Abex"), consummated an agreement and plan of merger (the "Merger
Agreement") executed between the parties on January 6, 1995. The Merger
Agreement provided for, among other things, the merger of C&F Merger Inc., a
subsidiary of Mafco Holdings and the indirect parent of both the Company and
Mafco Worldwide Corporation ("Mafco Worldwide") with Mafco Consolidated Group,
which was the surviving corporation in the merger. As a result, the Company
became an indirect wholly owned subsidiary of Mafco Consolidated Group.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and
accordingly include all adjustments (consisting only of normal recurring
accruals) which, in the opinion of management, are necessary for a fair
statement of the operations for the periods presented. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. The fiscal
year of the Company is comprised of four quarters with each quarter consisting
of thirteen weeks ending on Saturday except the last quarter which ends on
December 31st. The statements should be read in conjunction with the
consolidated financial statements of the Company and notes thereto for the
fiscal year ended December 31, 1995 included elsewhere herein. The results of
operations for the twenty-six week periods ended July 1, 1995 and June 29,
1996 are not necessarily indicative of the results for the entire year.
NOTE B -- INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
JUNE 29, 1996
---------------
(IN THOUSANDS)
<S> <C>
Raw materials and supplies $29,684
Work in process ............................ 2,276
Finished goods ............................. 11,964
---------------
43,924
Reserve for obsolescence .................. (1,009)
---------------
$42,915
===============
</TABLE>
NOTE C -- INITIAL PUBLIC OFFERING
On June 26, 1996, the Company filed a registration statement with the
Securities and Exchange Commission relating to an initial public offering (the
"Offering") of approximately 15% of its common stock. If the Offering is
consummated, the net proceeds are expected to be distributed as a dividend to
Mafco Consolidated Group.
NOTE D -- PRO FORMA EARNINGS PER SHARE
Pro forma earnings per share gives effect to the Offering and the payment
to Mafco Consolidated Group of a $5.6 million cash dividend funded by
borrowings under Consolidated Cigar's credit agreement. Pro forma earnings per
share is calculated assuming that 30,000,000 shares of common stock are
outstanding upon the consummation of the Offering, as a result of the expected
conversion of the outstanding shares of the Company's current common stock
into approximately 25,500,000 shares
F-23
<PAGE>
of its newly created Class B Common Stock, par value $0.01 per share, and the
expected issuance of 4,500,000 shares of Class A Common Stock, par value $0.01
per share, upon consummation of the Offering. On a pro forma basis, net income
would have been $11.0 million for the twenty-six weeks ended June 29, 1996.
NOTE E -- PRO FORMA BALANCE SHEET
The Pro Forma Balance Sheet as of June 29, 1996 gives pro forma effect to
the expected issuance by the Company of a promissory note (the "Promissory
Note") in the aggregate principal amount of $70.0 million to Mafco
Consolidated Group in connection with the Offering and the payment to Mafco
Consolidated Group of a $5.6 million cash dividend funded by borrowings under
Consolidated Cigar's credit agreement. The Promissory Note is expected to be
payable in quarterly installments of $2.5 million beginning March 31, 1997
with the final installment payable on December 31, 2003.
F-24
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and
Chase Securities Inc. are acting as representatives (the "Representatives"),
has severally agreed to purchase from the Company, the respective number of
shares of Class A Common Stock set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF CLASS A
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
Goldman, Sachs & Co. .....................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated ....................
Morgan Stanley & Co. Incorporated .......
Chase Securities Inc. ....................
------------
Total .................................. 3,500,000
============
</TABLE>
Under the terms and conditions of the U.S. Underwriting Agreement, the
U.S. Underwriters are committed to take and pay for all of the shares offered
hereby, if any are taken.
The U.S. Underwriters propose to offer the shares of Class A Common Stock
in part directly to the public at the initial public offering price set forth
on the cover page of this Prospectus and in part to certain dealers at such
price less a concession of $ per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per share to certain
brokers and dealers. After the shares of Class A Common Stock are released for
sale to the public, the offering price and other selling terms may from time
to time be varied by the Representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 1,000,000 shares of Class A Common Stock in an international offering
outside the United States. The offering price and aggregate underwriting
discounts and commissions per share for the Offerings are identical. The
closing of the U.S. Offering made hereby is a condition to the closing of the
International Offering, and vice versa. The representatives of the
International Underwriters are Goldman Sachs International, Merrill Lynch
International, Morgan Stanley & Co. International and Chase Manhattan
International Limited.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution
of the shares offered hereby and subject to certain exceptions, it will offer,
sell or deliver the shares of Class A Common Stock, directly or indirectly,
only in the United States of America (including the States and the District of
Columbia), its territories, its possessions and other areas subject to its
jurisdiction (the "United States") and to U.S. persons, which term shall mean,
for purposes of this paragraph: (a) any individual who is a resident of the
United States or (b) any corporation, partnership or other entity organized in
or under the laws of the United States or any political subdivision thereof
and whose office most directly involved with the purchase is located in the
United States. Each of the International Underwriters has agreed pursuant to
the Agreement Between that, as a part of the distribution of the shares
offered as a part of the International Offering and subject to certain
exceptions, it will (i) not, directly or indirectly, offer, sell or deliver
shares of Class A Common Stock (a)
U-1
<PAGE>
in the United States or to any U.S. persons or (b) to any person who it
believes intends to reoffer, resell or deliver the shares in the United
States or to any U.S. persons and (ii) cause any dealer to whom it may sell
such shares at any concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of
525,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the U.S. Underwriters exercise their
over-allotment option, the U.S. Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of shares to be purchased by each of them, as shown in the
foregoing table, bears to the 3,500,000 shares of Class A Common Stock offered
hereby. The Company has granted the International Underwriters a similar
option to purchase up to an aggregate of 150,000 additional shares of Class A
Common Stock.
The Company and Mafco Consolidated Group have agreed that, subject to
certain exceptions, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than pursuant to employee
stock option or purchase plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus) which are substantially similar to the shares of Class A Common
Stock or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Class A Common Stock without the prior
written consent of Goldman, Sachs & Co., except for the shares of Class A
Common Stock offered in connection with the Offerings.
The U.S. Underwriters have reserved up to 450,000 shares of Class A Common
Stock offered hereby for sale to certain employees of the Company at the
initial public offering price. The number of shares available to the general
public will be reduced to the extent such employees purchase reserved shares.
Any reserved shares that are not so purchased by such employees will be
offered by the U.S. Underwriters to the general public on the same terms as
the other shares offered hereby.
The representatives of the U.S. Underwriters and the International
Underwriters have informed the Company that they do not expect sales to
accounts over which the U.S. Underwriters and the International Underwriters
exercise discretionary authority to exceed five percent of the total number of
shares of Class A Common Stock offered by them.
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The public offering price will be negotiated among the Company
and the representatives of the U.S. Underwriters and the International
Underwriters. Among the factors to be considered in determining the initial
public offering price of the Class A Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment of
the Company's management and the consideration of the above factors in
relation to market valuation of companies in related businesses. There can be
no assurance that an active trading market will develop for the Class A Common
Stock or that the Class A Common Stock will trade in the public market
subsequent to the Offerings at or above the public offering price.
The Class A Common Stock has been approved for listing on the NYSE under
the symbol "CIG," subject to official notice of issuance. In order to meet one
of the requirements for listing the Class A Common Stock on the NYSE, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
Certain of the U.S. Underwriters and the International Underwriters and
their affiliates participate on a regular basis in various general financing
and banking transactions for the Company and its affiliates. Chase Securities
Inc. is an affiliate of The Chase Manhattan Bank, which is agent bank and a
lender under the Credit Agreement.
U-2
<PAGE>
[INSIDE BACK COVER GRAPHIC OF MONTECRISTO CIGAR OMITTED]
<PAGE>
==============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ................................................... 3
Risk Factors ......................................................... 9
Use of Proceeds ...................................................... 16
Dividend Policy ...................................................... 16
Dilution ............................................................. 17
Capitalization ....................................................... 18
Selected Historical and Pro Forma Financial
Data ................................................................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations .......................................................... 22
Business ............................................................. 29
Management ........................................................... 40
Ownership of Common Stock ............................................ 48
Certain Relationships and Related
Transactions ........................................................ 48
Description of Capital Stock ......................................... 50
Shares Eligible for Future Sale ...................................... 53
Description of Certain Indebtedness ................................. 54
Certain United States Tax Consequences to
Non-United States Holders ........................................... 55
Legal Matters ........................................................ 57
Experts .............................................................. 57
Available Information ................................................ 57
Index to Consolidated Financial Statements ........................... F-1
Underwriting ......................................................... U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
==============================================================================
==============================================================================
4,500,000 SHARES
CONSOLIDATED CIGAR
HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
----------
PROSPECTUS
----------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
MORGAN STANLEY & CO.
INCORPORATED
CHASE SECURITIES INC.
REPRESENTATIVES OF THE UNDERWRITERS
==============================================================================
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF
ANY SUCH STATE.
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
SUBJECT TO COMPLETION, DATED AUGUST 13, 1996
4,500,000 SHARES
CONSOLIDATED CIGAR HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
---------------
All of the 4,500,000 shares of Class A Common Stock offered hereby are
being sold by the Company. Of the 4,500,000 shares of Class A Common Stock
offered, 1,000,000 shares are being offered hereby in an international
offering outside the United States and 3,500,000 shares are being offered in a
concurrent United States offering. The initial public offering price and the
aggregate underwriting discount per share will be identical for both
offerings. See "Underwriting."
Each share of Class A Common Stock entitles its holder to one vote, and
each share of Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock" and, together with the Class A Common Stock, the "Common
Stock"), of the Company entitles its holder to ten votes. All of the shares of
Class B Common Stock are owned by Mafco Consolidated Group Inc. (NYSE:MFO)
("Mafco Consolidated Group"), a corporation 85% owned by Ronald O. Perelman,
through his ownership of Mafco Holdings Inc. Immediately after consummation of
the Offerings (assuming no exercise of the over-allotment options granted to
the Underwriters), Mafco Consolidated Group will beneficially own shares of
Class B Common Stock representing approximately 98.3% of the combined voting
power of the outstanding shares of Common Stock. The net proceeds from the
Offerings will be paid as a dividend to Mafco Consolidated Group. See "Use of
Proceeds."
Prior to the Offerings, there has been no public market for the Class A
Common Stock of the Company. It is currently estimated that the initial public
offering price per share will be between $18.00 and $21.00. For factors to be
considered in determining the initial public offering price, see
"Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
The Class A Common Stock has been approved for listing on the New York
Stock Exchange under the symbol "CIG," subject to official notice of issuance.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
---------------
<TABLE>
<CAPTION>
INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------- ------------ -----------
<S> <C> <C> <C>
Per Share ..... $ $ $
Total(3) ...... $ $ $
</TABLE>
- ------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
(2) Before deducting estimated expenses of $ payable by the Company.
(3) The Company has granted the International Underwriters an option for 30
days to purchase up to an additional 150,000 shares of Class A Common
Stock at the initial public offering price per share, less the
underwriting discount, solely to cover over-allotments. Additionally, the
Company has granted the U.S. Underwriters a similar option with respect to
an additional 525,000 shares as part of the concurrent U.S. offering. If
such options are exercised in full, the total initial public offering
price, underwriting discount and proceeds to Company will be $ , $ and $ ,
respectively. See "Underwriting."
The shares offered hereby are offered severally by the International
Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that certificates for the shares will be ready for delivery in New
York, New York, on or about , 1996, against payment therefor in immediately
available funds.
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO.
INTERNATIONAL
CHASE MANHATTAN INTERNATIONAL
The date of this Prospectus is , 1996.
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
[GRAPHIC OF HAND HOLDING H. UPMAN CIGAR OMITTED]
This Prospectus does not constitute an offer to sell or the solicitation
of an offer to buy the shares in any jurisdiction in which such offer or
solicitation is unlawful. There are restrictions on the offer and sale of the
shares in the United Kingdom. All applicable provisions of the Financial
Services Act 1986 and the Public Offers of Securities Regulations 1995 with
respect to anything done by any person in relation to the shares, in, from or
otherwise involving the United Kingdom must be complied with. See
"Underwriting."
In this Prospectus, references to "dollars", "U.S.$" and "$" are to United
States dollars.
IN CONNECTION WITH THE OFFERINGS, THE UNDERWRITERS MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS
A COMMON STOCK OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH
STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
UNDERWRITING
Subject to the terms and conditions of the International Underwriting
Agreement, the Company has agreed to sell to each of the International
Underwriters named below, and each of such International Underwriters, for
whom Goldman Sachs International, Merrill Lynch International, Morgan Stanley
& Co. International and Chase Manhattan International Limited are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company, the respective number of shares of Class A Common Stock set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A COMMON
UNDERWRITER STOCK
------------ --------------
<S> <C>
Goldman Sachs International ..........
Merrill Lynch International ..........
Morgan Stanley & Co. International ..
Chase Manhattan International Limited
--------------
Total .............................. 1,000,000
==============
</TABLE>
Under the terms and conditions of the International Underwriting
Agreement, the International Underwriters are committed to take and pay for
all of the shares offered hereby, if any are taken.
The International Underwriters propose to offer the shares of Class A
Common Stock in part directly to the public at the initial public offering
price set forth on the cover page of this Prospectus and in part to certain
dealers at such price less a concession of $ per share. The International
Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per share to certain brokers and dealers. After the shares of
Class A Common Stock are released for sale to the public, the offering price
and other selling terms may from time to time be varied by the
Representatives.
The Company has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with the underwriters of the U.S. Offering (the "U.S.
Underwriters") providing for the concurrent offer and sale of 3,500,000 shares
of Class A Common Stock in a U.S. offering in the United States. The offering
price and aggregate underwriting discounts and commissions per share for the
Offerings are identical. The closing of the International Offering made hereby
is a condition to the closing of the U.S. Offering, and vice versa. The
representatives of the U.S. Underwriters are Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated
and Chase Securities Inc.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the Offerings, each of the
U.S. Underwriters has agreed that, as a part of the distribution of the shares
offered as part of the U.S. Offering and subject to certain exceptions, it
U-1
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
will offer, sell or deliver the shares of Class A Common Stock, directly or
indirectly, only in the United States of America (including the States and the
District of Columbia), its territories, its possessions and other areas
subject to its jurisdiction (the "United States") and to U.S. persons, which
term shall mean, for purposes of this paragraph: (a) any individual who is a
resident of the United States or (b) any corporation, partnership or other
entity organized in or under the laws of the United States or any political
subdivision thereof and whose office most directly involved with the purchase
is located in the United States. Each of the International Underwriters named
herein has agreed pursuant to the Agreement Between that, as a part of the
distribution of the shares offered hereby and subject to certain exceptions,
it will (i) not, directly or indirectly, offer, sell or deliver shares of
Class A Common Stock (a) in the United States or to any U.S. persons or (b) to
any person who it believes intends to reoffer, resell or deliver the shares in
the United States or to any U.S. persons and (ii) cause any dealer to whom it
may sell such shares at any concession to agree to observe a similar
restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Class A Common Stock as may be mutually agreed. The price of any shares so
sold shall be the initial public offering price, less an amount not greater
than the selling concession.
The Company has granted the International Underwriters an option
exercisable for 30 days after the date of this Prospectus to purchase up to an
aggregate of 150,000 additional shares of Class A Common Stock solely to cover
over-allotments, if any. If the International Underwriters exercise their
over-allotment option, the International Underwriters have severally agreed,
subject to certain conditions, to purchase approximately the same percentage
thereof that the number of shares to be purchased by each of them, as shown in
the foregoing table, bears to the 1,000,000 shares of Class A Common Stock
offered hereby. The Company has granted the U.S. Underwriters a similar option
to purchase up to an aggregate of 525,000 additional shares of Class A Common
Stock.
The Company and Mafco Consolidated Group have agreed that, subject to
certain exceptions, during the period beginning from the date of this
Prospectus and continuing to and including the date 180 days after the date of
this Prospectus, they will not offer, sell, contract to sell or otherwise
dispose of any securities of the Company (other than pursuant to employee
stock option or purchase plans existing, or on the conversion or exchange of
convertible or exchangeable securities outstanding, on the date of this
Prospectus) which are substantially similar to the shares of Class A Common
Stock or which are convertible into or exchangeable for securities which are
substantially similar to the shares of Class A Common Stock without the prior
written consent of Goldman, Sachs & Co., except for the shares of Class A
Common Stock offered in connection with the Offerings.
Each International Underwriter has also agreed that (a) it has not offered
or sold and prior to the date six months after the date of issue of the shares
of Class A Common Stock will not offer or sell any shares of Class A Common
Stock to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses or
otherwise in circumstances which have not resulted and will not result in an
offer to the public in the United Kingdom within the meaning of the Public
Offers of Securities Regulations 1995, (b) it has complied, and will comply,
with all applicable provisions of the Financial Services Act 1986 of Great
Britain with respect to anything done by it in relation to the shares of Class
A Common Stock in, from or otherwise involving the United Kingdom, and (c) it
has only issued or passed on and will only issue or pass on in the United
Kingdom any document received by it in connection with the issuance of shares
of Class A Common Stock to a person who is of a kind described in Article
11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1995 of Great Britain or is a person to whom the document
may otherwise lawfully be issued or passed on.
Buyers of shares of Class A Common Stock offered hereby may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the initial public offering price.
U-2
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
The U.S. Underwriters have reserved up to 450,000 shares of Class A Common
Stock offered as part of the U.S. Offering for sale to certain employees of
the Company at the public offering price. The number of shares available to
the general public will be reduced to the extent such employees purchase
reserved shares. Any reserved shares that are not so purchased by such
employees will be offered by the U.S. Underwriters to the general public on
the same terms as the other shares offered as part of the U.S. Offering.
The representatives of the International Underwriters and the U.S.
Underwriters have informed the Company that they do not expect sales to
accounts over which the International Underwriters and the U.S. Underwriters
exercise discretionary authority to exceed five percent of the total number of
shares of Class A Common Stock offered by them.
Prior to the Offerings, there has been no public market for the Class A
Common Stock. The public offering price will be negotiated among the Company
and the representatives of the U.S. Underwriters and the International
Underwriters. Among the factors to be considered in determining the initial
public offering price of the Class A Common Stock, in addition to prevailing
market conditions, will be the Company's historical performance, estimates of
the business potential and earnings prospects of the Company, an assessment of
the Company's management and the consideration of the above factors in
relation to market valuation of companies in related businesses. There can be
no assurance that an active trading market will develop for the Class A Common
Stock or that the Class A Common Stock will trade in the public market
subsequent to the Offerings at or above the public offering price.
The Class A Common Stock has been approved for listing on the NYSE under
the symbol "CIG," subject to official notice of issuance. In order to meet one
of the requirements for listing the Class A Common Stock on the NYSE, the U.S.
Underwriters have undertaken to sell lots of 100 or more shares to a minimum
of 2,000 beneficial holders.
The Company has agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities Act.
Certain of the International Underwriters and U.S. Underwriters and their
affiliates participate on a regular basis in various general financing and
banking transactions for the Company and its affiliates. Chase Securities Inc.
is an affiliate of The Chase Manhattan Bank, which is agent bank and a lender
under the Credit Agreement.
U-3
<PAGE>
[INSIDE BACK COVER GRAPHIC OF MONTECRISTO CIGAR OMITTED]
==============================================================================
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary ............................................... 3
Risk Factors ..................................................... 9
Use of Proceeds .................................................. 16
Dividend Policy .................................................. 16
Dilution ......................................................... 17
Capitalization ................................................... 18
Selected Historical and Pro Forma Financial
Data ............................................................ 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ...................................................... 22
Business ......................................................... 29
Management ....................................................... 40
Ownership of Common Stock ........................................ 48
Certain Relationships and Related
Transactions .................................................... 48
Description of Capital Stock ..................................... 50
Shares Eligible for Future Sale .................................. 53
Description of Certain Indebtedness ............................. 54
Certain United States Tax Consequences to
Non-United States Holders ....................................... 55
Legal Matters .................................................... 57
Experts .......................................................... 57
Available Information ............................................ 57
Index to Consolidated Financial Statements ....................... F-1
Underwriting ..................................................... U-1
</TABLE>
THROUGH AND INCLUDING , 1996 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
==============================================================================
==============================================================================
4,500,000 SHARES
CONSOLIDATED CIGAR
HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
----------
PROSPECTUS
----------
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO.
INTERNATIONAL
CHASE MANHATTAN INTERNATIONAL
REPRESENTATIVES OF THE UNDERWRITERS
==============================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions, are estimated as follows:
<TABLE>
<CAPTION>
<S> <C>
Securities and Exchange Commission Registration Fee $ 37,475
National Association of Securities Dealers ......... 11,000
New York Stock Exchange ............................. 183,000
Blue Sky Fees ....................................... 25,000
Printing and Engraving Expenses ..................... 900,000
Legal Fees and Expenses ............................. 1,000,000
Accounting Fees and Expenses ........................ 200,000
Transfer Agent and Registrar Fees ................... 5,000
Miscellaneous ....................................... 38,525
----------
Total ............................................. $2,400,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant is empowered by Section 145 of the General Corporation Law
of the State of Delaware (the "DGCL"), subject to the procedures and
limitations therein, to indemnify any person against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with any threatened, pending
or completed action, suit or proceeding in which such person is made a party
by reason of such person being or having been a director, officer, employee or
agent of the Registrant. The statute provides that indemnification pursuant to
its provisions is not exclusive of other rights of indemnification to which a
person may be entitled under any by-law, agreement, vote of stockholders or
disinterested directors, or otherwise. The Amended and Restated By-laws of the
Registrant provide for indemnification by the Registrant of its directors and
officers to the fullest extent permitted by the DGCL.
The foregoing statements are subject to the detailed provisions of the
DGCL, the Registrant's Amended and Restated Certificate of Incorporation and
the Registrant's Amended and Restated By-laws.
Article IX of the Registrant's Amended and Restated By-laws allow the
Registrant to maintain director and officer liability insurance on behalf of
any person who is or was a director or officer of the Registrant or such
person who serves or served as a director, officer, agent or employee, at
another corporation, partnership or other enterprise at the request of the
Registrant.
Pursuant to Section 102(b)(7) of the DGCL, Article Fifth of the Amended
and Restated Certificate of Incorporation of the Registrant provides that no
director of the Registrant shall be personally liable to the Registrant or its
stockholders for monetary damages for any breach of his fiduciary duty as a
director; provided, however, that such clause shall not apply to any liability
of a director (1) for any breach of his duty of loyalty to the Registrant or
its stockholders, (2) for acts or omissions that are not in good faith or
involve intentional misconduct or a knowing violation of the law, (3) under
Section 174 of the DGCL, or (4) for any transaction from which the director
derived an improper personal benefit.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
There have been no sales of unregistered securities by the Registrant
within the past three years.
II-1
<PAGE>
ITEM 16. EXHIBITS AND SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated By-laws.
4.1 Specimen Certificate of Class A Common Stock.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to
legality of the Class A Common Stock.
10.1 Credit Agreement between Consolidated Cigar Corporation and
The Chase Manhattan Bank, N.A., dated as of February 23,
1993 (incorporated by reference from Exhibit 10.2 to
Amendment No. 2 of Consolidated Cigar Corporation's
Registration Statement on Form S-1 (Registration No.
33-56902)).
10.2(a) Amendment No. 1 to the Credit Agreement, dated as of
March 2, 1993 (incorporated by reference from Exhibit
10.2(a) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(b) Amendment No. 2 to the Credit Agreement, dated as of
March 12, 1993 (incorporated by reference from Exhibit
10.2(b) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(c) Amendment No. 3 to the Credit Agreement, dated as of
March 17, 1993 (incorporated by reference from Exhibit
10.2(c) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(d) Amendment No. 4 to the Credit Agreement, dated as of
April 5, 1993 (incorporated by reference from Exhibit
10.2(d) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(e) Amendment No. 5 to the Credit Agreement, dated as of
June 15, 1993 (incorporated by reference from Exhibit
10.2(e) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(f) Amendment No. 6 to the Credit Agreement, dated as of
September 12, 1994 (incorporated by reference from Exhibit
10.2(f) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.2(g) Amendment No. 7 to the Credit Agreement, dated as of
May 31, 1995 (incorporated by reference from Exhibit
10.2(g) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.2(h) Amendment No. 8 to the Credit Agreement dated as of
October 18, 1995 (incorporated by reference from Exhibit
10.2(h) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
+10.2(i) Amendment No. 9 to the Credit Agreement dated as of
March 13, 1996.
10.2(j) Amendment No. 10 to the Credit Agreement dated as of
July 31, 1996.
+10.3 Indenture by and between Consolidated Cigar Corporation and
Continental Bank, National Association, as Trustee,
relating to the Senior Subordinated Notes due 2003.
10.4(a) Employment Agreement, dated July 1, 1995, between Mafco
Consolidated Group and Theo W. Folz (incorporated by
reference from Exhibit 10.34 to Mafco Consolidated Group
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
</TABLE>
- -------------------
+ Previously filed.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- -----------
<S> <C>
10.4(b) First Amendment, dated February 29, 1996, to the Employment
Agreement, dated July 1, 1995, between Mafco Consolidated
Group Inc. and Theo W. Folz (incorporated by reference from
Exhibit 10.35 to Mafco Consolidated Group Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.4(c) Second Amendment, dated August 1, 1996, to the Employment
Agreement, dated July 1, 1995, between Mafco Consolidated
Group Inc. and Theo W. Folz.
10.5 Employment Agreement, dated July 1, 1995, between
Consolidated Cigar Corporation and Richard L. DiMeola
(incorporated by reference from Exhibit 10.3 to
Consolidated Cigar Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.6 Employment Agreement, dated July 1, 1995, between
Consolidated Cigar Corporation and Gary R. Ellis
(incorporated by reference from Exhibit 10.6) to
Consolidated Cigar Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.7 Employment Agreement, dated July 1, 1995, between
Consolidated Cigar Corporation and James L. Colucci
(incorporated by reference from Exhibit 10.5 to
Consolidated Cigar Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.8 Employment Agreement, dated July 1, 1995, between
Consolidated Cigar Corporation and George F. Gershel, Jr.
(incorporated by reference from Exhibit 10.4 to
Consolidated Cigar Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.9 Employment Agreement, dated July 1, 1995, between
Consolidated Cigar Corporation and Denis F. McQuillen
(incorporated by reference from Exhibit 10.7 to
Consolidated Cigar Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
+10.10 Reimbursement Agreement, dated as of March 3, 1993, between
Consolidated Cigar Corporation and Mafco Holdings Inc.
10.11 Amended and Restated Tax Sharing Agreement entered into as
of June 15, 1995 by and among Mafco Holdings Inc., Mafco
Consolidated Group Inc., the Registrant and Consolidated
Cigar Corporation and its subsidiaries (incorporated by
reference from Exhibit 10.10(a) to Consolidated Cigar
Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.12 Consolidated Cigar Holdings Inc. 1996 Stock Plan.
10.13 Form of Registration Rights Agreement, dated as of
August , 1996, between the Registrant and Mafco
Consolidated Group Inc.
10.14 Form of Registrant's Promissory Note.
10.15 Pension Plan Merger Agreement into Abex Retirement Plan
(incorporated by reference from Exhibit 10.1 to
Consolidated Cigar Corporation's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.16(a) Guarantee and Security Agreement, dated as of March 3, 1993,
between the Registrant and The Chase Manhattan Bank, N.A.
10.16(b) First Amendment to Guarantee and Security Agreement, dated
as of July 31, 1996.
10.17 Executive Employment Agreement, dated as of August 1, 1996,
between Consolidated Cigar Corporation and Theo W. Folz.
10.18 Form of Executive Employment Agreement, dated as of August ,
1996, between Consolidated Cigar Corporation and the
executive officer named therein.
22.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included
in the opinion filed as Exhibit 5.1 hereto).
+24.1 Powers of Attorney.
</TABLE>
- ------------
+ Previously filed.
II-3
<PAGE>
(b) Financial Statement Schedules:
Schedule I--Condensed Financial Information of Registrant
Schedule II--Valuation and Qualifying Accounts.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in reliance
upon Rule 430A and contained in a form of prospectus filed by the
registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and
(2) That for purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
The undersigned Registrant hereby further undertakes to provide to
the underwriter at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as
required by the underwriter to permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on August 13, 1996.
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Theo W. Folz
----------------------------------
Theo W. Folz
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chairman of the Board of Directors August 13, 1996
----------------------------
Ronald O. Perelman
* Director August 13, 1996
----------------------------
Howard Gittis
/s/ Theo W. Folz President, Chief Executive Officer August 13, 1996
--------------------------- and Director (Principal Executive
Theo W. Folz Officer)
/s/ Gary R. Ellis Senior Vice President and Chief August 13, 1996
---------------------------- Financial Officer (Principal
Gary R. Ellis Financial Officer)
/s/ James M. Parnofiello Vice President and August 13, 1996
---------------------------- Controller
James M. Parnofiello (Principal Accounting Officer)
</TABLE>
* Glenn P. Dickes, by signing his name hereto, does hereby execute this
Registration Statement on behalf of the directors and officers of the
Registrant indicated above by asterisks, pursuant to powers of attorney
duly executed by such directors and officers and filed as exhibits to the
Registration Statement.
By: /s/ Glenn P. Dickes
---------------------------
Glenn P. Dickes
Attorney-in-Fact
II-5
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholder
Consolidated Cigar Holdings Inc.
We have audited the consolidated financial statements of Consolidated
Cigar Holdings Inc. (formerly Consolidated Cigar (Parent) Holdings Inc.) and
subsidiaries as of December 31, 1994 and 1995 and for the two month period
ended March 2, 1993, the ten month period ended December 31, 1993 and the
years ended December 31, 1994 and 1995, and have issued our report thereon
dated January 24, 1996 (included elsewhere in this Registration Statement).
The two month period ended March 2, 1993 presents historical Pre-Acquisition
financial statement amounts of Consolidated Cigar Corporation. Our audits also
included the financial statement schedules listed in Item 16(b) of this
Registration Statement. These schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Ernst & Young LLP
New York, New York
January 24, 1996
S-1
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (PARENT ONLY)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
<S> <C> <C>
ASSETS
Investment in subsidiary including cumulative income and net
of distributions ............................................. $40,563 $54,328
--------- ---------
$40,563 $54,328
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Common stock, par value $1, 1,000 shares authorized, issued
and outstanding .............................................. $ 1 $ 1
Additional paid-in capital .................................... 29,999 34,834
Retained earnings ............................................. 10,563 19,493
--------- ---------
Total stockholder's equity ................................ 40,563 54,328
--------- ---------
$40,563 $54,328
========= =========
</TABLE>
S-2
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS (PARENT ONLY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-ACQUISITION POST-ACQUISITION
--------------- -----------------------------------------------
TWO MONTHS
ENDED TEN MONTHS YEAR ENDED
MARCH 2, ENDED DECEMBER DECEMBER 31, ENDED DECEMBER
1993 31, 1993 1994 31, 1995
--------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Equity in (loss) earnings of subsidiary $(77) $2,879 $7,684 $13,930
--------------- -------------- -------------- ---------------
Net (loss) income ..................... $(77) $2,879 $7,684 $13,930
=============== ============== ============== ===============
</TABLE>
S-3
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS (PARENT ONLY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-
ACQUISITION POST-ACQUISITION
------------- ----------------------------------------------
TWO MONTHS TEN MONTHS
ENDED ENDED YEAR ENDED YEAR ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 1995
------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income ........................... $ (77) $ 2,879 $ 7,684 $ 13,930
Adjustments to reconcile net (loss) income
to net cash flows from operating
activities:
Equity in (earnings) loss of subsidiary in
excess of distributions ................... 77 (2,879) (7,684) (8,930)
------------- -------------- -------------- --------------
77 (2,879) (7,684) (8,930)
------------- -------------- -------------- --------------
Net cash flows from operating activities .... -- -- -- 5,000
------------- -------------- -------------- --------------
Cash flows from investing activities:
Investment in subsidiary .................... -- (30,000) -- --
------------- -------------- -------------- --------------
Net cash flows from investing activities .. -- (30,000) -- --
Cash flows from financing activities:
Dividend paid ............................... -- -- -- (5,000)
Capital contribution by parent .............. -- 30,000 -- --
------------- -------------- -------------- --------------
Net cash flows from financing activities .. -- 30,000 -- (5,000)
------------- -------------- -------------- --------------
Net increase in cash and cash equivalents . -- -- -- --
Cash and cash equivalents at beginning of
period ................................... -- -- -- --
------------- -------------- -------------- --------------
Cash and cash equivalents at end of period $ -- $ -- $ -- $ --
============= ============== ============== ==============
</TABLE>
S-4
<PAGE>
SCHEDULE II
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER 1) END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS 2) DEDUCTIONS PERIOD
----------- ------------ ------------ ------------ -------------- -----------
<S> <C> <C> <C> <C> <C>
PRE-ACQUISITION
TWO MONTHS ENDED MARCH 2, 1993:
Allowance for doubtful accounts
(deducted from accounts receivable) . $ 614 $ 34 $ -- $ -- $ 648
============ ============ ============ ============== ===========
Allowance for cash discounts and sales
returns (deducted from accounts
receivable) .......................... $2,134 $ -- $ -- $ -- $2,134
============ ============ ============ ============== ===========
Inventory reserves (deducted from
inventory) ........................... $ 610 $ -- $ -- $ -- $ 610
============ ============ ============ ============== ===========
POST-ACQUISITION
TEN MONTHS ENDED DECEMBER 31, 1993:
Allowance for doubtful accounts
(deducted from accounts receivable) . $ 648 $ 133 $ -- $ 27 $ 754
============ ============ ============ ============== ===========
Allowance for cash discounts and sales
returns (deducted from accounts
receivable) .......................... $2,134 $ -- $ 600 $ -- $2,734
============ ============ ============ ============== ===========
Inventory reserves (deducted from
inventory) ........................... $ 610 $ -- $ -- $ 96 $ 514
============ ============ ============ ============== ===========
YEAR ENDED DECEMBER 31, 1994:
Allowance for doubtful accounts
(deducted from accounts receivable) . $ 754 $ 200 $ -- $ 86 $ 868
============ ============ ============ ============== ===========
Allowance for cash discounts and sales
returns (deducted from accounts
receivable) .......................... $2,734 $ -- $ -- $ -- $2,734
============ ============ ============ ============== ===========
Inventory reserves (deducted from
inventory) ........................... $ 514 $ 247 $ -- $ -- $ 761
============ ============ ============ ============== ===========
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful accounts
(deducted from accounts receivable) . $ 868 $ 150 $ -- $ 80 $ 938
============ ============ ============ ============== ===========
Allowance for cash discounts and sales
returns (deducted from accounts
receivable) .......................... $2,734 $ 650 $ -- $ -- $3,384
============ ============ ============ ============== ===========
Inventory reserves (deducted from
inventory) ........................... $ 761 $ 198 $ -- $ 137 $ 822
============ ============ ============ ============== ===========
</TABLE>
- ------------
1) Purchase accounting
2) Write-off against reserve
S-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- ----------------- ----------------------------------------------------------------------------- ------------
<S> <C> <C>
1.1 Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation.
3.2 Form of Amended and Restated By-laws.
4.1 Specimen Certificate of Class A Common Stock.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom as to legality of the Class A Common
Stock.
10.1 Credit Agreement between Consolidated Cigar Corporation and The Chase Manhattan
Bank, N.A., dated as of February 23, 1993 (incorporated by reference from Exhibit
10.2 to Amendment No. 2 of Consolidated Cigar Corporation's Registration Statement
on Form S-1 (Registration No. 33-56902)).
10.2(a) Amendment No. 1 to the Credit Agreement, dated as of March 2, 1993 (incorporated
by reference from Exhibit 10.2(a) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(b) Amendment No. 2 to the Credit Agreement, dated as of March 12, 1993 (incorporated
by reference from Exhibit 10.2(b) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(c) Amendment No. 3 to the Credit Agreement, dated as of March 17, 1993 (incorporated
by reference from Exhibit 10.2(c) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(d) Amendment No. 4 to the Credit Agreement, dated as of April 5, 1993 (incorporated
by reference from Exhibit 10.2(d) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(e) Amendment No. 5 to the Credit Agreement, dated as of June 15, 1993 (incorporated
by reference from Exhibit 10.2(e) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993).
10.2(f) Amendment No. 6 to the Credit Agreement, dated as of September 12, 1994 (incorporated
by reference from Exhibit 10.2(f) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994).
10.2(g) Amendment No. 7 to the Credit Agreement, dated as of May 31, 1995 (incorporated
by reference from Exhibit 10.2(g) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
10.2(h) Amendment No. 8 to the Credit Agreement dated as of October 18, 1995 (incorporated
by reference from Exhibit 10.2(h) to Consolidated Cigar Corporation's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995).
+10.2(i) Amendment No. 9 to the Credit Agreement dated as of March 13, 1996.
10.2(j) Amendment No. 10 to the Credit Agreement dated as of July 31, 1996.
+10.3 Indenture by and between Consolidated Cigar Corporation and Continental Bank, National
Association, as Trustee, relating to the Senior Subordinated Notes due 2003.
10.4(a) Employment Agreement, dated July 1, 1995, between Mafco Consolidated Group and
Theo W. Folz (incorporated by reference from Exhibit 10.34 to Mafco Consolidated
Group Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31,
1995).
</TABLE>
- ------------
+ Previously filed.
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE NO.
- --------------- ------------------------------------------------------------------------------------- ------------
<S> <C> <C>
10.4(b) First Amendment, dated February 29, 1996, to the Employment Agreement, dated July 1, 1995,
between Mafco Consolidated Group Inc. and Theo W. Folz (incorporated by reference from
Exhibit 10.35 to Mafco Consolidated Group Inc.'s Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.4(c) Second Amendment, dated August 1, 1996, to the Employment Agreement, dated July 1, 1995,
between Mafco Consolidated Group Inc. and Theo W. Folz.
10.5 Employment Agreement, dated July 1, 1995, between Consolidated Cigar Corporation and Richard
L. DiMeola (incorporated by reference from Exhibit 10.3 to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.6 Employment Agreement, dated July 1, 1995, between Consolidated Cigar Corporation and Gary
R. Ellis (incorporated by reference from Exhibit 10.6) to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.7 Employment Agreement, dated July 1, 1995, between Consolidated Cigar Corporation and James
L. Colucci (incorporated by reference from Exhibit 10.5 to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.8 Employment Agreement, dated July 1, 1995, between Consolidated Cigar Corporation and George
F. Gershel, Jr. (incorporated by reference from Exhibit 10.4 to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.9 Employment Agreement, dated July 1, 1995, between Consolidated Cigar Corporation and Denis
F. McQuillen (incorporated by reference from Exhibit 10.7 to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
+10.10 Reimbursement Agreement, dated as of March 3, 1993, between Consolidated Cigar Corporation
and Mafco Holdings Inc.
10.11 Amended and Restated Tax Sharing Agreement entered into as of June 15, 1995 by and among
Mafco Holdings Inc., Mafco Consolidated Group Inc., the Registrant and Consolidated Cigar
Corporation and its subsidiaries (incorporated by reference from Exhibit 10.10(a) to
Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
10.12 Consolidated Cigar Holdings Inc. 1996 Stock Plan.
10.13 Form of Registration Rights Agreement, dated as of August , 1996, between the Registrant
and Mafco Consolidated Group Inc.
10.14 Form of Registrant's Promissory Note.
10.15 Pension Plan Merger Agreement into Abex Retirement Plan (incorporated by reference from
Exhibit 10.1 to Consolidated Cigar Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.16(a) Guarantee and Security Agreement, dated as of March 3, 1993, between the Registrant and
The Chase Manhattan Bank, N.A.
10.16(b) First Amendment to Guarantee and Security Agreement, dated as of July 31, 1996.
10.17 Executive Employment Agreement, dated as of August 1, 1996, between Consolidated Cigar
Corporation and Theo W. Folz.
10.18 Form of Executive Employment Agreement, dated as of August , 1996, between Consolidated
Cigar Corporation and the executive officer named therein.
22.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included in the opinion filed as Exhibit
5.1 hereto).
+24.1 Powers of Attorney.
</TABLE>
- ------------
+ Previously filed.
<PAGE>
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $.01 PER SHARE)
UNDERWRITING AGREEMENT
(U.S. VERSION)
August , 1996.
Goldman, Sachs & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Morgan Stanley & Co. Incorporated,
Chase Securities Inc.,
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Consolidated Cigar Holdings Inc., a Delaware corporation (the "Company"),
proposes, subject to the terms and conditions stated herein, to issue and
sell to the Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 3,500,000 shares (the "Firm Shares") and, at the election of the
Underwriters, up to 525,000 additional shares (the "Optional Shares") of
Class A Common Stock, par value $.01 per share ("Stock"), of the Company (the
Firm Shares and the Optional Shares that the Underwriters elect to purchase
pursuant to Section 2 hereof being collectively called the "Shares").
It is understood and agreed to by all parties that the Company is
concurrently entering into an agreement (the "International Underwriting
Agreement") providing for the sale by the Company of up to a total of
1,150,000 shares of Stock (the "International Shares"), including the
over-allotment option thereunder, through arrangements with certain
underwriters outside the United States (the "International Underwriters"),
for whom Goldman Sachs International, Merrill Lynch International, Morgan
Stanley International and Chase Manhattan International Limited are acting as
lead managers. Anything herein or therein to the contrary notwithstanding,
the respective closings under this Agreement and the International
Underwriting Agreement are hereby expressly made conditional on one another.
The Underwriters hereunder and the International Underwriters are
simultaneously entering into an Agreement between U.S. and International
Underwriting Syndicates (the "Agreement between Syndicates") which provides,
among other things, for the transfer of shares of Stock between the two
syndicates. Two forms of prospectus are to be used in connection with the
offering and sale of shares of Stock contemplated by the foregoing, one
relating to the Shares hereunder and the other relating to the International
Shares. The latter form of prospectus will be identical to the former except
for certain substitute pages as included in the registration statement and
amendments thereto as mentioned below. Except as used in Sections 2, 3, 4, 9
and 11 herein, and except as the context may otherwise require, references
hereinafter to the Shares shall include all the shares of Stock which may be
sold pursuant to either this Agreement or the International Underwriting
Agreement, and references herein to any prospectus whether in preliminary or
final form, and whether as amended or supplemented, shall include both the
U.S. and the international versions thereof.
The Company has reserved up to 450,000 of the Firm Shares to be issued by
the Company for offering and sale to certain of its employees and certain
other persons pursuant to a reserve share program (the "Reserve Share
Program"). These Firm Shares will be sold to the employees and other persons
by the Underwriters pursuant to this Agreement at the public offering price.
Any Reserve Shares not orally confirmed for purchase (assuming reasonable
customary efforts by the Underwriters to contact such persons) by such
persons by the end of the first business day after either (a) the later of
the date on which the Initial Registration Statement and any Rule 462(b)
Registration Statement (as such terms are hereinafter defined) has become
effective or (b) if the Company has elected to rely on Rule 430A under the
Securities Act of 1933, as amended (the "Act"), the date of this Agreement,
will be offered to the public by the Underwriters as set forth in the
Prospectuses (as hereinafter defined).
1
<PAGE>
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-6819) (the
"Initial Registration Agreement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the
Initial Registration Statement and any post-effective amendment thereto,
each in the form heretofore delivered to you, and, excluding exhibits
thereto, to you for each of the other Underwriters, have been declared
effective by the Commission in such form; other than a registration
statement, if any, increasing the size of the offering (a "Rule 462(b)
Registration Statement"), filed pursuant to Rule 462(b) under the Act,
which became effective upon filing, no other document with respect to the
Initial Registration Statement has heretofore been filed with the
Commission; and no stop order suspending the effectiveness of the Initial
Registration Statement, any post-effective amendment thereto or the Rule
462(b) Registration Statement, if any, has been issued and no proceeding
for that purpose has been initiated or threatened by the Commission (any
preliminary prospectus included in the Initial Registration Statement or
filed with the Commission pursuant to Rule 424(a) of the rules and
regulations of the Commission under the Act, is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including
all exhibits thereto and including the information contained in the form
of final prospectus filed with the Commission pursuant to Rule 424(b)
under the Act in accordance with Section 5(a) hereof and deemed by virtue
of Rule 430A under the Act to be part of the Initial Registration
Statement at the time it was declared effective or such part of the Rule
462(b) Registration Statement, if any, became or hereafter becomes
effective, each as amended at the time such part of the registration
statement became effective, are hereinafter collectively called the
"Registration Statement"; and such final prospectus, in the form first
filed pursuant to Rule 424(b) under the Act, is hereinafter called the
"Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and the Preliminary
Prospectus dated July 30, 1996, at the time of filing thereof, conformed
in all material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and, as of its date, did not
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty shall
not apply to any statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by an
Underwriter through Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance
upon and in conformity with information furnished in writing to the
Company by an Underwriter through Goldman, Sachs & Co. expressly for use
therein;
(d) Neither the Company nor any of its significant subsidiaries (as
defined in Rule 1-02(w) of Regulation S-X of the Commission) and each
subsidiary of the Company which is subject to material contracts (each of
such corporations or other legal entities being hereinafter referred to as
a "Subsidiary" and all such corporations or other legal entities being,
collectively, the "Subsidiaries") has sustained since the date of the
latest audited financial statements included in the Prospectus any loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute
or court or governmental action, order or decree, otherwise than as set
forth in or contemplated by the Prospectus and other than such losses or
interferences which would not, individually or in the aggregate, have a
material adverse effect on the condition, financial or otherwise,
earnings, business affairs or business prospects of the Company
2
<PAGE>
and its subsidiaries considered as one enterprise, whether or not arising
in the ordinary course of business (a "Material Adverse Effect"); and,
since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there has not been any change
in the capital stock or long-term debt of the Company or any of its
Subsidiaries or any material adverse change in or affecting the business
affairs, business prospects, management, consolidated financial position,
stockholders' equity or results of operations of the Company and its
Subsidiaries considered as one enterprise, in each case, otherwise than as
set forth in or contemplated by the Prospectus;
(e) The Company and its Subsidiaries have good and marketable title in
fee simple to all real property and good title to all personal property
owned by them, in each case free and clear of all liens, encumbrances and
defects except (i) such as are described in the Prospectus, (ii) liens
arising under the Credit Agreement (as such term is defined in the
Prospectus) or (iii) such as do not materially interfere with the
Company's ability to conduct its business as described in the Prospectus
or with the use made and proposed to be made of such property by the
Company and its Subsidiaries; and any real property and buildings
identified in the Prospectus as held under lease by the Company or its
Subsidiaries are held by them under valid, subsisting and enforceable
leases, except where the failure to be valid, subsisting and enforceable
would not, individually or in the aggregate, be reasonably likely to have
a Material Adverse Effect;
(f) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware with
power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it
owns or leases properties or conducts any business so as to require such
qualification, except where the failure to be so qualified or be in good
standing would not have a Material Adverse Effect; and each Subsidiary of
the Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, except where the failure to be in good standing would not
have a Material Adverse Effect and except for jurisdictions not
recognizing the legal concept of good standing;
(g) After giving effect to the Amended and Restated Certificate of
Incorporation of the Company (in substantially the form filed as an
exhibit to the Registration Statement (the "Amended and Restated
Certificate of Incorporation")) and the offering of the Shares (excluding
those subject to the Underwriters' over-allotment options), the
authorized, issued and outstanding capital stock of the Company will be as
set forth in the Prospectus under the "Pro Forma and As Adjusted" column
under the caption "Capitalization" (except for subsequent issuances, if
any, pursuant to this Agreement or the International Underwriting
Agreement or otherwise referred to in or contemplated by the Prospectus)
and will conform to the description of the Stock contained in the
Prospectus; the shares of issued and outstanding common stock, par value
$1.00 per share, of the Company described in the Prospectus under the
"Actual" column under the caption "Capitalization" have been duly
authorized and validly issued and are fully paid and non-assessable; and
all of the issued shares of capital stock of each Subsidiary of the
Company have been duly authorized and validly issued, are fully paid and
non-assessable and (except for directors' qualifying shares and except as
set forth in or contemplated by the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims, except for liens arising under the Credit Agreement;
(h) Assuming the Amended and Restated Certificate of Incorporation of the
Company has become effective, the Shares have been duly authorized by the
Company and, when issued and delivered against payment therefor as
provided herein and in the International Underwriting Agreement, will be
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus under the caption
"Description of Capital Stock";
(i) The issue and sale of the Shares by the Company hereunder and under
the International Underwriting Agreement and the compliance by the Company
with all of the provisions of this
3
<PAGE>
Agreement and the International Underwriting Agreement and the
consummation of the transactions herein and therein contemplated will not
conflict with or result in a breach or violation of any of the terms or
provisions of, or constitute a default under, any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound or to which any of the property or
assets of the Company or any of its Subsidiaries is subject, nor will such
action result in any violation of the provisions of the Amended and
Restated Certificate of Incorporation or the Amended and Restated By-laws
of the Company (in substantially the form filed as an exhibit to the
Registration Statement (the "Amended and Restated By-laws")) or any
statute or any order, rule or regulation of any court or governmental
agency or body having jurisdiction over the Company or any of its
Subsidiaries or any of their respective properties, except for (other than
in the case of the Amended and Restated Certificate of Incorporation and
the Amended and Restated By-laws) such conflicts, breaches, violations or
defaults which would not, individually or in the aggregate, have a
Material Adverse Effect; and no consent, approval, authorization, order,
registration or qualification of or with any such court or governmental
agency or body is required for the issue and sale of the Shares or the
consummation by the Company of the transactions contemplated by this
Agreement and the International Underwriting Agreement, except the
registration under the Act and under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), of the Shares and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws or by the
rules and regulations of the National Association of Securities Dealers,
Inc. (the "NASD") in connection with the purchase and distribution of the
Shares by the Underwriters and the International Underwriters;
(j) Neither the Company nor any of its Subsidiaries is (i) in violation
of its Certificate of Incorporation or By-laws or similar constituent
instrument or (ii) in default in the performance or observance of any
material obligation, agreement, covenant or condition contained in any
indenture, mortgage, deed of trust, loan agreement, lease or other
agreement or instrument to which it is a party or by which it or any of
its properties may be bound, except in the case of (ii), such defaults
that would not, individually or in the aggregate, have a Material Adverse
Effect;
(k) Other than as set forth in or contemplated by the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its Subsidiaries is a party or of which any property of the Company
or any of its Subsidiaries is the subject which would, individually or in
the aggregate, be reasonably likely to have a Material Adverse Effect;
and, to the best of the Company's knowledge, no such proceedings are
threatened by governmental authorities or by others;
(l) No labor dispute with the employees of the Company or any of its
Subsidiaries exists or, to the knowledge of the Company, is imminent that
would be reasonably likely to have a Material Adverse Effect;
(m) Each of the Company and its Subsidiaries (i) is in material
compliance with all applicable federal, state and local environmental laws
and regulations, including, without limitation, those applicable to human
health and safety, emissions to the environment, waste management, and
waste disposal (collectively, the "Environmental Laws"), and (ii) has
received, and is in material compliance with, all permits, licenses or
other approvals required of it under applicable Environmental Laws, except
for such noncompliance or failure to receive such license, permit or other
approval as is not reasonably likely to have a Material Adverse Effect, or
except as disclosed in the Prospectus, and to the knowledge of the
Company, there are no circumstances that would prevent, interfere with or
materially increase the cost of such compliance in the future;
(n) Except as disclosed in the Prospectus, there is no claim under any
Environmental Law, including common law, pending or threatened against the
Company or its Subsidiaries (an "Environmental Claim") which would be
reasonably likely to have a Material Adverse Effect and, to the knowledge
of the Company, under applicable law, there are no past or present
actions, activities,
4
<PAGE>
circumstances, events or incidents, including, without limitation,
releases of any material into the environment, that are reasonably likely
to form the basis of any such Environmental Claim against the Company or
its Subsidiaries, which, would be reasonably likely to have a Material
Adverse Effect;
(o) Each of the Company and its Subsidiaries has and will maintain
insurance covering its properties, operations, personnel and businesses,
which insurance is in amounts and insures against such losses and risks,
in each case as is in accordance with customary industry practice to
protect the Company and its Subsidiaries and their businesses;
(p) Each of the Company and its Subsidiaries owns or possesses adequate
rights to use all patents, patent applications, trademarks, service marks,
trade names, trademark registrations, service mark registrations,
copyrights, licenses and know-how (including trade secrets and other
unpatented or unpatentable proprietary or confidential information,
systems or procedures) currently employed by it in connection with the
business now operated by it (the "Intellectual Property Rights"), except
(i) for restrictions of ownership, if any, arising out of the security
interests in such Intellectual Property Rights pursuant to the Credit
Agreement or (ii) where the failure to possess such Intellectual Property
Rights would not be reasonably likely to have a Material Adverse Effect;
and the Company has no reason to believe that the use of any of the
foregoing Intellectual Property Rights by the Company or any of its
Subsidiaries will conflict with any such rights of others which would be
reasonably likely to have a Material Adverse Effect, and has not received
any actual notice of any claim of conflict with any such rights of others
which would be reasonably likely to have a Material Adverse Effect;
(q) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended (the "Investment Company Act");
(r) Neither the Company nor any of its affiliates does business with the
government of Cuba or with any person or affiliate located in Cuba within
the meaning of Section 517.075, Florida Statutes; and
(s) Ernst & Young LLP, who have certified certain financial statements of
the Company and its subsidiaries, are, to the best knowledge of the
Company, independent public accountants as required by the Act and the
rules and regulations of the Commission thereunder.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company,
at a purchase price per share of $ , the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto and (b) in the
event and to the extent that the Underwriters shall exercise the election to
purchase Optional Shares as provided below, the Company agrees to issue and
sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase
price per share set forth in clause (a) of this Section 2, that portion of
the number of Optional Shares as to which such election shall have been
exercised (to be adjusted by you so as to eliminate fractional shares)
determined by multiplying such number of Optional Shares by a fraction, the
numerator of which is the maximum number of Optional Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule I hereto and the denominator of which is the maximum
number of Optional Shares that all of the Underwriters are entitled to
purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to 525,000 Optional Shares, at the purchase price per share
set forth in the paragraph above, for the sole purpose of covering
overallotments in the sale of the Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the
Company, given within a period of 30 calendar days after the date of this
Agreement, setting forth the aggregate number of Optional Shares to be
purchased and the date on which such Optional Shares are to be delivered, as
determined by you but in no event earlier than the First Time of Delivery (as
defined in Section 4 hereof) or, unless you and the Company otherwise agree
in writing, earlier than two or later than ten business days after the date
of such notice.
5
<PAGE>
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours|Al
prior notice to the Company, shall be delivered by or on behalf of the
Company to Goldman, Sachs & Co., for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor in
same-day funds. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below) with respect thereto
at the office of Goldman, Sachs & Co., 85 Broad Street, New York, New York
10004 (the "Designated Office"). The time and date of such delivery and
payment shall be, with respect to the Firm Shares, 9:30 a.m., New York City
time, on , 1996 or such other time and date as Goldman, Sachs &
Co. and the Company may agree upon in writing, and, with respect to the
Optional Shares, 9:30 a.m., New York time, on the date specified by Goldman,
Sachs & Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters|Al election to purchase such Optional Shares, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time
of Delivery", and each such time and date for delivery is herein called a
"Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(j) hereof, will be delivered at the
offices of Cravath, Swaine & Moore, 825 Eighth Avenue, New York, New York
10019 (the "Closing Location"), and the Shares will be delivered at the
Designated Office, all at such Time of Delivery. A meeting will be held at
the Closing Location at 2:00 p.m., New York City time, on the New York
Business Day next preceding such Time of Delivery, at which meeting the
final drafts of the documents to be delivered pursuant to the preceding
sentence will be available for review by the parties hereto. For the
purposes of this Section 4, "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on
which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus prior to the last Time of Delivery which shall be disapproved
by you promptly after reasonable notice thereof; to advise you, promptly
after it receives notice thereof, of the time when any amendment to the
Registration Statement has been filed or becomes effective or any
supplement to the Prospectus or any amended Prospectus has been filed and
to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop
order or of any order preventing or suspending the use of any Preliminary
Prospectus or prospectus, of the suspension of the qualification of the
Shares for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request by
the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and, in the event
of the issuance of any stop order or of any order preventing or suspending
the use of any Preliminary Prospectus or prospectus or suspending any such
qualification, promptly to use its best efforts to obtain the withdrawal
of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities
laws of such jurisdictions as you may request and to comply with such laws
so as to permit the continuance of sales and dealings therein in such
6
<PAGE>
jurisdictions for as long as may be necessary to complete the distribution
of the Shares, provided that in connection therewith the Company shall not
be required to qualify as a foreign corporation or to file a general
consent to service of process or to subject itself to taxation in any
jurisdiction;
(c) Promptly, and in any event no later than 12:00 (noon) on the second
New York Business Day preceding the Closing, and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in
order to comply with the Act, to notify you and upon your request to
prepare and furnish without charge to each Underwriter and to any dealer
in securities as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus which
will correct such statement or omission or effect such compliance, and in
case any Underwriter is required to deliver a prospectus in connection
with sales of any of the Shares at any time nine months or more after the
time of issue of the Prospectus, upon your request but at the expense of
such Underwriter, to prepare and deliver to such Underwriter as many
copies as you may request of an amended or supplemented Prospectus
complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and
the rules and regulations thereunder (including, at the option of the
Company, Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder and under the International Underwriting Agreement, any
securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or
exchangeable for, or that represent the right to receive, Stock or any
such substantially similar securities (other than (i) pursuant to employee
stock option plans existing on, or upon the conversion or exchange of
convertible or exchangeable securities outstanding as of, the date of this
Agreement, (ii) to an affiliate or Permitted Transferee (as defined in the
Amended and Restated Certificate of Incorporation of the Company) which
agrees to be bound by the provisions of this Section 5(e) and (iii)
pursuant to a pledge agreement securing indebtedness which is not part of
an offering of any security that is convertible into or exchangeable for
Stock;
(f) To furnish to its stockholders as soon as practicable after the end
of each fiscal year an annual report (including a balance sheet and
statements of income, stockholders' equity and cash flows of the Company
and its consolidated subsidiaries certified by independent public
accountants) and, as soon as practicable after the end of each of the
first three quarters of each fiscal year (beginning with the fiscal
quarter ending after the effective date of the Registration Statement),
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement and the International Underwriting Agreement in
the manner specified in the Prospectus under the caption "Use of
Proceeds";
(h) To use its best efforts to list, subject to notice of issuance, the
Shares on the New York Stock Exchange (the "Exchange"); and
(i) To file with the Commission such reports on Form SR as may be
required by Rule 463 under the Act.
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6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees,
disbursements and expenses of the Company's counsel and accountants in
connection with the registration of the Shares under the Act and all other
expenses in connection with the preparation, printing and filing of the
Registration Statement, any Preliminary Prospectus and the Prospectus and
amendments and supplements thereto and the mailing and delivering of copies
thereof to the Underwriters and dealers; (ii) the cost of printing or
producing any Agreement among Underwriters, this Agreement, the International
Underwriting Agreement, the Agreement between Syndicates, the Selling
Agreement, the Blue Sky Memorandum, closing documents (including compilations
thereof) and any other documents in connection with the offering, purchase,
sale and delivery of the Shares; (iii) all expenses in connection with the
qualification of the Shares for offering and sale under state securities laws
as provided in Section 5(b) hereof, including the reasonable fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on the Exchange; (v) the
filing fees incident to securing any required review by the National
Association of Securities Dealers, Inc. of the terms of the sale of the
Shares; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that, except as provided in this Section, and Sections 8 and 11
hereof, the Underwriters will pay all of their own costs and expenses,
including the fees of their counsel, stock transfer taxes on resale of any of
the Shares by them, and any advertising expenses connected with any offers
they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional
conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose shall have been initiated or threatened by the
Commission; and all requests for additional information on the part of the
Commission shall have been complied with to your reasonable satisfaction;
(b) Cravath, Swaine & Moore, counsel for the Underwriters, shall have
furnished to you such opinion or opinions (a draft of each such opinion is
attached as Annex II (a) hereto), dated such Time of Delivery, with
respect to the matters covered in paragraphs (i), (ii), (v), (viii) and
(x) of subsection (c) below as well as such other related matters as you
may reasonably request, and such counsel shall have received such papers
and information as they may reasonably request to enable them to pass upon
such matters;
(c) Skadden, Arps, Slate, Meagher & Flom, counsel for the Company, shall
have furnished to you their written opinion (a draft of each such opinion
is attached as Annex II(b) hereto), dated such Time of Delivery, in form
and substance reasonably satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of
Delaware, with power and authority (corporate and other) to own its
properties and conduct its business as described in the Prospectus;
(ii) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus under the "Pro Forma and As
Adjusted" column under the caption "Capitalization" (except for the
Shares and subsequent issuances, if any, pursuant to this Agreement or
the International Underwriting Agreement or the Company's stock option
plan or referred to in or contemplated by the Prospectus); and all of
the outstanding shares of Class B Common Stock, par value $.01 per
share, of the Company have been duly authorized and validly issued and
are fully paid and nonassessable;
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(iii) The issuance and sale of the Shares being delivered at such
Time of Delivery have been duly authorized by the Company and such
Shares, when delivered to and paid for by the Underwriters and the
International Underwriters in accordance with this Agreement and the
International Underwriting Agreement, will be validly issued and fully
paid and non-assessable; and the Shares conform to the description of
the Stock contained in the Prospectus under the caption "Description
of Capital Stock";
(iv) Each Subsidiary of the Company listed in Schedule II hereto (the
"Delaware Subsidiaries") has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware; and all of the issued shares of capital stock of each
such Subsidiary have been duly authorized and validly issued, are
fully paid and non-assessable, and (except for directors' qualifying
shares and except as otherwise set forth in the Prospectus) are owned
of record, directly or indirectly, by the Company, free and clear of
all liens, encumbrances, equities or claims, except for liens arising
under the Credit Agreement;
(v) This Agreement and the International Underwriting Agreement have
been duly authorized, executed and delivered by the Company;
(vi) The issue and sale of the Shares being delivered at such Time of
Delivery by the Company and the compliance by the Company with all of
the provisions of this Agreement and the International Underwriting
Agreement and the consummation of the transactions herein and therein
contemplated will not conflict with or result in a breach or violation
of any of the terms or provisions of, or constitute a default under,
any agreement listed as an exhibit to the Registration Statement, nor
will such action result in any violation of the provisions of the
Amended and Restated Certificate of Incorporation or Amended and
Restated By-laws of the Company or any statute or any order, rule or
regulation known to such counsel of any court or governmental agency
or body having jurisdiction over the Company or any of its
Subsidiaries or any of their respective properties, except for (other
than in the case of the Amended and Restated Certificate of
Incorporation and the Amended and Restated By-laws) such conflicts,
breaches, violations or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect;
(vii) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body
is required for the issue and sale of the Shares or the consummation
by the Company of the transactions contemplated by this Agreement and
the International Underwriting Agreement, except the registration
under the Act and the Exchange Act of the Shares, and such consents,
approvals, authorizations, registrations or qualifications as may be
required under state or foreign securities or Blue Sky laws or by the
rules and regulations of the NASD in connection with the purchase and
distribution of the Shares by the Underwriters and the International
Underwriters, except that such counsel need not express any opinion as
to (i) any securities laws of any jurisdiction (other than the Federal
securities laws) and the rules and regulations of the NASD, (ii) laws
other than those that, in each such counsel's experience, are normally
applicable to transactions of the type contemplated by this Agreement
and the International Underwriting Agreement and (iii) any consent or
authorization which may have become applicable to the Company as a
result of the involvement of the Underwriters or of the International
Underwriters in the transactions contemplated by this Agreement or the
International Underwriting Agreement because of their legal or
regulatory status or because of any other facts specifically
pertaining to them;
(viii) The statements set forth in the Prospectus under the captions
"Risk Factors --Extensive and Increasing Regulation of Tobacco
Products" (as to matters of Federal law only), "Risk Factors -Excise
Taxation" (as to matters of Federal law only), "Risk Factors
--Substantial Effects of Failure to Receive Possessions Tax Credit"
(as to matters of Federal law only), "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Taxation
and Regulation --Possessions Tax Credit" (as to matters of Federal law
only), "Business --The Tobacco Industry --Regulation" (as to matters
of Federal law only), "Certain
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Relationships and Related Transactions --Tax Sharing Agreement",
"Certain Relationships and Related Transactions --Registration Rights
Agreement", "Description of Capital Stock" and "Certain United States
Tax Consequences to Non-United States Holders", insofar as they
purport to describe or summarize certain provisions of the agreements,
statutes and regulations referred to therein, fairly describe or
summarize such provisions in all material respects;
(ix) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(x) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such
Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of
the Act and the rules and regulations thereunder, although they do not
assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the
Prospectus, except for those referred to in the opinion in subsection
(viii) of this Section 7(c); they have no reason to believe that, as
of its effective date, the Registration Statement or any further
amendment thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related statements and
related schedules therein, as to which such counsel need express no
opinion) contained an untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date,
the Prospectus or any further amendment or supplement thereto made by
the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they
were made, not misleading or that, as of such Time of Delivery, either
the Registration Statement or the Prospectus or any further amendment
or supplement thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contains an
untrue statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required
to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are
not filed or described as required;
In rendering such opinion, such counsel may (i) state that they express no
opinion as to the laws of any jurisdiction other than the laws of the United
States of America, to the extent specifically referred to therein, and the
laws of the State of New York and the Delaware General Corporation Law and
(ii) rely upon the opinions of local counsel and in respect of matters of
fact upon certificates of the Company or its Subsidiaries.
(d) Barry F. Schwartz, Esq., Executive Vice President and General Counsel
of the Company, shall have furnished to you his written opinion (a draft
of such opinion is attached as Annex II(c) hereto), dated the Time
Delivery, in form and substance reasonably satisfactory to you, to the
effect that:
To the best of such counsel's knowledge and other than as set forth in the
Prospectus, there are no legal or governmental proceedings pending to which
the Company or any of its Subsidiaries is a party or to which any property of
the Company or any of its Subsidiaries is the subject which would,
individually or in the aggregate, be reasonably likely to have a Material
Adverse Effect; and, to the best of such counsel's knowledge, no such
proceedings are threatened by governmental authorities or by others.
(e) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed
subsequent to the date of this Agreement and also at each Time of
Delivery, Ernst
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& Young LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory
to you, substantially to the effect set forth in Annex I hereto (the
executed copy of the letter delivered prior to the execution of this
Agreement is attached as Annex I(a) hereto and a draft of the form of
letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f) Neither the Company nor any of its Subsidiaries shall have sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Prospectus and
other than such losses or interferences which would not, individually or
in the aggregate, have a Material Adverse Effect, and (ii) since the
respective dates as of which information is given in the Prospectus there
shall not have been any change in the capital stock or long-term debt of
the Company or any of its Subsidiaries in or affecting the business
affairs, business prospects, management, consolidated financial position,
stockholders' equity or results of operations of the Company and its
Subsidiaries considered as one enterprise, otherwise than as set forth in
or contemplated by the Prospectus, the effect of which, in any such case
described in Clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in
securities generally on the Exchange; (ii) a suspension or material
limitation in trading in the Company|Als securities on the Exchange; (iii) a
general moratorium on commercial banking activities declared by either
Federal or New York State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the
United States of a national emergency or war, if the effect of any such
event specified in this Clause (iv) in the judgment of the Representatives
makes it impracticable or inadvisable to proceed with the public offering
or the delivery of the Shares being delivered at such Time of Delivery on
the terms and in the manner contemplated in the Prospectus;
(h) The Shares to be sold at such Time of Delivery shall have been duly
listed, subject to notice of issuance, on the Exchange;
(i) The Company shall have delivered to you at the first Time of Delivery
a letter from Mafco Consolidated Group Inc. to the effect set forth in
Section 5(e); and
(j) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of the Company satisfactory to you as
to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the
Company of all of its obligations hereunder to be performed at or prior to
such Time of Delivery, as to the matters set forth in subsections (a) and
(e) of this Section and as to such other matters as you may reasonably
request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or supplement
thereto, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, and will reimburse each
Underwriter for any legal or other expenses reasonably incurred by such
Underwriter in connection with investigating or defending any such action or
claim as such expenses are incurred; provided, however, that the Company
shall not be liable in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement
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<PAGE>
or omission or alleged omission made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or supplement
in reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Goldman, Sachs & Co. expressly for use
therein; and provided further, however, that the Company shall not be liable
with respect to any Preliminary Prospectus to any Underwriter (or any person
controlling such Underwriter) from whom the person asserting any such loss,
claim, damage or liability purchased the Shares which are the subject thereof
if such person did not receive a copy of the Prospectus (or the Prospectus as
supplemented) at or prior to the confirmation of the sale of such Shares to
such person in any case where such delivery is required by the Act and (A)
the defect in such Preliminary Prospectus was cured in the Prospectus (or the
Prospectus as supplemented) and (B) such Underwriter had previously been
furnished by or on behalf of the Company (prior to the date of mailing by
such Underwriter of the applicable confirmation) with a sufficient number of
copies of the Prospectus as so amended or supplemented.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement
or the Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in any Preliminary Prospectus, the
Registration Statement or the Prospectus or any such amendment or
supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or
other expenses reasonably incurred by the Company in connection with
investigating or defending any such action or claim as such expenses are
incurred.
(c) Promptly after receipt by an indemnified party under subsection (a)
or (b) above of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party in
writing of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability which it may
have to any indemnified party under such subsection, except to the extent
it has been materially prejudiced by such failure. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel reasonably satisfactory to such
indemnified party (who shall not, except with the consent of the
indemnified party, be counsel to the indemnifying party), and, after
notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall
not be liable to such indemnified party under such subsection for any
legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation; provided,
however, if the defendants in any such action include both an indemnified
party and an indemnifying party and the indemnified party shall have
reasonably concluded that there may be legal defenses available to it
and/or other indemnified parties that are different from or additional to
those available to the indemnifying party, the indemnified party or
parties under subsection (a) or (b) above shall have the right to employ
not more than one counsel (and one local counsel in each jurisdiction)
reasonably satisfactory to the indemnifying party to represent them and,
in that event, the fees and expenses of not more than one such separate
counsel shall be paid by the indemnifying party, as such expenses are
incurred. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened
action or claim in respect of which indemnification or contribution may be
sought hereunder (whether or not the indemnified party is an actual or
potential party to such action or claim) unless such settlement,
compromise or judgment
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(i) includes an unconditional release of the indemnified party from all
liability arising out of such action or claim and (ii) does not include a
statement as to or an admission of fault, culpability or a failure to act,
by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable
to or insufficient to hold harmless an indemnified party under subsection
(a) or (b) above in respect of any losses, claims, damages or liabilities
(or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on
the one hand and the Underwriters on the other from the offering of the
Shares. If, however, the allocation provided by the immediately preceding
sentence is not permitted by applicable law or if the indemnified party
failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the
one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Shares purchased under this Agreement (before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions
received by the Underwriters with respect to the Shares purchased under
this Agreement, in each case as set forth in the table on the cover page
of the Prospectus. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated
as one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
The Underwriters' obligations in this subsection (d) to contribute are
several in proportion to their respective underwriting obligations and not
joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the
obligations of the Underwriters under this Section 8 shall be in addition
to any liability which the respective Underwriters may otherwise have and
shall extend, upon the same terms and conditions, to each officer and
director of the Company and to each person, if any, who controls the
Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you
may in your discretion arrange for you or another party or other parties to
purchase such Shares on the terms contained herein. If within thirty-six
hours after such default by any Underwriter you do not arrange for the
purchase of such Shares, then the Company
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shall be entitled to a further period of thirty-six hours within which to
procure another party or other parties satisfactory to you to purchase such
Shares on such terms. In the event that, within the respective prescribed
periods, you notify the Company that you have so arranged for the purchase of
such Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and
the Company agrees to file promptly any amendments to the Registration
Statement or the Prospectus which in your opinion may thereby be made
necessary. The term "Underwriter" as used in this Agreement shall include any
person substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares
which remains unpurchased does not exceed one-eleventh of the aggregate
number of all the Shares to be purchased at such Time of Delivery, then
the Company shall have the right to require each non-defaulting
Underwriter to purchase the number of Shares which such Underwriter agreed
to purchase hereunder at such Time of Delivery and, in addition, to
require each non-defaulting Underwriter to purchase its pro rata share
(based on the number of Shares which such Underwriter agreed to purchase
hereunder) of the Shares of such defaulting Underwriter or Underwriters
for which such arrangements have not been made; but nothing herein shall
relieve a defaulting Underwriter from liability for its default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company
as provided in subsection (a) above, the aggregate number of such Shares
which remains unpurchased exceeds one-eleventh of the aggregate number of
all the Shares to be purchased at such Time of Delivery, or if the Company
shall not exercise the right described in subsection (b) above to require
non-defaulting Underwriters to purchase Shares of a defaulting Underwriter
or Underwriters, then this Agreement (or, with respect to the Second Time
of Delivery, the obligations of the Underwriters to purchase and of the
Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company,
except for the expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements
in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set
forth in this Agreement or made by or on behalf of them, respectively,
pursuant to this Agreement, shall remain in full force and effect, regardless
of any investigation (or any statement as to the results thereof) made by or
on behalf of any Underwriter or any controlling person of any Underwriter, or
the Company, or any officer or director or controlling person of the Company,
and shall survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except
as provided in Sections 6 and 8 hereof; but, if for any other reason, any
Shares are not delivered by or on behalf of the Company as provided herein,
the Company will reimburse the Underwriters through you for all out-of-pocket
expenses approved in writing by you, including fees and disbursements of
counsel, reasonably incurred by the Underwriters in making preparations for
the purchase, sale and delivery of the Shares not so delivered, but the
Company shall then be under no further liability to any Underwriter in
respect of the Shares not so delivered except as provided in Sections 6 and 8
hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made
or given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
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All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex
or facsimile transmission to you as the representatives at in care of
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004, Attention:
Registration Department; and if to the Company shall be delivered or sent by
mail, telex or facsimile transmission to the address of the Company set forth
in the Registration Statement, Attention: Secretary; provided, however, that
any notice to an Underwriter pursuant to Section 8(c) hereof shall be
delivered or sent by mail, telex or facsimile transmission to such
Underwriter at its address set forth in its Underwriters' Questionnaire, or
telex constituting such Questionnaire, which address will be supplied to the
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8
and 10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser
of any of the Shares from any Underwriter shall be deemed a successor or
assign by reason merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the
same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us one for the Company and for each of the Representatives plus one
for each counsel counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement between each of the Underwriters and the
Company. It is understood that your acceptance of this letter on behalf of
each of the Underwriters is pursuant to the authority set forth in a form of
Agreement among Underwriters (U.S. Version), the form of which shall be
submitted to the Company for examination upon request, but without warranty
on your part as to the authority of the signers thereof.
Very truly yours,
Consolidated Cigar Holdings Inc.
By:
-----------------------------------
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated
Chase Securities Inc.
By:
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
15
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- --------------------------------------------------- --------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co ................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated
Morgan Stanley & Co. Incorporated ..................
Chase Securities Inc. ..............................
--------------- ------------------
Total ............................................ 3,500,000 525,000
=============== ==================
</TABLE>
16
<PAGE>
SCHEDULE II
DELAWARE SUBSIDIARIES
- ------------------------------------
Consolidated Cigar Corporation
Congar International Corporation
Triple C Marketing Inc.
17
<PAGE>
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
FOR REGISTRATION STATEMENTS ON FORM S-1
Pursuant to Section 7(e) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to the
Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial
forecasts and/or pro forma financial information) examined by them and
included in the Prospectus or the Registration Statement comply as to form
in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations thereunder; and,
if applicable, they have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited consolidated interim financial statements, selected
financial data, pro forma financial information, financial forecasts
and/or condensed financial statements derived from audited financial
statements of the Company for the periods specified in such letter, as
indicated in their reports thereon, copies of which have been furnished
separately to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards established by
the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus and
on the basis of specified procedures including inquiries of officials of
the Company who have responsibility for financial and accounting matters
regarding whether the unaudited condensed consolidated financial
statements included in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations, nothing came to their attention
that caused them to believe that the unaudited condensed consolidated
financial statements do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the related
published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts (after restatements where applicable) in
the audited consolidated financial statements for such five fiscal years
which were included or incorporated by reference in the Company's Annual
Reports on Form 10-K for such fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the
basis of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301 and 402, respectively, of
Regulation S-K;
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information
referred to below, a reading of the latest available interim financial
statements of the Company and its subsidiaries, inspection of the minute
books of the Company and its subsidiaries since the date of the latest
audited financial statements included in the Prospectus, inquiries of
officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
<PAGE>
(A) any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance
sheets and consolidated statements of cash flows included in the
Prospectus for them to be in conformity with generally accepted
accounting principles;
(B) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(C) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated
long-term debt of the Company and its subsidiaries, or any decreases
in consolidated net current assets or stockholders' equity or other
items specified by the Representatives, or any increases in any items
specified by the Representatives, in each case as compared with
amounts shown in the latest balance sheet included in the Prospectus,
except in each case for changes, increases or decreases which the
Prospectus discloses have occurred or may occur or which are described
in such letter; and
(D) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause
(C) there were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared with
the comparable period of the preceding year and with any other period
of corresponding length specified by the Representatives, except in
each case for decreases or increases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of
minute books, inquiries and other procedures referred to in paragraphs
(iii) and (vi) above, they have carried out certain specified procedures,
not constituting an examination in accordance with generally accepted
auditing standards, with respect to certain amounts, percentages and
financial information specified by the Representatives, which are derived
from the general accounting records of the Company and its subsidiaries,
which appear in the Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement specified by the Representatives,
and have compared certain of such amounts, percentages and financial
information with the accounting records of the Company and its
subsidiaries and have found them to be in agreement.
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
CONSOLIDATED CIGAR HOLDINGS INC.
Consolidated Cigar Holdings Inc. (the "Corporation"), a
corporation organized and existing under the General Corporation Law of the
State of Delaware (the "DGCL"), does hereby certify as follows:
1. The present name of the Corporation is Consolidated Cigar
Holdings Inc. The Corporation was originally incorporated under the name
"Consolidated Cigar (Parent) Holdings Inc." and its original certificate of
incorporation was filed with the office of the Secretary of State of the State
of Delaware on January 6, 1993 and was amended on June 26, 1996.
2. This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation (the "Board") and by the
sole stockholder of the Corporation in accordance with Sections 228, 242, and
245 of the DGCL.
3. This Amended and Restated Certificate of Incorporation restates
and integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended, supplemented and/or restated (the
"Certificate of Incorporation").
4. Upon the filing (the "Effective Time") of this Certificate of
Incorporation pursuant to the DGCL, each share of the Corporation's common
stock, $1.00 par value per share, issued and outstanding immediately prior to
the Effective Time (the "Old Common Stock") shall be reclassified as and
changed into 25,500 validly issued, fully paid, and non-assessable shares of
Class B Common Stock authorized by subparagraph (a) of Article FOURTH of the
Certificate of Incorporation (totaling 25,500,000 shares of Class B Common
Stock), without any action by the holder thereof (the "Reclassification").
Each certificate that theretofore represented a share or shares of Old Common
Stock shall thereafter represent that number of shares of Class B Common Stock
into which the share or shares of Old Common Stock represented by such
certificate shall have been reclassified.
<PAGE>
5. The text of the Certificate of Incorporation is amended and
restated in its entirety as follows:
FIRST: The name of the Corporation is Consolidated Cigar Holdings
Inc.
SECOND: The address of the registered office of the Corporation in
the State of Delaware is 1013 Centre Road, in the City of Wilmington, County
of New Castle. The name of its registered agent at that address is The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act
or activity for which a corporation may be organized under the DGCL.
FOURTH: (a) Authorized Capital Stock. The Corporation is authorized
to issue 570,000,000 shares of capital stock, of which 300,000,000 shares
shall be shares of Class A Common Stock, $0.01 par value ("Class A Common
Stock"), 250,000,000 shares shall be shares of Class B Common Stock, $0.01 par
value ("Class B Common Stock" and, together with the Class A Common Stock, the
"Common Stock"), and 20,000,000 shares shall be shares of Preferred Stock,
$0.01 par value ("Preferred Stock").
(b) Common Stock. The powers, preferences and rights, and the qualifications,
limitations and restrictions of each class of the Common Stock are as follows:
(1) Voting. (i) At each annual or special meeting of stockholders,
in the case of any written consent of stockholders in lieu of a meeting and
for all other purposes, each holder of record of shares of Class A Common
Stock on the relevant record date shall be entitled to one (1) vote for each
share of Class A Common Stock standing in such person's name on the stock
transfer records of the Corporation, and each holder of record of Class B
Common Stock on the relevant record date shall be entitled to ten (10) votes
for each share of Class B Common Stock standing in such person's name on the
stock transfer records of the Corporation. Except as otherwise required by law
and subject to the rights of holders of any series of Preferred Stock of the
Corporation that may be issued from time to time, the holders of shares of
Class A Common Stock and of shares of Class B Common Stock shall vote as a
single class on all matters with respect to which a vote of the stockholders
of the Corporation is required under applicable law, the Certificate
2
<PAGE>
of Incorporation of the Corporation, or the By-Laws of the Corporation, or on
which a vote of stockholders is otherwise duly called for by the Corporation,
including, but not limited to, the election of directors, matters concerning
the sale, lease or exchange of all or substantially all of the property and
assets of the Corporation, mergers or consolidations with another entity or
entities, dissolution of the Corporation and amendments to the Certificate of
Incorporation of the Corporation. Except as provided in this Article FOURTH or
by applicable law, whenever applicable law, the Certificate of Incorporation
of the Corporation or the By-Laws of the Corporation provide for the necessity
of an affirmative vote of the stockholders entitled to cast at least a
majority (or any other greater percentage) of the votes which all stockholders
are entitled to cast thereon, or a "majority (or any other greater percentage)
of the voting stock," or language of similar effect, any and all such language
shall mean that the holders of shares of Class A Common Stock and the holders
of shares of Class B Common Stock shall vote as one class and that a majority
(or any other greater percentage) consists of a majority (or such other
greater percentage) of the total number of votes entitled to be cast in
accordance with the provisions of this Article FOURTH.
(ii) Neither the holders of shares of Class A Common Stock nor the
holders of shares of Class B Common Stock shall have cumulative voting rights.
(iii) The Corporation may, as a condition to counting the votes cast
by any holder of shares of Class B Common Stock at any annual or special
meeting of stockholders, in the case of any written consent of stockholders in
lieu of a meeting, or for any other purpose, require the furnishing of such
affidavits or other proof as it may reasonably request to establish that the
shares of Class B Common Stock held by such holder have not, by virtue of the
provisions of subparagraphs (b)(6) or (7) of this Article FOURTH, been
converted into shares of Class A Common Stock.
3
<PAGE>
(2) Dividends; Stock Splits. Subject to the rights of the holders of
shares of any series of Preferred Stock, and subject to any other provisions
of the Certificate of Incorporation of the Corporation, holders of shares of
Class A Common Stock and shares of Class B Common Stock shall be entitled to
receive such dividends and other distributions in cash, stock or property of
the Corporation as may be declared thereon by the Board from time to time out
of assets or funds of the Corporation legally available therefor. If at any
time a dividend or other distribution in cash or other property (other than
dividends or other distributions payable in shares of Common Stock or other
voting securities or options or warrants to purchase shares of Common Stock or
other voting securities or securities convertible into or exchangeable for
shares of Common Stock or other voting securities) is paid on the shares of
Class A Common Stock or shares of Class B Common Stock, a like dividend or
other distribution in cash or other property shall also be paid on shares of
Class B Common Stock or shares of Class A Common Stock, as the case may be, in
an equal amount per share. If at any time a dividend or other distribution
payable in shares of Common Stock or options or warrants to purchase shares of
Common Stock or securities convertible into or exchangeable for shares of
Common Stock is paid on shares of Class A Common Stock or Class B Common
Stock, a like dividend or other distribution shall also be paid on shares of
Class B Common Stock or Class A Common Stock, as the case may be, in an equal
amount per share; provided that, for this purpose, if shares of Class A Common
Stock or other voting securities, or options or warrants to purchase shares of
Class A Common Stock or other voting securities or securities convertible into
or exchangeable for shares of Class A Common Stock or other voting securities,
are paid on shares of Class A Common Stock and shares of Class B Common Stock
or voting securities identical to the other securities paid on the shares of
Class A Common Stock (except that the voting securities paid on the Class B
Common Stock may have ten (10) times the number of votes per share as the
other voting securities to be received by the holders of the Class A Common
Stock) or options or warrants to purchase shares of Class B Common Stock or
such other voting securities or securities convertible into or exchangeable
for shares of Class B Common Stock or such other voting securities, are paid
on shares of Class B Common Stock, in an equal amount per share of Class A
Common Stock and Class B Common Stock, such dividend or other distribution
shall be deemed to be a like
4
<PAGE>
dividend or other distribution. In the case of any split, subdivision,
combination or reclassification of shares of Class A Common Stock or Class B
Common Stock, the shares of Class B Common Stock or Class A Common Stock, as
the case may be, shall also be split, subdivided, combined or reclassified so
that the number of shares of Class A Common Stock and Class B Common Stock
outstanding immediately following such split, subdivision, combination or
reclassification shall bear the same relationship to each other as did the
number of shares of Class A Common Stock and Class B Common Stock outstanding
immediately prior to such split, subdivision, combination or reclassification.
(3) Liquidation, Dissolution, etc. In the event of any liquidation,
dissolution or winding up (either voluntary or involuntary) of the
Corporation, the holders of shares of Class A Common Stock and the holders of
shares of Class B Common Stock shall be entitled to receive the assets and
funds of the Corporation available for distribution, after payments to
creditors and to the holders of any Preferred Stock of the Corporation that
may at the time be outstanding, in proportion to the number of shares held by
them, respectively, without regard to class.
(4) Mergers, etc. In the event of any corporate merger, consolidation,
purchase or acquisition of property or stock, or other reorganization in which
any consideration is to be received by the holders of shares of Class A Common
Stock or the holders of shares of Class B Common Stock, the holders of shares
of Class A Common Stock and the holders of shares of Class B Common Stock
shall receive the same consideration on a per share basis; provided that, if
such consideration shall consist in any part of voting securities (or of
options or warrants to purchase, or of securities convertible into or
exchangeable for, voting securities), the holders of shares of Class B Common
Stock may receive, on a per share basis, voting securities with ten (10) times
the number of votes per share as those voting securities to be received by the
holders of shares of Class A Common Stock (or options or warrants to purchase,
or securities convertible into or exchangeable for, voting securities with ten
(10) times the number of votes per share as those voting securities issuable
upon exercise of the options or warrants to be received by the holders of the
shares of Class A Common Stock, or into which the convertible or exchangeable
securities to be received by the
5
<PAGE>
holders of the shares of Class A Common Stock may be converted or
exchanged).
(5) No Preemptive or Subscription Rights. No holder of shares of Class A
Common Stock or Class B Common Stock shall be entitled to preemptive or
subscription rights.
(6) Transfer Restriction; Change of Control of Holders. (i) Except as
provided in subparagraph (b)(6)(iv) of this Article FOURTH, no person holding
record ownership of shares of Class B Common Stock (hereinafter called a
"Class B Holder") may transfer, and the Corporation shall not register the
transfer of, such shares of Class B Common Stock, except to a Permitted
Transferee of such Class B Holder. For the purposes hereof, a "Permitted
Transferee" shall mean:
(A) In the case of a Class B Holder who is a natural person, such
Class B Holder's "Permitted Transferee" means (x) the present or former
spouse of such Class B Holder, a lineal descendant of such Class B Holder
or any ancestor of any such lineal descendent, or a lineal descendant of
the present or former spouse of such Class B Holder, or (y) the trustee
of a trust (including a voting trust) principally for the benefit of such
Class B Holder and/or persons who are Permitted Transferees of such Class
B Holder; provided that such trust may grant a general or special power
of appointment to such Class B Holder and/or any persons who are
Permitted Transferees of such Class B Holder, and may permit trust assets
to be used to pay taxes, legacies and other obligations of the trust or
the estate of such Class B Holder and/or any persons who are Permitted
Transferees of such Class B Holder, payable by reason of the death of
such Class B Holder and/or any persons who are Permitted Transferees of
such Class B Holder, and (z) the executor, administrator, guardian or
personal representative of the estate of such Class B Holder.
(B) In the case of any Class B Holder, such Class B Holder's
"Permitted Transferee" means, in addition to any other Permitted
Transferee hereunder, (x) a corporation, limited liability company or
partnership controlled by such Class B Holder and/or persons who are
Permitted Transferees of such Class B Holder; provided that if control of
such a
6
<PAGE>
corporation, limited liability company or partnership (or of any survivor
of a merger or consolidation of such a corporation, limited liability
company or partnership) is acquired by any person who is not within such
class of persons, each share of Class B Common Stock then held by such
corporation, limited liability company or partnership, as the case may
be, shall be deemed, without further act on the part of the holder
thereof or the Corporation, to be converted into one share of Class A
Common Stock, and stock certificates formerly representing each share of
Class B Common Stock shall thereupon and thereafter be deemed to
represent such number of shares of Class A Common Stock as equals the
number of shares of Class A Common Stock into which such shares of Class
B Common Stock could be converted pursuant to the terms hereof, and (y)
the estate of a bankrupt or insolvent Class B Holder.
(C) In the case of a Class B Holder which is a trustee pursuant to a
trust, such Class B Holder's "Permitted Transferee" means (x) the person
who contributed the shares of Class B Common Stock in question to such
trust (provided that there has been no change in control of such person
other than to a Permitted Transferee of such person), and (y) a Permitted
Transferee of the person (provided that there has been no change in
control of such person other than to a Permitted Transferee of such
person) who contributed the shares of Class B Common Stock in question to
such trust.
(D) In the case of a Class B Holder which is a corporation or
limited liability company, such Class B Holder's "Permitted Transferee"
means any (x) direct or indirect controlling stockholder of such
corporation or member of such limited liability company (but not any
other stockholder of such corporation or member of such limited liability
company), and (y) any Permitted Transferee of such controlling
stockholder or member (as if such controlling stockholder or member were
a Class B Holder), and the survivor of any merger or consolidation of
such corporation or limited liability company; provided that, if control
of such a corporation or limited liability company (or of any survivor of
a merger or consolidation of such a corporation or limited liability
company) is acquired by any person who is not within such class of
persons, whether as
7
<PAGE>
a result of a merger or consolidation or otherwise, each share of Class B
Common Stock then held by such corporation or limited liability company
shall be deemed, without further act on the part of the holder thereof or
the Corporation, to be converted into one share of Class A Common Stock,
and stock certificates formerly representing such shares of Class B
Common Stock shall thereupon and thereafter be deemed to represent such
number of shares of Class A Common Stock as equals the number of shares
of Class A Common Stock into which such shares of Class B Common Stock
could be converted pursuant to the terms hereof.
(E) In the case of a Class B Holder which is a partnership, such
Class B Holder's "Permitted Transferee" means (x) any direct or
indirect controlling partner of such partnership (but not any other
partner of such partnership), and any Permitted Transferee of such
controlling partner (as if such controlling partner were a Class B
Holder), and (y) the survivor of a merger or consolidation of such
partnership; provided that if control of such a partnership (or of any
survivor of a merger or consolidation of such a partnership) is acquired
by any person who is not within such class of persons, whether as a
result of a merger or consolidation or otherwise, each share of Class B
Common Stock then held by such partnership shall be deemed, without
further act on the part of the holder thereof or the Corporation, to be
converted into one share of Class A Common Stock, and stock certificates
formerly representing each share of Class B Common Stock shall thereupon
and thereafter be deemed to represent such number of shares of Class A
Common Stock as equals the number of shares of Class A Common Stock into
which such shares of Class B Common Stock could be converted pursuant to
the terms hereof.
(F) In the case of a Class B Holder which is the estate of a
deceased Class B Holder, or which is the estate of a bankrupt or
insolvent Class B Holder, such Class B Holder's "Permitted
Transferee" means a Permitted Transferee of such deceased, bankrupt
or insolvent Class B Holder.
(G) In the case of any Class B Holder, such Class B Holder's
"Permitted Transferee" means, without limitation of the foregoing,
any direct or
8
<PAGE>
indirect Permitted Transferee of a Permitted Transferee of such Class B
Holder.
(ii) Notwithstanding anything to the contrary set forth herein, but
subject to the provisions of subparagraph (b)(6)(iv) of this Article FOURTH,
in the event of any direct or indirect transfer of beneficial ownership of any
shares of Class B Common Stock which, had such transfer also been a transfer
of record ownership of such shares of Class B Common Stock, would not have
been to a Permitted Transferee, each share of Class B Common Stock transferred
shall be deemed, without further act on the part of the holder thereof or the
Corporation, to be converted into one share of Class A Common Stock, and stock
certificates formerly representing each share of Class B Common Stock shall
thereupon and thereafter be deemed to represent such number of shares of Class
A Common Stock as equals the number of shares of Class A Common Stock into
which such shares of Class B Common Stock could be converted pursuant to the
terms hereof.
(iii) Notwithstanding anything to the contrary set forth herein, any
event which would result in the automatic conversion of shares of Class B
Common Stock into shares of Class A Common Stock shall not result in such
conversion if, after such event, the record holder of such shares of Class B
Common Stock is a corporation, limited liability company or partnership as to
which, with respect to the shares of Class B Common Stock held by such
corporation, limited liability company or partnership, any Permitted
Transferee of the Class B Holder prior to such event has, directly or
indirectly, both investment power (which includes the power to dispose, or
direct the disposition of, such shares of Class B Common Stock) and voting
power (which includes the power to vote, or direct the voting of, such shares
of Class B Common Stock); provided that no transaction or event intended to
avoid the automatic conversion provision of this subparagraph (b)(6) of
Article FOURTH shall in any event be entitled to the benefit of this
subparagraph (b)(6)(iii) of Article FOURTH.
(iv) Notwithstanding anything to the contrary set forth
herein, any Class B Holder may pledge such Class B Holder's shares of Class B
Common Stock to a pledgee pursuant to a bona fide pledge of such shares as
collateral security for any indebtedness or other obligation of any person;
provided that, even if such shares are registered in the name of the pledgee
or its nominee
9
<PAGE>
(which registration is hereby expressly permitted and shall not be considered
a transfer hereunder), such shares shall remain subject to the provisions of
this subparagraph (b)(6) of Article FOURTH. In the event that such pledged
shares of Class B Common Stock (the "Pledged Stock") are foreclosed upon, each
share of such Pledged Stock shall be deemed, without further act on the part
of the holder thereof or the Corporation, to be converted into one share of
Class A Common Stock, and stock certificates formerly representing one share
of Class B Common Stock shall thereupon and thereafter be deemed to represent
such number of shares of Class A Common Stock as equals the number of shares
of Class A Common Stock into which such shares of Class B Common Stock could
be converted pursuant to the terms hereof upon the earlier of (i) if the
pledgor is contesting the foreclosure on such shares of Pledged Stock, 30 days
after the date on which the foreclosure on such Pledged Stock becomes final
and non-appealable or (ii) if the pledgor is not contesting the foreclosure on
such shares of Pledged Stock, 30 days after the date on which such Pledged
Stock is foreclosed upon; provided that the Pledged Stock shall not be
automatically converted as provided in this subparagraph (b)(6)(iv) of Article
FOURTH hereof as a result of such foreclosure if, prior to expiration of
either such 30-day period, the Pledged Stock shall be transferred by the
pledgee or the purchaser in such foreclosure to a Class B Holder or one or
more Permitted Transferees of a Class B Holder.
(v) Notwithstanding anything to the contrary herein, the Corporation
shall not register the transfer of any shares of Class B Common Stock, unless
the transferee and the transferor of such Class B Common Stock have
furnished such affidavits and other proof as the Corporation may reasonably
request to establish that such proposed transferee is a Permitted Transferee.
In addition, upon any purported transfer of shares of Class B Common Stock not
permitted hereunder, each share of Class B Common Stock purported to be so
transferred shall be deemed, without further act on the part of the holder
thereof or the Corporation, to be converted into one share of Class A Common
Stock, and stock certificates formerly representing one share of Class B
Common Stock shall thereupon and thereafter be deemed to represent such number
of shares of Class A Common Stock as equals the number of shares of Class A
Common Stock into which such shares of Class B Common Stock could be converted
pursuant to the terms hereof, and the Corporation shall
10
<PAGE>
register such shares of Class A Common Stock in the name of the person to whom
such shares of Class B Common Stock were purported to be transferred.
(vi) The Corporation shall include on the certificates for
shares of Class B Common Stock a legend referring to the restrictions on
transfer and registration of transfer imposed by this subparagraph (b)(6) of
Article FOURTH.
(7) Automatic Conversion. (i) In the event the aggregate number of
shares of Class B Common Stock and Class A Common Stock held by the Class B
Holder and its Permitted Transferees at any time shall constitute less than
ten percent (10%) of the total number of shares of Common Stock issued and
outstanding at such time, then, without any further act on the part of the
holder thereof or the Corporation, each share of Class B Common Stock then
issued and outstanding shall be deemed to be converted into one share of Class
A Common Stock, and stock certificates formerly representing each share of
Class B Common Stock shall thereupon and thereafter be deemed to represent
such number of shares of Class A Common Stock as equals the number of shares
of Class A Common Stock into which such shares of Class B Common Stock could
be converted pursuant to the terms hereof. For purposes of the immediately
preceding sentence, any shares of Class A Common Stock and Class B Common
Stock repurchased or otherwise acquired by the Corporation and not
subsequently sold or otherwise transferred by the Corporation shall no longer
be deemed "outstanding" from and after the date of repurchase. Any event set
forth in subparagraph (b)(6) or (7) of this Article FOURTH pursuant to which
shares of Class B Common Stock have been automatically converted into shares
of Class A Common Stock are hereafter referred to as an "Event of Automatic
Conversion."
(ii) Conversion pursuant to an Event of Automatic Conversion shall
be deemed to have been effected at the time the Event of Automatic Conversion
occurred (such time being the "Conversion Time"). The person entitled to
receive the shares of Class A Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder of such shares of Class A
Common Stock at and as of the Conversion Time, and the rights of such person
as a holder of shares of Class B Common Stock with respect to the shares of
Class B Common Stock that have been converted, shall cease and terminate at
and as of the Conversion Time.
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(8) Voluntary Conversion. Each share of Class B Common Stock shall be
convertible, at the option of its record holder, into one validly issued,
fully paid and non-assessable share of Class A Common Stock at any time. At
the time of a voluntary conversion, the record holder of shares of Class B
Common Stock shall deliver to the principal office of the Corporation or any
transfer agent for shares of the Class A Common Stock (i) the certificate or
certificates representing the shares of Class B Common Stock to be converted,
duly endorsed in blank or accompanied by proper instruments of transfer, and
(ii) written notice to the Corporation specifying the number of shares of
Class B Common Stock to be converted into shares of Class A Common Stock and
stating the name or names (with addresses) and denominations in which the
certificate or certificates representing the shares of Class A Common Stock
issuable upon such conversion are to be issued and including instructions for
the delivery thereof. Conversion shall be deemed to have been effected at the
time when delivery is made to the Corporation of both such written notice and
the certificate or certificates representing the shares of Class B Common
Stock to be converted or such later time as may be specified in such written
notice, and as of such time each person named in such written notice as the
person to whom a certificate representing shares of Class A Common Stock is to
be issued shall be deemed to be the holder of record of the number of shares
of Class A Common Stock to be evidenced by that certificate. Delivery of such
certificates and such written notice shall obligate the Corporation to issue
such shares of Class A Common Stock, and thereupon the Corporation or its
transfer agent shall promptly issue and deliver at such stated address to such
record holder of shares of Class A Common Stock a certificate or certificates
representing the number of shares of Class A Common Stock to which such record
holder is entitled by reason of such conversion, and shall cause such shares
of Class A Common Stock to be registered in the name of such record holder.
(9) Unconverted Shares; Notice Required. In the event of the conversion
of less than all of the shares of Class B Common Stock evidenced by a
certificate surrendered to the Corporation in accordance with the procedures
of subparagraphs (b)(6), (7) or (8) of this Article FOURTH hereof, the
Corporation shall execute and deliver to or upon the written order of the
holder of such unconverted shares, without charge to such holder, a new
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certificate evidencing the number of shares of Class B Common Stock not
converted.
(10) Reservation. The Corporation hereby reserves and shall at all
times reserve and keep available, out of its authorized and unissued shares of
Class A Common Stock, for the purposes of effecting conversions, such number
of duly authorized shares of Class A Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding shares of Class B
Common Stock. The Corporation covenants that all of the shares of Class A
Common Stock so issuable shall, when so issued, be duly and validly issued,
fully paid and non-assessable, and free from liens and charges. The
Corporation shall take all action as may be necessary to ensure that all such
shares of Class A Common Stock may be so issued without violation of any
applicable law or regulation, or of any requirements of any national
securities exchange upon which the shares of Class A Common Stock are or may
be listed, or of any inter-dealer quotation system of a registered national
securities association upon which the shares of Class A Common Stock are or
may be listed.
(11) Power to Sell and Purchase Shares. Subject to applicable law,
the Corporation shall have the power to issue and sell all or any part of any
shares of any class of stock herein or hereafter authorized to such persons,
and for such consideration, as the Board shall from time to time, in its
discretion, determine, whether or not greater consideration could be received
upon the issue or sale of the same number of shares of another class, and as
otherwise permitted by law. Subject to the requirements of applicable law, the
Corporation shall have the power to purchase any shares of any class of stock
herein or hereafter authorized from such persons, and for such consideration,
as the Board shall from time to time, in its discretion, determine, whether or
not less consideration could be paid upon the purchase of the same number of
shares of another class, and as otherwise permitted by law.
(12) Rights Otherwise Identical. Except as expressly set forth herein,
the rights of the holders of Class A Common Stock and the rights of the
holders of Class B Common Stock shall be in all respects identical.
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(13) Certain Relationships and Definitions. For purposes of this Article
FOURTH:
(i) The relationship of any person that is derived by or through
legal adoption shall be considered a natural one.
(ii) Each joint owner of shares of Class B Common Stock shall be
considered a "Class B Holder" of such shares.
(iii) A minor for whom shares of Class B Common Stock are held
pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a
"Class B Holder" of such shares.
(iv) The term "beneficial ownership" (including, with a
correlative meaning, the term "beneficially own"), shall have the meaning
assigned such term in Rules 13d-3 and 13d-5 under the Securities Exchange Act
of 1934, as amended, except that a person shall be deemed to have "beneficial
ownership" of all shares that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
(v) Unless otherwise specified, the term "person" means both natural
persons and legal entities.
(vi) The term "transfer" means any direct or indirect transfer
(including by sale, assignment, gift, bequest, appointment or otherwise), and
shall also include, with respect to any Class B Holder, any
direct or indirect change in control of such person.
(vii) The term "control" (including, with correlative meanings, the
terms "controlling", "controlled by" and "under common control with"), as
applied to any person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of that
person or entity, whether through the ownership of voting securities, by
contract or otherwise.
(c) Preferred Stock. The Board is expressly authorized to provide for the
issuance of all or any shares of the Preferred Stock in one or more classes or
series, and to fix for each such class or series such voting powers, full or
limited, or no voting powers, and such designa-
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tions, preferences and relative, participating, optional or other special
rights and such qualifications, limitations or restrictions thereof, as shall
be stated and expressed in the resolution or resolutions adopted by the Board
providing for the issuance of such class or series, including, without
limitation, the authority to provide that any such class or series may be (i)
subject to redemption at such time or times and at such price or prices; (ii)
entitled to receive dividends (which may be cumulative or non-cumulative) at
such rates, on such conditions, and at such times, and payable in preference
to, or in such relation to, the dividends payable on any other class or
classes or any other series; (iii) entitled to such rights upon the
dissolution of, or upon any distribution of the assets of, the Corporation; or
(iv) convertible into, or exchangeable for, shares of any other class or
classes of stock, or of any other series of the same or any other class or
classes of stock, of the Corporation at such price or prices or at such rates
of exchange and with such adjustments; all as may be stated in such resolution
or resolutions.
FIFTH: The following provisions are inserted for the management of
the business and the conduct of the affairs of the Corporation, and for
further definition, limitation and regulation of the powers of the Corporation
and of its directors and stockholders:
(a) The business and affairs of the Corporation shall be managed by or under
the direction of the Board of Directors.
(b) The directors shall have concurrent power with the stockholders to adopt,
amend, or repeal the By-Laws of the Corporation.
(c) The number of directors of the Corporation shall be as from time to time
fixed by, or in the manner provided in, the By-Laws of the Corporation.
Election of directors need not be by written ballot unless the By-Laws so
provide.
(d) No director shall be personally liable to the Corporation or any of its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to
the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
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(iii) pursuant to Section 174 of the DGCL or (iv) for any transaction from
which the director derived an improper personal benefit. If the DGCL is
amended hereafter to authorize the further elimination or limitation of
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent authorized by the DGCL,
as so amended. Any repeal or modification of this Article FIFTH by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such
repeal or modification with respect to acts or omissions occurring prior to
such repeal or modification.
(e) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the DGCL, this
Certificate of Incorporation and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
By-Laws had not been adopted.
(f) The Corporation expressly elects not to be governed
by Section 203 of the DGCL.
SIXTH: Meetings of stockholders may be held within or without the
State of Delaware, as the By-Laws may provide. The books of the Corporation
may be kept (subject to any provision contained in the DGCL) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board or in the ByLaws.
SEVENTH: The Corporation shall indemnify its directors and officers
to the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who
has ceased to be a director or officer of the Corporation and shall inure to
the benefit of his or her heirs, executors and personal and legal
representatives; provided, however, that, except for proceedings to enforce
rights to indemnification, the Corporation shall not be obligated to indemnify
any director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part
16
<PAGE>
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors. The right to
indemnification conferred by this Article SEVENTH shall include the right to
be paid by the Corporation the expenses incurred in defending or otherwise
participating in any proceeding in advance of its final disposition.
The Corporation may, to the extent authorized from time to time by
the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Corporation similar to
those conferred in this Article SEVENTH to directors and officers of the
Corporation.
The rights to indemnification and to the advance of expenses
conferred in this Article SEVENTH shall not be exclusive of any other right
which any person may have or hereafter acquire under this Certificate of
Incorporation, the By-Laws, any statute, agreement, vote of stockholders or
disinterested directors or otherwise.
Any repeal or modification of this Article SEVENTH by the
stockholders of the Corporation shall not adversely affect any rights to
indemnification and to the advancement of expenses of a director or officer of
the Corporation existing at the time of such repeal or modification with
respect to any acts or omissions occurring prior to such repeal or
modification.
EIGHTH: The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed in this Certificate of Incorporation, the
By-Laws or the laws of the State of Delaware, and all rights herein conferred
upon stockholders are granted subject to such reservation.
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IN WITNESS WHEREOF, the Corporation has caused this Amended
and Restated Certificate of Incorporation to be duly executed this day of
August, 1996.
CONSOLIDATED CIGAR HOLDINGS INC.
By:_______________________
Name: Joram C. Salig
Title: Vice President
and Secretary
18
AMENDED AND RESTATED
BY-LAWS
OF
CONSOLIDATED CIGAR HOLDINGS INC.
August , 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I OFFICES
Section 1. Registered Office................................... 1
Section 2. Other Offices....................................... 1
ARTICLE II MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings................................... 1
Section 2. Annual Meetings..................................... 1
Section 3. Special Meetings.................................... 2
Section 4. Quorum ............................................. 2
Section 5. Voting ............................................. 3
Section 6. Consent of Stockholders in Lieu
of Meeting. .............................. 3
Section 7. List of Stockholders Entitled to
Vote ............................................... 4
Section 8. Stock Ledger ....................................... 4
Section 9. Inspectors of Election.............................. 4
ARTICLE III DIRECTORS
Section 1. Number and Election of
Directors........................................... 5
Section 2. Vacancies........................................... 5
Section 3. Duties and Powers................................... 6
Section 4. Meetings ........................................... 6
Section 5. Quorum.............................................. 6
Section 6. Action by Written Consent........................... 7
Section 7. Meetings by Means of Conference
Telephone........................................... 7
Section 8. Compensation........................................ 7
Section 9. Interested Directors ............................... 7
ARTICLE IV COMMITTEES
Section 1. Constitutition and Powers........................... 8
Section 2. Executive Committee................................. 9
Section 3. Organization ....................................... 9
Section 4. Meetings ............................................9
Section 5. Quorum and Manner of Acting ........................ 9
Section 6. General............................................. 9
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ARTICLE V OFFICERS
Section 1. General.............................................. 10
Section 2. Election............................................. 10
Section 3. Voting Securities Owned by the
Corporation ......................................... 10
Section 4. Chairman of the Board of
Directors............................................ 11
Section 5. President............................................ 11
Section 6. Vice Presidents...................................... 12
Section 7. Secretary............................................ 13
Section 8. Treasurer............................................ 13
Section 9. Controller .......................................... 14
Section 10. Assistant Secretaries ............................... 14
Section 11. Assistant Treasurers................................. 15
Section 12. Other Officers ...................................... 15
ARTICLE VI STOCK
Section 1. Form of Certificates ................................ 15
Section 2. Signatures .......................................... 16
Section 3. Lost, Destroyed, Stolen or
Mutilated Certificates .............................. 16
Section 4. Transfers............................................ 17
Section 5. Limitations on Transfer.............................. 17
Section 6. Record Date ......................................... 18
Section 7. Beneficial Owners.................................... 18
ARTICLE VII NOTICES
Section 1. Notices.............................................. 18
Section 2. Waivers of Notice.................................... 19
ARTICLE VIII GENERAL PROVISIONS
Section 1. Dividends ........................................... 19
Section 2. Disbursements ....................................... 19
Section 3. Fiscal Year ......................................... 20
Section 4. Corporate Seal ...................................... 20
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ARTICLE IX INDEMNIFICATION
Section 1. Power to Indemnify in Actions,
Suits or Proceedings other Than
Those by or in the Right of the
Corporation.......................................... 20
Section 2. Power to Indemnify in Actions,
Suits or Proceedings by or in
the Right of the Corporation ........................ 21
Section 3. Authorization of
Indemnification ..................................... 21
Section 4. Good Faith Defined .................................. 22
Section 5. Indemnification by a Court .......................... 23
Section 6. Expenses Payable in Advance.......................... 23
Section 7. Nonexclusivity of Indemnifica-
tion and Advancement of
Expenses............................................. 23
Section 8. Insurance............................................ 24
Section 9. Certain Definitions.................................. 24
Section 10. Survival of Indemnification and
Advancement of Expenses.............................. 25
Section 11. Limitation on Indemnification........................ 25
Section 12. Indemnification of Employees and
Agents .............................................. 25
ARTICLE X AMENDMENT OF BY-LAWS
Section 1. Amendment of By-Laws ................................ 26
Section 2. Entire Board of Directors............................ 26
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BY-LAWS
(as restated and amended)
OF
CONSOLIDATED CIGAR HOLDINGS INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation shall be in the City of Wilmington, County of New Castle, State of
Delaware.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board
of Directors may from time to time determine.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place of Meetings. Meetings of the stockholders for the
election of directors or for any other purpose shall be held at such time and
place, either within or without the State of Delaware as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The Annual Meetings of Stockholders
shall be held on such date and at such time as shall be designated from time
to time by the Board of Directors and stated in the notice of the meeting, at
which meetings the stockholders shall elect by a plurality vote a Board of
Directors, and transact such other business as may properly be brought before
the meeting. Written notice of the Annual Meeting of Stockholders stating the
place, date and hour of the meeting shall be given to each stockholder
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting.
<PAGE>
Section 3. Special Meetings. Unless otherwise prescribed by law or
by the Certificate of Incorporation, Special Meetings of Stockholders, for any
purpose or purposes, may be called by either (i) the Board of Directors, (ii)
the Chairman of the Board of Directors, (iii) the President or (iv) the
Chairman of the Executive Committee of the Board of Directors. Such request
shall state the purpose or purposes of the proposed meeting. At a special
meeting of the stockholders, only such business shall be conducted as shall be
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors. Written notice of a Special Meeting
of Stockholders stating the place, date and hour of the meeting and the
purpose or purposes for which the meeting is called shall be given not less
than ten nor more than sixty days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority in total number of
votes of the capital stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
at all meetings of the stockholders for the transaction of business. A quorum,
once established, shall not be broken by the withdrawal of enough votes to
leave less than a quorum. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the officer of the Corporation
presiding at the meeting of stockholders or the holders of a majority in
number of votes of the capital stock entitled to vote thereat, present in
person or represented by proxy, shall have power to adjourn the meeting from
time to time, without notice other than announcement at the meeting of the
time and place of the adjourned meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted
at the meeting as originally noticed. If the adjournment is for more than
thirty days, or if after the adjournment a new record date is fixed for the
adjourned meeting, a written notice of the adjourned meeting shall be given to
each stockholder entitled to vote at the meeting not less than
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<PAGE>
ten nor more than sixty days before the date of the meeting.
Section 5. Voting. Unless otherwise required by law, the
Certificate of Incorporation or these By-Laws, any question brought before any
meeting of stockholders shall be decided by the affirmative vote of the
holders of a majority of the total number of votes of the capital stock
present, in person or represented by proxy, and entitled to vote thereat. Such
votes may be cast in person or by proxy but no proxy shall be voted on or
after three years from its date, unless such proxy provides for a longer
period. The Board of Directors, in its discretion, or the officer of the
Corporation presiding at a meeting of stockholders, in his discretion, may
require that any votes cast at such meeting shall be cast by written ballot.
Section 6. Consent of Stockholders in Lieu of Meeting. Unless
otherwise provided in the Certificate of Incorporation, any action required or
permitted to be taken at any Annual or Special Meeting of Stockholders of the
Corporation, may be taken without a meeting, without prior notice and without
a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a meeting at which all shares entitled to vote thereon were
present and voted. Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing and who, if the action had been
taken at a meeting, would have been entitled to notice of the meeting if the
record date for such meeting had been the date that written consents signed by
a sufficient number of stockholders to take the action were delivered to the
Corporation as provided in this Section 6. In the event that the action which
is consented to is such as would have required the filing of a certificate
under the General Corporation Law of the State of Delaware if such action had
been voted on by stockholders at a meeting thereof, the certificate filed
shall state, in lieu of any statement concerning any vote of stockholders,
that
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written consent has been given in accordance with this Section 6.
Section 7. List of Stockholders Entitled to Vote. The officer of
the Corporation who has charge of the stock ledger of the Corporation shall
prepare and make, at least ten days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder of the Corporation who
is present.
Section 8. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books
of the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
Section 9. Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors by resolution or the Chairman of the
Board of Directors, the President or the Chairman of the Executive Committee
of the Board of Directors shall appoint one or more inspectors of election to
act at the meeting and make a written report thereof. One or more other
persons may be designated as alternate inspectors to replace any inspector who
fails to act. If no inspector or alternate is present, ready and willing to
act at a meeting of stockholders, the officer of the Corporation presiding at
the meeting of stockholders shall appoint one or more inspectors to act at the
meeting. Unless otherwise required by law, inspectors may be officers,
employees or agents of the Corporation. Each inspector, before enter-
4
<PAGE>
ing upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector shall have the
duties prescribed by law and shall take charge of the polls and, when the vote
is completed, shall make a certificate of the result of the vote taken and of
such other facts as may be required by law.
ARTICLE III
DIRECTORS
---------
Section 1. Number and Election of Directors. The Board of
Directors shall consist of not less than one nor more than fifteen members,
the exact number of which shall be fixed from time to time by resolution
adopted by the Board of Directors. Except as provided in Section 2 of this
Article III, directors shall be elected by a plurality of the votes cast at
Annual Meetings of Stockholders, and each director so elected shall hold
office until the next Annual Meeting and until his successor is duly elected
and qualified, or until his death, or until his earlier resignation or
removal. Any director may resign at any time upon notice to the Corporation.
Directors need not be stockholders.
Section 2. Vacancies. Subject to the terms of any one or more
classes or series of preferred stock, vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, though
less than a quorum, or by a sole remaining director, except that any vacancy
resulting from the death, resignation, removal or disqualification of a
director elected by the holders of any class or classes of the stock of the
Corporation voting as a class, or from an increase in the number of directors
which such holders are entitled to elect, may be filled by the affirmative
vote of a majority of the directors elected by such class or classes, or by a
sole remaining director so elected, and each director so chosen shall hold
office until his successor is duly elected and qualified or until his
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<PAGE>
death, or until his earlier resignation or removal, or disqualification.
Section 3. Duties and Powers. The business of the Corporation
shall be managed by or under the direction of the Board of Directors which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by statute or by the Certificate of Incorporation or by
these By-Laws directed or required to be exercised or done by the
stockholders.
Section 4. Meetings. The Board of Directors of the Corporation may
hold meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors,
without notice. Special meetings of the Board of Directors may be called by
the Chairman of the Board of Directors, the Chairman of the Executive
Committee of the Board of Directors, or a majority of directors then in
office. Notice thereof stating the place, date and hour of the meeting shall
be given to each director either by mail not less than forty-eight hours
before the date of the meeting; by telephone, telecopy, or telegram on
twenty-four (24) hours notice; or on such shorter notice as the person or
persons calling such meeting may deem necessary or appropriate in the
circumstances.
Section 5. Quorum. Except as may be otherwise specifically
provided by law, the Certificate of Incorporation or these By-Laws, at all
meetings of the Board of Directors, a majority of the entire Board of
Directors shall constitute a quorum for the transaction of business and the
act of a majority of the directors present at any meeting at which there is a
quorum shall be the act of the Board of Directors. If a quorum shall not be
present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting of the time and place of the adjourned meeting,
until a quorum shall be present.
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Section 6. Action by Written Consent. Unless otherwise provided
by the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all the members of the
Board of Directors or committee, as the case may be, consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board of Directors or committee.
Section 7. Meetings by Means of Conference Telephone. Unless
otherwise provided by the Certificate of Incorporation or these By-Laws,
members of the Board of Directors of the Corporation, or any committee
designated by the Board of Directors, may participate in a meeting of the
Board of Directors or such committee by means of a conference telephone or
similar communications equipment by means of which all persons participating
in the meeting can hear each other, and participation in a meeting pursuant to
this Section 7 shall constitute presence in person at such meeting.
Section 8. Compensation. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be
paid a fixed sum for attendance at each meeting of the Board of Directors or a
stated salary as director. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor. Members of special or standing committees may be allowed like
compensation for attending committee meetings.
Section 9. Interested Directors. No contract or transaction
between the Corporation and one or more of its directors or officers, or
between the Corporation and any other corporation, partnership, association,
or other organization in which one or more of its directors or officers are
directors or officers, or have a financial interest, shall be void or voidable
solely for this reason, or solely because the director or officer is present
at or participates in the meeting of the Board of Directors or committee
thereof which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose if (i) the
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material facts as to his or their relationship or interest and as to the
contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority
of the disinterested directors, even though the disinterested directors be
less than a quorum; or (ii) the material facts as to his or their relationship
or interest and as to the contract or transaction are disclosed or are known
to the stockholders entitled to vote thereon, and the contract or transaction
is specifically approved in good faith by vote of the stockholders; or (iii)
the contract or transaction is fair as to the Corporation as of the time it is
authorized, approved or ratified, by the Board of Directors, a committee
thereof or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
ARTICLE IV
COMMITTEES
----------
Section 1. Constitutition and Powers. The Board of Directors may
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation, except as otherwise provided in these
By-Laws. The Board of Directors may designate one or more directors as
alternate members of any committee who may replace any absent or disqualified
member at any meeting of any such committee. In the absence or
disqualification of a member of a committee, and in the absence of a
designation by the Board of Directors of an alternate member to replace the
absent or disqualified member, the member or members thereof present at any
meeting and not disqualified from voting, whether or not they constitute a
quorum, may unanimously appoint another member of the Board of Directors to
act in the place of any absent or disqualified member. Each committee, to the
extent permitted by law, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corpo-
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ration as provided in the resolution establishing such committee.
Section 2. Executive Committee. The Board of Directors may
designate an Executive Committee, to consist of not less than two members of
the Board of Directors, which shall have and may exercise, to the extent
permitted by law, all of the powers of the Board of Directors in the
management of the business and affairs of the Corporation.
Section 3. Organization. The Board of Directors or each such
committee may choose its Chairman and Secretary, and shall keep and record all
its acts and proceedings and report the same from time to time to the Board of
Directors.
Section 4. Meetings. Regular meetings of any such committee, of
which no notice shall be necessary, shall be held at such times and in such
places as shall be fixed by the committee or by the Board of Directors.
Special meetings of any such committee shall be held at the request of any
member of the committee.
Section 5. Quorum and Manner of Acting. A majority of the members
of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of the committee.
Section 6. General. The Board of Directors shall have the power at
any time to change the members of, fill vacancies in, and discharge or disband
any such committee, either with or without cause.
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ARTICLE V
OFFICERS
--------
Section 1. General. The officers of the Corporation shall be
chosen by the Board of Directors and shall be a President, a Secretary and a
Treasurer. The Board of Directors, in its discretion, may also choose a
Chairman of the Board of Directors (who must be a director) and one or more
Vice Presidents, Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation or these
By-Laws. The officers of the Corporation need not be stockholders of the
Corporation nor, except in the case of the Chairman of the Board of Directors,
need such officers be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting
held after each Annual Meeting of Stockholders may elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time
by the Board of Directors; and all officers of the Corporation shall hold
office until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors. Any vacancy occurring in any office of the Corporation shall be
filled by the Board of Directors. The salaries of all officers of the
Corporation shall be fixed by the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other
instruments relating to securities owned by the Corporation may be executed in
the name of and on behalf of the Corporation by any officer of the Corporation
and any such officer may, in the name of and on behalf of the Corporation,
take all such action as any such person may deem advisable to vote in person
or by proxy at any meeting of security holders of any corporation in which the
Corporation may own securities and at any such meeting shall possess and may
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exercise any and all rights and power incident to the ownership of such
securities and which, as the owner thereof, the Corporation might have
exercised and possessed if present. The Board of Directors may, by resolution,
from time to time confer like powers upon any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors may enter into and execute in the name of the Corporation deeds,
mortgages, bonds, guarantees, contracts and other instruments (collectively,
"Contracts"), including all Contracts requiring a seal, under the seal of the
Corporation, except in cases where the making and execution thereof shall be
expressly restricted or delegated by the Board of Directors or by a duly
authorized committee of directors, or by these By-Laws to some other officer
or agent of the Corporation, or shall be required by law otherwise to be made
or executed by some other officer or agent of the Corporation. During the
absence or disability of the President, the Chairman of the Board of Directors
shall exercise all the powers and discharge all the duties of the President.
The Chairman of the Board of Directors shall also perform such other duties
and may exercise such other powers as from time to time may be assigned to him
by these By-Laws or by the Board of Directors.
Section 5. President. The President shall, subject to the control
of the Board of Directors and, if there be one, the Chairman of the Board of
Directors, have general supervision of the business of the Corporation and
shall see that all orders and resolutions of the Board of Directors are
carried into effect. The President shall be the Chief Executive Officer of the
Corporation. The President may enter into and execute in the name of the
Corporation Contracts, including all Contracts requiring a seal, under the
seal of the Corporation, except in cases where the making and execution
thereof shall be expressly restricted or delegated by the Board of Directors
or by a duly authorized committee of directors, by the Chairman of the Board
of Directors or by these By-Laws to some other officer or agent of the
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Corporation, or shall be required by law otherwise to be made or executed by
some other officer or agent of the Corporation. In the absence or disability
of the Chairman of the Board of Directors, or if there be none, the President
shall preside at all meetings of the stockholders and the Board of Directors.
The President shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
Section 6. Vice Presidents. At the request of the President or in
his absence or in the event of his inability or refusal to act (and if there
be no Chairman of the Board of Directors), the Vice President or the Vice
Presidents if there is more than one (in the order designated by the Board of
Directors) shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Vice President may enter into and execute in the name of the
Corporation Contracts, including all Contracts requiring a seal, under the
seal of the Corporation, except in cases where the making and execution
thereof shall be expressly restricted or otherwise delegated by these By-Laws
or by the Board of Directors, a duly authorized committee of directors, the
Chairman of the Board of Directors, the President or any other officer to whom
they report, or shall be required by law otherwise to be made or executed by
some other officer or agent of the Corporation. Each Vice President shall
perform such other duties and have such other powers as the Board of Directors
from time to time may prescribe. If there be no Chairman of the Board of
Directors and no Vice President, the Board of Directors shall designate the
officer of the Corporation who, in the absence of the President or in the
event of the inability or refusal of the President to act, shall perform the
duties of the President, and when so acting, shall have all the powers of and
be subject to all the restrictions upon the President.
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Section 7. Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the Board of Directors,
and shall perform such other duties as may be prescribed by the Board of
Directors or President, under whose supervision he shall be. If the Secretary
shall be unable or shall refuse to cause to be given notice of all meetings of
the stockholders and special meetings of the Board of Directors, and if there
be no Assistant Secretary, then either the Board of Directors or the President
may choose another officer to cause such notice to be given. The Secretary
shall have custody of the seal of the Corporation and the Secretary or any
Assistant Secretary, if there be one, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall see that all books, reports, statements,
certificates and other documents and records required by law to be kept or
filed are properly kept or filed, as the case may be.
Section 8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors,
at its regular meetings, or when the Board of Directors so requires, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation. If required by the Board of Directors, the Treasurer shall
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give the Corporation a bond in such sum and with such surety or sureties as
shall be satisfactory to the Board of Directors for the faithful performance
of the duties of his office and for the restoration to the Corporation, in
case of his death, resignation, retirement or removal from office, of all
books, papers, vouchers, money and other property of whatever kind in his
possession or under his control belonging to the Corporation.
Section 9. Controller. The Controller shall be responsible for
preparing and maintaining reasonable and adequate books of account and other
accounting records of the assets, liabilities and transactions of the
Corporation in accordance with generally accepted accounting principles and
procedures, shall see that reasonable and adequate audits thereof are
regularly made and that reasonable and adequate systems of financial control
are maintained, shall examine and certify the financial accounts of the
Corporation, shall prepare and render such budgets and other financial reports
as the Board of Directors, the Chairman of the Board of Directors, the
President or any other officer to whom the Controller reports may require, and
shall, in general, have all authority incident to the office of Controller and
such other authority and perform such other duties as from time to time may be
assigned by the Board of Directors, any duly authorized committee of
directors, the Chairman of the Board of Directors, the President or any other
officer to whom the Controller reports.
Section 9. Assistant Secretaries. Except as may be otherwise
provided in these By-Laws, Assistant Secretaries, if there be any, shall
perform such duties and have such powers as from time to time may be assigned
to them by the Board of Directors, the President, any Vice President, if there
be one, or the Secretary, and in the absence of the Secretary or in the event
of his disability or refusal to act, shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
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Section 10. Assistant Treasurers. Assistant Treasurers, if there
be any, shall perform such duties and have such powers as from time to time
may be assigned to them by the Board of Directors, the President, any Vice
President, if there be one, or the Treasurer, and in the absence of the
Treasurer or in the event of his disability or refusal to act, shall perform
the duties of the Treasurer, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the Treasurer. If required by the
Board of Directors, an Assistant Treasurer shall give the Corporation a bond
in such sum and with such surety or sureties as shall be satisfactory to the
Board of Directors for the faithful performance of the duties of his office
and for the restoration to the Corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control
belonging to the Corporation.
Section 11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and
powers.
ARTICLE VI
STOCK
-----
Section 1. Form of Certificates. (a) Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the President or a
Vice President and (ii) by the Treasurer or an Assistant Treasurer, or the
Secretary or an Assistant Secretary of the Corporation, certifying the number
of shares owned by him in the Corporation.
(b) If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, pref-
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erences and relative, participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise required by Section 202 of the Delaware General Corporation Law, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class
or series of stock, a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights.
Section 2. Signatures. Any or all of the signatures on a
certificate may be a facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer, transfer agent or registrar at the
date of issue.
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. The
Board of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in
its discretion and as a condition precedent to the issuance thereof, require
the owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Corporation
and its transfer agents with respect to the
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certificate alleged to have been lost, stolen or destroyed or the issuance of
such new certificate.
Section 4. Transfers. Stock of the Corporation shall be
transferable in the manner prescribed by law and in these By-Laws. Transfers
of stock shall be made on the books of the Corporation only by the person
named in the certificate or by his attorney lawfully constituted in writing
and upon the surrender of the certificate therefor, which shall be cancelled
before a new certificate shall be issued.
Section 5. Limitations on Transfer. A written restriction on the
transfer or registration of transfer of a security of the Corporation, if
permitted by Section 202 of the Delaware General Corporation Law and noted
conspicuously on the certificate representing the security or, in the case of
uncertificated shares, contained in the notice sent pursuant to Section 151(f)
of the Delaware General Corporation Law, may be enforced against the holder of
the restricted security or any successor or transferee of the holder including
an executor, administrator, trustee, guardian or other fiduciary entrusted
with like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security or, in the case of
uncertificated shares, contained in the notice sent pursuant to Section 151(f)
of the Delaware General Corporation Law, a restriction, even though permitted
by Section 202 of the Delaware General Corporation Law, is ineffective except
against a person with actual knowledge of the restriction. A restriction on
the transfer or registration of transfer of securities of the Corporation may
be imposed either by the Certificate of Incorporation or by these By-Laws or
by an agreement among any number of security holders or among such holders and
the Corporation. No restriction so imposed shall be binding with respect to
securities issued prior to the adoption of the restriction unless the holders
of the securities are parties to an agreement or voted in favor of the
restriction.
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Section 6. Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to express consent to
corporate action in writing without a meeting, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any change, conversion or exchange of
stock, or for the purpose of any other lawful action, the Board of Directors
may fix, in advance, a record date, which shall not be more than sixty days
nor less than ten days before the date of such meeting, nor more than sixty
days prior to any other action. A determination of stockholders of record
entitled to notice of or to vote at a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
Section 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise
provided by law.
ARTICLE VII
NOTICES
-------
Section 1. Notices. Whenever written notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, such notice may be given by
mail, addressed to such director, member of a committee or stockholder, at his
address as it appears on the records of the Corporation, with postage thereon
prepaid, and such notice shall be deemed to be given at the time when the same
shall be deposited in the United States
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mail. Written notice may also be given personally or by courier service,
facsimile transmission, telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by
law, the Certificate of Incorporation or these By-Laws, to be given to any
director, member of a committee or stockholder, a waiver thereof in writing,
signed, by the person or persons entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
Attendance of a person at a meeting, present by person or represented by
proxy, shall constitute a waiver of notice of such meeting, except where the
person attends the meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors or members of a committee of directors need be
specified in any written waiver of notice.
ARTICLE VIII
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and
notes of the Corporation shall be signed by such officer or officers or such
other person
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or persons as the Board of Directors may from time to time designate.
Section 3. Fiscal Year. The fiscal year of the Corporation shall
be fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the
words "Corporate Seal, Delaware". The seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
---------------
Section 1. Power to Indemnify in Actions, Suits or Proceedings
other Than Those by or in the Right of the Corporation. Subject to Section 3
of this Article IX, the Corporation shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director or officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise, against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Corporation, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equiva-
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lent, shall not, of itself, create a presumption that the person did not act
in good faith and in a manner which he reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his
conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by
or in the Right of the Corporation. Subject to Section 3 of this Article IX,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its
favor by reason of the fact that he is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation; except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of
all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Court of Chancery or such
other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification
under this Article IX (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1
or Section 2, and in each case Section 11, of this Article IX, as the case may
be. Such determination shall be made (i) by a
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majority vote of the directors who are not parties to such action, suit or
proceeding, even though less than a quorum, or (ii) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (iii) by the stockholders. To the extent, however, that a
director or officer of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding described above, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith, without the necessity of authorization in the
specific case.
Section 4. Good Faith Defined. For purposes of any determination
under Section 3 of this Article IX, a person shall be deemed to have acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, or, with respect to any criminal action
or proceeding, to have had no reasonable cause to believe his conduct was
unlawful, if his action is based on the records or books of account of the
Corporation or another enterprise, or on information supplied to him by the
officers of the Corporation or another enterprise in the course of their
duties, or on the advice of legal counsel for the Corporation or another
enterprise or on information or records given or reports made to the
Corporation or another enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Corporation or another enterprise. The term "another enterprise" as used
in this Section 4 shall mean any other corporation or any partnership, joint
venture, trust, employee benefit plan or other entity or enterprise of which
such person is or was serving at the request of the Corporation as a director,
officer, employee or agent. The provisions of this Section 4 shall not be
deemed to be exclusive or to limit in any way the circumstances in which a
person may be deemed to have met the applicable standard of conduct set forth
in Sections 1 or 2, and in each case Section 11, of this Article IX, as the
case may be.
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Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article
IX, and notwithstanding the absence of any determination thereunder, any
director or officer may apply to any court of competent jurisdiction in the
State of Delaware for indemnification to the extent otherwise permissible
under Sections 1 and 2, and in each case Section 11, of this Article IX. The
basis of such indemnification by a court shall be a determination by such
court that indemnification of the director or officer is proper in the
circumstances because he has met the applicable standards of conduct set forth
in Sections 1 or 2, and in each case Section 11, of this Article IX, as the
case may be. Neither a contrary determination in the specific case under
Section 3 of this Article IX nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the
director or officer seeking indemnification has not met any applicable
standard of conduct. Notice of any application for indemnification pursuant to
this Section 5 shall be given to the Corporation promptly upon the filing of
such application. If successful, in whole or in part, the director or officer
seeking indemnification shall also be entitled to be paid the expense of
prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses (including
attorneys' fees) incurred by a director or officer in defending or
investigating a threatened or pending action, suit or proceeding shall be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is
not entitled to be indemnified by the Corporation as authorized in this
Article IX.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article IX shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under the Certificate of Incorporation or any By-Law, agreement,
contract, vote of stockholders or disinterested directors or
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pursuant to the direction (howsoever embodied) of any court of competent
jurisdiction or otherwise, both as to action in his official capacity and as
to action in another capacity while holding such office, it being the policy
of the Corporation that indemnification of the persons specified in Sections 1
and 2 of this Article IX shall be made to the fullest extent permitted by law.
The provisions of this Article IX shall not be deemed to preclude the
indemnification of any person who is not specified in Sections 1 or 2 of this
Article IX but whom the Corporation has the power or obligation to indemnify
under the provisions of the Delaware General Corporation Law or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other entity or enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article IX.
Section 9. Certain Definitions. For purposes of this Article IX,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer
of such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise,
shall stand in the same position under the provisions of this Article IX with
respect to the resulting or surviving corporation as he would have with
respect to such constituent corpo-
24
<PAGE>
ration if its separate existence had continued. For purposes of this Article
IX, references to "fines" shall include any excise taxes assessed on a person
with respect to an employee benefit plan; and references to "serving at the
request of the Corporation" shall include any service as a director, officer,
employee or agent of the Corporation which imposes duties on, or involves
services by, such director or officer with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation"
as referred to in this Article IX.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article IX shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person.
Section 11. Limitation on Indemnification. Notwithstanding
anything contained in this Article IX to the contrary, except for proceedings
to enforce rights to indemnification (which shall be governed by Section 5
hereof), the Corporation shall not be obligated to indemnify any director or
officer in connection with a proceeding (or part thereof) initiated by such
person unless such proceeding (or part thereof) was authorized or consented to
by the Board of Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article IX to directors and officers of the Corporation.
25
<PAGE>
ARTICLE X
AMENDMENTS OF BY-LAWS
---------------------
Section 1. Amendments of By-Laws. These By-Laws may be altered,
amended or repealed, in whole or in part, or new By-Laws may be adopted by the
stockholders or by the Board of Directors; provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such meeting of stockholders or Board of Directors as the case
may be. All such amendments must be approved by either the affirmative vote of
the holders of a majority in total number of votes of the outstanding capital
stock entitled to vote thereon or by a majority of the entire Board of
Directors then in office.
Section 2. Entire Board of Directors. As used in this Article X
and in these By-Laws generally, the term "entire Board of Directors" means the
total number of directors which the Corporation would have if there were no
vacancies.
26
<PAGE>
TEMPORARY CERTIFICATE -- Exchangeable for
Definitive Certificate When Ready for Delivery.
NUMBER SHARES
TCC CONSOLIDATED CIGAR HOLDINGS INC.
INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS
THIS CERTIFIES that CUSIP 20902E 10 6
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE CLASS OF COMMON STOCK OF
CONSOLIDATED CIGAR HOLDINGS INC.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney, upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be held subject to all of the provisions of the Certificate of
Incorporation and all amendments thereto, to all of which the holder by
acceptance hereof assents.
This certificate is not valid until countersigned and registered by the
Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
CERTIFICATE OF STOCK
Dated CONSOLIDATED CIGAR HOLDINGS INC.
CORPORATE
/s/ Joram Salig SEAL /s/ Theo Folz
----------------- 1993 -----------------
SECRETARY DELAWARE PRESIDENT
Copyright SECURITY-COLUMBIAN UNITED STATES BANKNOTE COMPANY 1960
COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFSER & TRUST COMPANY
(NEW YORK, N.Y.) TRANSFER AGENT
AND REGISTRAR
AUTHORIZED SIGNATURE
<PAGE>
The Corporation will furnish without charge to each stockholder who so
requests the powers, designations, preferences and relative participating,
optional, or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common UNIF GIFT MIN ACT -- .....Custodian......
(Cust) (Minor)
TEN ENT -- as tenants by the under Uniform Gifts
entireties to Minors
Act.........
JT TEN -- as joint tenants with (State)
right of survivorship
and not as tenants in
common
Additional abbreviations may also be used though not in the above list.
For Value Received, ___________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- -----------------------------------------------
- -----------------------------------------------
- -------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS OF ASSIGNEE)
- -------------------------------------------------------------------------
- -------------------------------------------------------------------------
- ------------------------------------------------------------------ Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- ------------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated --------------------------------------
----------------------------------------
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in
every particular without alteration or
enlargement or any change whatever. The
signature of the person executing this
power must be guaranteed by an Eligible
Guarantor Institution such as a Commercial
Bank, Trust Company, Securities Broker/Dealer,
Credit Union, or a Savings Association
participating in a Medallion program approved
by the Securities Transfer Association, Inc.
[SASM&F Letterhead]
August 13, 1996
Consolidated Cigar Holdings Inc.
5900 North Andrews Avenue
Suite 700
Fort Lauderdale, Florida 33309-2369
Re: Consolidated Cigar Holdings Inc.
Registration Statement on Form S-1
----------------------------------
Ladies and Gentlemen:
We have acted as special counsel to Consolidated Cigar Holdings Inc.,
a Delaware corporation (the "Company"), in connection with the initial public
offering by the Company of up to 5,175,000 shares (including 675,000 shares
subject to over-allotment options) of the Company's Class A Common Stock, par
value $0.01 per share (the "Class A Common Stock"). Such shares of Class A
Common Stock, together with any additional shares of Class A Common Stock
which are registered in a registration statement (a "Rule 462(b) Registration
Statement") filed pursuant to Rule 462(b) under the Securities Act of 1933, as
amended (the "Securities Act"), are collectively referred to herein as the
"Shares".
This opinion is being furnished in accordance with the requirements
of Item 601(b)(5) of Regulation S-K under the Securities Act.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Registration Statement on Form S-1 (File No. 333-6819) as filed with the
Securities and Exchange Commission (the "Commission") on June 26, 1996 under
the Securities Act; (ii) Amendment No. 1 to the Registration Statement as
filed with the Commission on July 30, 1996 under the Securities Act;
<PAGE>
Consolidated Cigar Holdings Inc.
August 13, 1996
Page 2
(iii) Amendment No. 2 to the Registration Statement as filed with the
Commission on August 13, 1996 under the Securities Act (such Registration
Statement, as so amended, being hereinafter referred to as the "Registration
Statement"); (iv) the form of U.S. Underwriting Agreement (the "U.S.
Underwriting Agreement") proposed to be entered into between the Company, as
issuer, and Goldman, Sachs & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated, and Chase Securities Inc., as
underwriters (the "U.S. Underwriters"), filed as an exhibit to the
Registration Statement; (v) the form of International Underwriting Agreement
(the "International Underwriting Agreement" and, together with the U.S.
Underwriting Agreement, the "Underwriting Agreements") proposed to be entered
into between the Company, as issuer, and Goldman Sachs International, Merrill
Lynch International, Morgan Stanley & Co. International and Chase Manhattan
International Limited, as underwriters (the "International Underwriters" and,
together with the U.S. Underwriters, the "Underwriters"), filed as an exhibit
to the Registration Statement; (vi) a specimen certificate representing the
Class A Common Stock; (vii) the Certificate of Incorporation of the Company,
as presently in effect and the form of Amended and Restated Certificate of
Incorporation of the Company to become effective upon consummation of the
offerings contemplated by the Registration Statement; (ix) the By-Laws of the
Company, as presently in effect and the form of Amended and Restated By-Laws
to become effective upon consummation of the offerings contemplated by the
Registration Statement; (x) certain resolutions of the sole stockholder of the
Company and the Board of Directors of the Company relating to the adoption of
the Amended and Restated Certificate of Incorporation of the Company; and (xi)
certain resolutions of the Board of Directors of the Company and drafts of
certain resolutions (the "Draft Resolutions") of the Pricing Committee of the
Board of Directors of the Company (the "Pricing Committee") relating to the
issuance and sale of the Shares and related matters. We have also examined
originals or copies, certified or otherwise identified to our satisfaction, of
such records of the Company and such agreements, certificates of public
officials, certificates of officers or other representatives of the Company
and others, and such other documents, certificates and records as we have
2
<PAGE>
Consolidated Cigar Holdings Inc.
August 13, 1996
Page 3
deemed necessary or appropriate as a basis for the opinions set forth herein.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified, conformed or photostatic copies and
the authenticity of the originals of such latter documents. In making our
examination of documents executed or to be executed by parties other than the
Company, we have assumed that such parties had or will have the power,
corporate or other, to enter into and perform all obligations thereunder and
have also assumed the due authorization by all requisite action, corporate or
other, and execution and delivery by such parties of such documents and the
validity and binding effect thereof. As to any facts material to the opinions
expressed herein which we have not independently established or verified, we
have relied upon statements and representations of officers and other
representatives of the Company and others.
Members of our firm are admitted to the bar in the State of Delaware,
and we do not express any opinion as to the laws of any other jurisdiction.
Based upon and subject to the foregoing, we are of the opinion that
when (i) the Amended and Restated Certificate of Incorporation of the Company
in the form examined by us has been filed with the Secretary of State of the
State of Delaware and has become effective; (ii) the Registration Statement,
as finally amended (including all necessary post-effective amendments and any
Rule 462(b) Registration Statement) becomes effective; (iii) the Draft
Resolutions have been adopted by the Pricing Committee; (iv) the price at
which the Shares are to be sold to the Underwriters pursuant to the
Underwriting Agreements and other matters relating to the issuance and sale of
the Shares have been approved by the Pricing Committee in accordance with the
Draft Resolutions; (v) the Underwriting Agreements have been duly executed and
delivered; and (vi) certificates representing the Shares in the form of the
specimen certificates examined by us have been manually signed by an
authorized officer of the
3
<PAGE>
transfer agent and registrar for the Class A Common Stock and registered by
such transfer agent and registrar, and delivered to and paid for by the
Underwriters at a price per share not less than the per share par value of the
Class A Common Stock as contemplated by the Underwriting Agreements, the
issuance and sale of the Shares will have been duly authorized, and the Shares
will be validly issued, fully paid and nonassessable.
We hereby consent to the filing of this opinion with the Commission
as Exhibit 5.1 to the Registration Statement. We also consent to the reference
to our firm under the caption "Legal Matters" in the Registration Statement.
We further consent to the incorporation of this opinion by reference as an
exhibit to any Rule 462(b) Registration Statement and to the reference to our
firm under the caption "Legal Matters" in the prospectus included or
incorporated by reference in any such Rule 462(b) Registration Statement. In
giving these consents, we do not hereby admit that we are included in the
category of persons whose consent is required under Section 7 of the
Securities Act or the rules and regulations of the Commission.
Very truly yours,
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
4
<PAGE>
CONSENT AND TENTH AMENDMENT
CONSENT AND TENTH AMENDMENT, dated as of July 31, 1996 (this
"Amendment"), to the Credit Agreement, dated as of February 23, 1993 (the
"Credit Agreement"), among Consolidated Cigar Corporation (individually and as
successor by merger to Consolidated Cigar Acquisition Corporation; the
"Company"), Congar Newco Inc., the financial institutions from time to time
parties thereto (the "Banks") and The Chase Manhattan Bank (as successor by
merger to The Chase Manhattan Bank, N.A.), as agent (in such capacity, the
"Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company is a party to the Credit Agreement;
WHEREAS, the Company has requested that the Banks amend the Credit
Agreement as more fully set forth herein;
WHEREAS, the Banks and the Agent are willing to consent to such
amendments only upon the terms, and subject to the conditions, set forth
herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Company, the Banks and the Agent hereby agree as
follows:
1. Definitions. All terms defined in the Credit Agreement shall have such
defined meanings when used herein unless otherwise defined herein.
2. Consent to Payment of Dividend. The Agent and the Banks hereby consent
to the making of a Dividend Payment by the Company to the Parent Guarantor in
an aggregate amount not to exceed $5,600,000 and waive the provisions of
subsection 9.09(a) to the extent and only to the extent necessary to permit
the making of such Dividend Payment; provided that no Default or Event of
Default shall have occurred and be continuing immediately prior to and
immediately after giving effect to the making of such Dividend Payment.
3. Amendment to Section 9.08. Section 9.08 of the Credit Agreement hereby
is amended by:
(a) deleting the word "and" which appears at the end of clause (f)
thereof;
(b) deleting the period which appears at the end of clause (g) thereof;
(c) deleting the period which appears at the end of clause (h) thereof
and by substituting therefor a semi-colon; and
<PAGE>
2
(d) inserting therein the following new clause (j):
(j) Investments by the Company and its Subsidiaries in
Jamaica Tobacco Manufacturing Company (1995) Limited in an
aggregate amount not to exceed $2,000,000."
4. Amendment to Section 9.09. Section 9.09 of the Credit Agreement hereby
is amended by:
(a) deleting the word "and" which appears at the end of clause (d)(iii)
thereof;
(b) deleting the period which appears at the end of clause (d)(iv)
thereof and by substituting therefor a semi-colon; and
(c) inserting into clause (d) thereof the following new clauses:
"(v) the Company may pay dividends to the Parent Guarantor
to the extent necessary to provide funds for the payment by the
Parent Guarantor of fees and expenses directly arising from the
Parent Guarantor's status as a public company; and
(vi) the Company may, so long as no Default shall have
occurred and be continuing or would result therefrom, make
Dividend Payments in an aggregate amount not to exceed, at any
date, the amount of Restricted Payments (as defined in the
Subordinated Note Indenture) which would be permitted on such
date under the Subordinated Note Indenture in accordance with the
calculation described in Section 4.05(a)(3) thereof (as in effect
on June 30, 1996 and as further amended, supplemented or otherwise
modified from time to time with the written consent of the
Majority Banks); provided that all references contained in said
Section 4.05(a)(3) to "January 1, 1993" or "the date upon which
the Securities were originally issued" shall be deemed to be
references to July 1,1996."
5. Consent to Execution of Amendment to Guarantee. Each Bank hereby
instructs the Agent to execute and deliver an amendment, substantially in the
form of Exhibit A hereto, to the Guarantee and Security Agreement, dated as of
March 3, 1993 (as the same may be amended, supplemented or otherwise modified
from time to time), between the "Parent Guarantor" (as defined therein) and
the Agent.
6. Conditions to Effectiveness. This Amendment shall become effective on
and as of the date that the Agent shall have received counterparts of this
Amendment, duly executed by the Company and the Majority Banks.
7. Representations and Warranties. The Company, as of the date hereof and
after giving effect to the consents and waivers contained herein, hereby
confirms, reaffirms and restates the representations and warranties made by it
in Section 8 of the Credit
<PAGE>
3
Agreement and otherwise in the Credit Documents to which it is a party;
provided that each reference to the Credit Agreement therein shall be deemed
to be a reference to the Credit Agreement after giving effect to this
Amendment.
8. Reference to and Effect on the Credit Documents; Limited Effect. On
and after the date hereof and the satisfaction of the conditions contained in
Section 3 of this Amendment, each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Credit Documents to "the
Credit Agreement", "thereunder", "thereof" or words of like import referring
to the Credit Agreement, shall mean and be a reference to the Credit Agreement
as modified hereby. The execution, delivery and effectiveness of this
Amendment, shall not, except as expressly provided herein, operate as a waiver
of any right, power or remedy of any Bank or the Agent under any of the Credit
Documents, nor constitute a waiver or amendment of any provisions of any of
the Credit Documents. Except as expressly modified herein, all of the
provisions and covenants of the Credit Agreement and the other Credit
Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
9. Counterparts. This Amendment may be executed by one or more of the
parties to this Agreement on any number of separate counterparts (including by
facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
10. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
CONSOLIDATED CIGAR CORPORATION
By: /s/ Gary R. Ellis
__________________________________
Name: Gary R. Ellis
Title: Senior VP & CFO
CONGAR NEWCO INC.
By: /s/ Gary R. Ellis
_________________________________
Name: Gary R. Ellis
Title: Senior VP & CFO
<PAGE>
4
THE CHASE MANHATTAN BANK (as
successor by merger to The Chase
Manhattan Bank, N.A.), as Agent
and as a Bank
By: /s/ Bruce S. Borden
_________________________________
Name: Bruce S. Borden
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ William C. Purinton
----------------------------------
Name: William C. Purinton
Title: Vice President
GIROCREDIT BANK
By: /s/ Anca Trifan
-----------------------------------
Name: Anca Trifan
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Susan Lynn Callicott
__________________________________
Name: Susan Lynn Callicott
Title: Vice President
BANCO CENTRAL HISPANO-PUERTO RICO
By: /s/ Hector S. Vina
_________________________________
Name: Hector S. Vina
Title: Vice President
<PAGE>
EXHIBIT A
---------
FIRST AMENDMENT
FIRST AMENDMENT, dated as of July 31, 1996 (this "Amendment"), to the
Guarantee and Security Agreement, dated as of March 3, 1993 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"),
between Consolidated Cigar Holdings Inc. (the "Parent Guarantor") and The
Chase Manhattan Bank (as successor by merger to The Chase Manhattan Bank,
N.A.), as agent (in such capacity, the "Agent").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Parent Guarantor is a party to the Guarantee and has
requested that the Agent amend the Guarantee as more fully set forth herein;
WHEREAS, the Agent is willing to consent to such amendment only upon the
terms, and subject to the conditions, set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Parent Guarantor and the Agent hereby agree as follows:
1. Definitions. All terms defined in the Guarantee shall have such
defined meanings when used herein unless otherwise defined herein.
2. Amendment of Section 6.02. Section 6.02 of the Guarantee hereby is
amended by inserting therein, immediately before the period at the end
thereof, the following:
"; provided that nothing contained herein shall be deemed to
prohibit the Parent Guarantor from making a non-interest
bearing promissory note in the principal amount of
$70,000,000, payable to Mafco Consolidated Group".
3. Conditions to Effectiveness. This Amendment shall become effective on
and as of the date upon which (a) the Consent and Tenth Amendment, dated as of
the date hereof, to the Credit Agreement shall have become effective in
accordance with its terms and (b) the Agent shall have received counterparts
of this Amendment, duly executed by the Parent Guarantor.
4. Representations and Warranties. The Parent Guarantor, as of the date
hereof and after giving effect to the consents and waivers contained herein,
hereby confirms, reaffirms and restates the representations and warranties
made by the Company in Section 8 of the Credit Agreement and otherwise in the
Credit Documents to which the Parent Guarantor or any of its Subsidiaries is a
party; provided that each reference to the Guarantee therein shall be deemed
to be a reference to the Guarantee after giving effect to this Amendment.
5. Continuing Effect of Guarantee. This Amendment shall not constitute a
waiver or amendment of any other provision of the Guarantee not expressly
referred to herein and shall not be construed as a waiver or consent to any
further or future action on the part of
<PAGE>
2
the Parent Guarantor that would require a waiver or consent of the Agent.
Except as expressly amended herein, the provisions of the Guarantee are and
shall remain in full force and effect.
6. Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
CONSOLIDATED CIGAR HOLDINGS INC.
By:__________________________________
Name:
Title:
THE CHASE MANHATTAN BANK (as
successor by merger to The Chase
Manhattan Bank, N.A.), as Agent
and as a Bank
By:__________________________________
Name:
Title:
Amendment to
Employment Agreement
SECOND AMENDMENT dated as of August 1, 1996 to Employment Agreement
dated as of July 1, 1995, as amended (the "Parent Employment Agreement"),
between Mafco Consolidated Group Inc., a Delaware Corporation (the "Company")
and Theo W. Folz (the "Executive").
WHEREAS, on the date hereof Consolidated Cigar Corporation ("Cigar"),
a subsidiary of the Company, assumed from the Company seventy percent (70%) of
the Company's obligation to pay to the Executive Base Salary and fringe
benefits under the Parent Employment Agreement and that portion of the
Executive's performance bonus under the Parent Employment Agreement which
equals Cigar's contribution to the performance target described therein (such
assumed obligations hereinafter, collectively, the "Cigar Compensation
Obligations");
WHEREAS, as part of Cigar's assumption of the Cigar Compensation
Obligations, Cigar and the Executive entered into an employment
agreement dated as of the date hereof (the "Cigar Employment Agreement");
WHEREAS, the Company and the Executive desire to amend the Parent
Employment agreement to reflect Cigar's assumption of the Cigar Compensation
Obligations.
NOW THEREFORE, the parties agree as follows:
1. Section 3.1 is hereby amended to provide that Base Salary shall
be at an annual rate of not less than $330,000.
2. Section 3.2 is hereby amended by (i) deleting therefrom any
reference to Cigar, so that the performance bonus calculated pursuant to
Section 3.2 for calendar year 1996 and thereafter shall be determined solely
by reference to EBITDA of Flavors and (ii) restating the table therein set
forth to read in its entirety as follows:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -----------
80% 60%
85 75
90 90
95 100
100 105
105 110
110 125
115 150
<PAGE>
3. Section 3.5 is hereby deleted in its entirety.
4. Section 4.2 is hereby amended by deleting therefrom clause
(iii), beginning with the words "...for the shorter of" and ending with the
words "as applicable, generally."
5. Section 4.4 is hereby amended by deleting therefrom clause
(iii), beginning with the words "fringe benefits" and ending with the words
"specified in Section 3.5".
6. The parties agree that except as expressly amended hereby, the
Agreement as amended hereby shall be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Second
Amendment as of the date first above written.
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Howard Gittis
-----------------------------------
Howard Gittis
Vice Chairman
/s/ Theo W. Folz
--------------------------------------
Theo W. Folz
CONSOLIDATED CIGAR HOLDINGS INC.
1996 STOCK PLAN
1. Purpose: Restrictions on Amount Available under the Plan.
This Consolidated Cigar Holdings Inc. 1996 Stock Plan ("Plan") is
intended to afford an incentive to selected employees, consultants and
directors of Consolidated Cigar Holdings, Inc. (the "Parent"), Consolidated
Cigar Corporation or any Affiliated Corporations (as defined in Section 2(a)
hereof) (collectively referred to as the "Company"), to acquire a proprietary
interest in the Company, to continue to perform services for the Company, to
increase their efforts on behalf of the Company and to promote the success of
the Company's business.
2. Definitions.
As used in this Plan, the following words and phrases shall have the
meanings indicated:
(a) "Affiliate Corporation" or "Affiliate" shall mean any
corporation, directly or indirectly, through one or more
intermediaries, controlling, controlled by, or under common control
with the Parent.
(b) "Award" shall mean any Option, SAR, Restricted Stock or
Unrestricted Stock granted under the Plan.
(c) "Award Agreement" shall mean any written agreement,
contract, or other instrument or document between the Company and a
Participant evidencing an Award.
(d) "Board" shall mean the Board of Directors of the Parent.
(e) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(f) "Disability" shall mean a Participant's inability to engage
in any substantial gainful activity by reason of medically
determinable physical or mental impairment that can be expected to
result in death or that has lasted or can be expected to last for a
continuous period of not less than twelve (12) months.
(g) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(h) "Fair Market Value" per share as of a particular date shall
mean (i) the closing sales price per share of Common Stock (as
defined in Section 5 hereof) on the New York Stock Exchange for the
last preceding date on which there was a sale of such Common Stock on
such exchange, or (ii) if the shares of Common Stock are not then
admitted for trading on the New York Stock Exchange, the closing
price for the shares of Common Stock in such other national
securities exchange or interdealer quotation system on which Common
Stock is then traded for the last preceding date on which there was a
sale of such Common Stock in such market, or (iii) if the shares of
Common Stock are not then listed on a national securities exchange or
interdealer quotation system, such value as the Committee in its
discretion may determine.
(i) "Incentive Stock Option" shall mean an Option that meets the
requirements of Section 422 of the Code, or any successor provision,
and that is designated by the Committee as an Incentive Stock Option.
(j) "Nonqualified Stock Option" shall mean an Option other than
an Incentive Stock Option.
(k) "Option" shall mean the right, granted pursuant to this
Plan, of a holder to purchase shares of Common Stock at a price and
upon the terms to be specified by the Committee.
<PAGE>
(l) "Parent Corporation" shall mean any corporation (other than
the Parent) in an unbroken chain of corporations ending with the
Parent if, at the time of granting an Award, each of such
corporations (other than the Parent) owns stock possessing fifty
percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
(m) "Participant" shall mean an officer, employee, consultant or
director of the Company who is, pursuant to Section 4 of the Plan,
selected to participate herein.
(n) "Restricted Stock" shall mean an Award of shares of Common
Stock to a Participant under Section 8 that may be subject to certain
restrictions and to a risk of forfeiture.
(o) "SAR" shall mean a tandem or freestanding stock appreciation
right, granted to a Participant under Section 7, to be paid an amount
measured by the appreciation in the Fair Market Value of Common Stock
from the date of grant to the date of exercise of the right.
(p) "Subsidiary Corporation" shall mean any corporation (other
than the Parent) in an unbroken chain of corporations beginning with
the Parent if, at the time of granting an Award, each of such
corporations other than the last corporation in the unbroken chain
owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
(q) "Ten Percent Stockholder" shall mean a Participant who, at
the time an Incentive Stock Option is granted, owns stock possessing
more than ten percent (10%) of the total combined voting power of all
classes of stock of the Parent or of its Parent Corporation or
Subsidiary Corporations.
(r) "Unrestricted Stock" shall mean an Award of shares of Common
Stock to a Participant under Section 9.
3. Administration.
Unless otherwise determined by the Board, the Plan shall be
administered by a committee of the Board ("Compensation Committee"), which
shall consist of two or more members of the Board who are "outside directors"
within the meaning of section 162(m) of the Code. The Compensation Committee
may, in its discretion, delegate to a subcommittee or to an officer of the
Company its duties hereunder, including the grant of Awards. The full Board
shall also have the authority, in its discretion, to grant Awards under the
Plan and to administer the Plan. For all purposes under the Plan, any entity
which performs the duties described herein, shall be referred to as the
"Committee."
The Committee shall have the authority in its discretion, subject to
and not inconsistent with the express provisions of the Plan, to administer
the Plan and to exercise all the powers and authorities either specifically
granted to it under the Plan or necessary or advisable in the administration
of the Plan, including, without limitation, the authority to grant Awards; to
determine the persons to whom and the time or times at which Awards shall be
granted; to determine the type and number of Awards to be granted, the number
of shares of Common Stock to which an Award may relate and the terms,
conditions and restrictions relating to any Award; to determine whether, to
what extent, and under what circumstances an Award may be settled, cancelled,
forfeited, exchanged, or surrendered; to construe and interpret the Plan and
any Award; to prescribe, amend and rescind rules and regulations relating to
the Plan; to determine the terms and provisions of Award Agreements; and to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
No member of the Committee shall be liable for any action taken or
determination made in good faith with respect to the Plan or any Award granted
hereunder.
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4. Eligibility.
Awards may be granted to employees, consultants and directors of the
Company, except that Incentive Stock Options shall be granted only to
individuals who, on the date of such grant, are employees of the Parent or a
Parent Corporation or a Subsidiary Corporation. In determining the persons to
whom Awards shall be granted and the number of shares to be covered by each
Award, the Committee shall take into account the duties of the respective
persons, their present and potential contributions to the success of the
Company and such other factors as the Committee shall deem relevant in
connection with accomplishing the purpose of the Plan.
5. Stock.
The stock subject to Awards hereunder shall be shares of the Parent's
Class A common stock, par value $0.01 per share ("Common Stock"). Such shares
may, in whole or in part, be authorized but unissued shares or shares that
shall have been or that may be reacquired by the Company. The aggregate number
of shares of Common Stock as to which Awards may be granted from time to time
under the Plan shall not exceed 3,000,000. No person may be granted Options or
SARs under the Plan during any calendar year representing an aggregate of more
than 750,000 shares of Common Stock. The limitations established by the
preceding two sentences shall be subject to adjustment as provided in Section
10 hereof.
6. Stock Options.
The Committee shall have authority to grant Nonqualified Stock
Options and Incentive Stock Options to Participants on the following terms and
conditions:
(a) Number of Shares. Each Award Agreement shall state the
number of shares of Common Stock to which the Option relates.
(b) Type of Option. Each Award Agreement shall specifically
state that the Option constitutes an Incentive Stock Option or a Nonqualified
Stock Option.
(c) Option Price. Each Award Agreement shall state the Option
Price. The Option Price per share of Common Stock purchasable under an Option
shall be determined by the Committee; provided that, in the case of an
Incentive Stock Option, such exercise price shall be not less than the Fair
Market Value of a share of Common Stock on the date of grant of such Option.
The date as of which the Committee adopts a resolution expressly granting an
Option shall be considered the day on which such Option is granted.
(d) Method and Time of Payment. The Option Price shall be paid
in full, at the time of exercise, in cash or in shares of Common Stock having
a Fair Market Value equal to such Option Price or in a combination of cash and
Common Stock or, in the sole discretion of the Committee, through a cashless
exercise procedure.
(e) Term and Exercisability of Options. Options shall be
exercisable over the exercise period (which, with respect to Incentive Stock
Options, shall not exceed ten years from the date of grant), at such times and
upon such conditions as the Committee may determine, as reflected in the Award
Agreement; provided that, the Committee shall have the authority to accelerate
the exercisability of any outstanding Option at such time and under such
circumstances as it, in its sole discretion, deems appropriate. An Option may
be exercised, as to any or all full shares of Common Stock as to which the
Option has become exercisable, by written notice delivered in person or by
mail to the Compensation Committee, specifying the number of shares of Common
Stock with respect to which the Option is being exercised. The exercise period
shall be subject to earlier termination as provided in Section 6(f) hereof.
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(f) Termination. If a Participant's employment by, or service as
a consultant or director with, the Company terminates:
(i) Unless provided otherwise in the applicable Award
Agreement, upon a Participant's termination of employment or
service as a consultant or a director with the Company by reason
of death or Disability, all Options shall become immediately
exercisable and shall remain exercisable for a period of one
year following such termination and shall terminate thereafter;
(ii) Unless provided otherwise in the applicable Award
Agreement, if a Participant's employment or service as a
consultant or a director with the Company is terminated for any
reason other than death or Disability, all Options that are not
then exercisable shall immediately terminate and all Options
that are then exercisable shall remain exercisable for a period
of three months from the date of such termination and shall
terminate thereafter.
(g) Other Provisions. Options may be subject to such other
conditions including, but not limited to, restrictions on transferability of
the shares acquired upon exercise of such Options, as the Committee may
prescribe in its discretion.
(h) Incentive Stock Options. Options granted as Incentive Stock
Options shall be subject to the following special terms and conditions, in
addition to the general terms and conditions specified in this Section 6(h).
(i) Value of Shares. The aggregate Fair Market Value
(determined as of the date the Incentive Stock Option is
granted) of the shares of Common Stock with respect to which
Incentive Stock Options granted under this Plan and all other
plans of the Company become exercisable for the first time by
each Participant during any calendar year shall not exceed
$100,000.
(ii) Ten Percent Stockholder. In the case of an Incentive
Stock Option granted to a Ten Percent Stockholder, (x) the
Option Price shall not be less than one hundred ten percent
(110%) of the Fair Market Value of the shares of Common Stock on
the date of grant of such Incentive Stock Option, and (y) the
exercise period shall not exceed five (5) years from the date of
grant of such Incentive Stock Option.
7. Stock Appreciation Rights. The Committee is authorized to grant
freestanding SARs and SARs granted in tandem with an Option to Participants
on the following terms and conditions:
(a) In General. Unless the Committee determines otherwise, (1)
an SAR granted in tandem with a Nonqualified Stock Option may be granted at
the time of grant of the related Nonqualified Stock Option or at any time
thereafter or (2) an SAR granted in tandem with an Incentive Stock Option may
only be granted at the time of grant of the related Incentive Stock Option. An
SAR granted in tandem with an Option shall be exercisable only to the extent
the underlying Option is exercisable.
(b) SARs. An SAR shall confer on the Participant a right to
receive with respect to each share subject thereto, upon exercise thereof, the
excess of (1) the Fair Market Value of one share of Common Stock on the date
of exercise over (2) the grant price of the SAR (which in the case of an SAR
granted in tandem with an Option shall be equal to the exercise price of the
underlying Option, and which in the case of any other SAR shall be such price
as the Committee may determine).
(c) Treatment of Related Options and Tandem SARs Upon Exercise.
Upon the exercise of a tandem SAR, the related Option shall be cancelled to
the extent of the number of shares of Common Stock as to which the tandem SAR
is exercised and upon the exercise of an Option granted in connection with a
tandem SAR, the
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tandem SAR shall be cancelled to the extent of the number of shares of Common
Stock as to which the Option is exercised.
(d) Method of Exercise. SARs shall be exercised by a Participant
only by a written notice delivered in person or by mail to the Compensation
Committee, specifying the number of shares of Common Stock with respect to
which the SAR is being exercised.
(e) Form of Payment. Payment of the amount determined under
paragraph (b) above may be made in whole shares of Common Stock in a number
determined based upon their Fair Market Value on the date of exercise of the
SAR or, alternatively, at the sole discretion of the Committee, solely in
cash, or in a combination of cash and shares of Common Stock as the Committee
deems advisable. If the Committee decides to make full payment in shares of
Common Stock, and the amount payable re sults in a fractional share, payment
for the fractional share will be made in cash.
(f) Term and Exercisability of Freestanding SARs. Each Award
Agreement shall provide the exercise schedule for the freestanding SAR as
determined by the Committee, provided, that, the Committee shall have the
authority to accelerate the exercisability of any freestanding SAR at such
time and under such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be ten (10) years from the date of the
grant of the freestanding SAR or such other period as is determined by the
Committee. The exercise period shall be subject to earlier termination as
provided in Section 7(g) hereof.
(g) Termination. The terms and conditions set forth in Section
6(f) hereof, relating to exercisability of Options in the event of termination
of employment or service as a consultant or director with the Company, shall
apply equally with respect to the exercisability of freestanding SARs
following termination of employment or service as a consultant or director.
8. Restricted Stock. The Committee is authorized to grant Restricted
Stock to Participants on the following terms and conditions:
(a) Issuance and Restrictions. The Award Agreement shall set
forth the number of shares of Restricted Stock granted pursuant to the Award
Agreement. Restricted Stock shall be subject to such restrictions on
transferability and other restrictions, if any, as the Committee may impose at
the date of grant or thereafter, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments, or
otherwise, as the Committee may determine at the date of grant or thereafter.
(b) Restrictions. Except as permitted by the Committee, prior to
vesting, shares of Restricted Stock may not be sold, assigned, transferred,
pledged, hypothecated or otherwise disposed of, except by will or the laws of
descent and distribution. Certificates for shares of Common Stock issued
pursuant to awards of Restricted Stock shall bear an appropriate legend
referring to such restrictions, and any attempt to dispose of any such shares
of Common Stock in contravention of such restrictions shall be null and void
and without effect. Prior to vesting, such certificates shall be held in
escrow by an escrow agent appointed by the Committee.
(c) Forfeiture. If the Participant's employment or service as a
consultant or director with the Company shall terminate for any reason other
than death or Disability prior to vesting of the Restricted Stock, then,
except to the extent provided otherwise in the applicable Award Agreement, any
shares remaining subject to restrictions shall thereupon be forfeited by the
Participant and transferred to, and reacquired by, the Company at no cost to
the Company. If the Participant's employment or service as a consultant or
director with the Company shall terminate by reason of death or Disability
prior to vesting of Restricted Stock, then, except to the extent provided
otherwise in the applicable Award Agrreement, restrictions or forfeiture
conditions relating to Restricted Stock will be waived.
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<PAGE>
(d) Rights as a Stockholder. Except to the extent provided
otherwise under the Award Agreement, a Participant shall have all of the
rights of a stockholder including, without limitation, the right to vote
Restricted Stock and the right to receive dividends thereon. Dividends paid on
Restricted Stock shall be either paid at the dividend payment date, or
deferred for payment to such date as determined by the Committee, in cash or
in shares of unrestricted Common Stock having a Fair Market Value equal to the
amount of such dividends. Stock distributed in connection with a stock split
or stock dividend, and other property distributed as a dividend, shall be
subject to restrictions and a risk of forfeiture to the same extent as the
Restricted Stock with respect to which such Common Stock or other property has
been distributed.
(e) Other Provisions. The Restricted Stock Agreements authorized
under the Plan shall contain such other provisions not inconsistent with this
Plan, including, without limitation, the imposition of restrictions upon the
transferability of Restricted Stock and conditions on vesting of Restricted
Stock as the Committee shall deem advisable.
9. Unrestricted Stock Awards. The Committee is authorized to grant to
Participants such Awards of Common Stock, as deemed by the Committee to be
consistent with the purposes of the Plan. The Committee shall determine the
terms and conditions of such Awards at the date of grant or thereafter.
10. Effect of Certain Changes.
If there is any change in the number of outstanding shares of Common
Stock by reason of any stock dividend, stock split, recapitalization,
combination, exchange of shares, merger, consolidation, liquidation,
split-up, spin-off or other similar change in capitalization, any distribution
to common shareholders, including a rights offering, other than cash
dividends, or any like change, then the number of shares of Common Stock
available for Awards, the number of such shares covered by outstanding Awards,
and the Option Price of such Options or the applicable grant price of SARs,
shall be proportionately adjusted by the Compensation Committee to reflect
such change or distribution; provided, however, that any fractional shares
resulting from such adjustment shall be eliminated. In the event of a change
in the Common Stock of the Company as presently constituted, which is limited
to a change of all of its authorized shares with par value into the same
number of shares with a different par value or without par value, the shares
resulting from any such change shall be deemed to be the Common Stock within
the meaning of the Plan. To the extent that the foregoing adjustments relate
to stock or securities of the Company, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding and
conclusive, provided that each Incentive Stock Option granted pursuant to this
Plan shall not be adjusted in a manner that causes such Option to fail to
continue to qualify as an Incentive Stock Option within the meaning of Section
422 of the Code.
11. General Provisions.
(a) Compliance with Legal Requirements. The Plan and the
granting and exercising of Awards, and the other obligations of the Company
under the Plan and any Award Agreement or other agreement shall be subject to
all applicable federal and state laws, rules and regulations, and to such
approvals by any regulatory or governmental agency as may be required. The
Company, in its discretion, may postpone the issuance or delivery of Common
Stock under any Award as the Company may consider appropriate, and may require
any Participant to make such representations and furnish such information as
it may consider appropriate in connection with the issuance or delivery of
Common Stock in compliance with applicable laws, rules and regulations.
(b) Nontransferability. Except to the extent provided otherwise
in the applicable Award Agreement, Awards shall not be transferable by a
Participant except by will or the laws of de scent and distribution and shall
be exercisable during the lifetime of a Participant only by such Participant
or his guardian or legal representative.
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(c) No Right To Continued Employment. Nothing in the Plan or in
any Award granted or any Award Agreement or other agreement entered into
pursuant hereto shall confer upon any Participant the right to continue in the
employ of the Company or to be entitled to any remuneration or benefits not
set forth in the Plan or such Award Agreement or other agreement or to
interfere with or limit in any way the right of the Company to terminate such
Participant's employment.
(d) Withholding Taxes. Where a Participant or other person is
entitled to receive shares of Common Stock or cash pursuant to an Award
hereunder, the Company shall have the right to require the Participant or such
other person to pay to the Company the amount of any taxes which the Company
may be required to withhold before delivery to such Participant or other
person of cash or a certificate or certificates representing such shares.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any such withholding tax obligation by either of the
following methods, or by a combination of such methods: (a) tendering a cash
payment; or (b) delivering to the Company previously acquired shares of
Common Stock having an aggregate Fair Market Value, determined as of the date
the withholding tax obligation arises, less than or equal to the amount of the
total withholding tax obligation.
(e) Amendment and Termination of the Plan. The Board or the
Committee may at any time and from time to time alter, amend, suspend, or
terminate the Plan in whole or in part; provided that, no amendment which
requires stockholder approval under applicable law or in order for the Plan to
continue to comply with Code Section 162(m) shall be effective unless the same
shall be approved by the requisite vote of the stockholders of the Company.
Notwithstanding the foregoing, no amendment shall affect adversely any of the
rights of any Participant, without such Participant's consent, under any Award
theretofore granted under the Plan. The power to grant Awards under the Plan
will automatically terminate ten years after the adoption of the Plan by the
Board. If the Plan is terminated, any unexercised Award shall continue to be
exercisable in accordance with its terms and the terms of the Plan in effect
immediately prior to such termination.
(f) Participant Rights. No Participant shall have any claim to
be granted any Award under the Plan, and there is no obligation for uniformity
of treatment for Participants. Except as provided specifically herein, a
Participant or a transferee of an Award shall have no rights as a stockholder
with respect to any shares covered by any Award until the date of the issuance
of a stock certificate to him for such shares.
(g) No Fractional Shares. No fractional shares of Common Stock
shall be issued or delivered pursuant to the Plan or any Award. The Committee
shall determine whether cash, other Awards, or other property shall be issued
or paid in lieu of such fractional shares or whether such fractional shares or
any rights thereto shall be forfeited or otherwise eliminated.
(h) Governing Law. The Plan and all determinations made and
actions taken pursuant hereto shall be governed by the laws of the State of
Delaware without giving effect to the conflict of laws principles thereof.
(i) Interpretation, Construction. The Plan is designed and
intended to comply with Section 162(m) of the Code, and all provisions hereof
shall be construed in a manner to so comply. The section and subsection
headings contained herein are for convenience only and shall not affect the
construction hereof.
12. Effectiveness.
The Plan shall take effect upon its adoption by the Board.
7
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of August ___, 1996, between
Consolidated Cigar Holdings Inc., a Delaware corporation (the "Company"), and
Mafco Consolidated Group Inc., a Delaware corporation ("MCG").
WHEREAS, as of the date of this Agreement, MCG owns 25,500,000 shares
of the Company's Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock");
WHEREAS, the Company is consummating on the date hereof underwritten
public offerings (the "Offerings") of 4,500,000 shares of the Company's Class
A Common Stock, par value $0.01 per share (the "Class A Common Stock" and
together with the Company's Class B Common Stock, the "Common Stock"); and
WHEREAS, the Board of Directors of the Company has authorized the
officers of the Company to execute and deliver this Agreement in the name and
on behalf of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Holder" means MCG and any other person that owns Registrable
Securities, including their respective successors and assigns who acquire
Registrable Securities, directly or indirectly, from MCG or such other person.
For purposes of this Agreement, the Company may deem and treat the registered
holder of a Registrable Security as the Holder and absolute owner thereof, and
the Company shall not be affected by any notice to the contrary.
<PAGE>
"Registrable Securities" means (a) the Class A Common Stock issuable
upon the conversion of the Class B Common Stock owned by MCG upon the
completion of the Offerings, (b) any Class A Common Stock acquired by MCG in
the open market at a time when MCG is deemed to be an Affiliate (as such term
is defined under Rule 144 under the Securities Act) of the Company so long as
(i) such Common Stock has not been transferred by MCG to a person that is not
a Permitted Transferee (as such term is defined in the Certificate of
Incorporation of the Company) and (ii) MCG or such Permitted Transferee
continues to be deemed an Affiliate of the Company, and (c) any securities
issued or issuable in respect of the Class A Common Stock or Class B Common
Stock referred to in clauses (a) and (b) above, by way of stock dividend or
stock split or in connection with a combination of shares, recapitalization,
reclassification, merger or consolidation, and any other securities issued
pursuant to any other pro rata distribution with respect to such Common Stock.
For purposes of this Agreement, a Registrable Security ceases to be a
Registrable Security when (x) it has been effectively registered under the
Securities Act and sold or distributed to the public in accordance with an
effective registration statement covering it (and has not been reacquired in
the manner described in clause (b) above), or (y) it is sold or distributed to
the public pursuant to Rule 144 (or any successor or similar provision) under
the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
2. Demand Registration. (a) Subject to Section 5 hereof, if at any
time any Holder shall request the Company in writing to register under the
Securities Act all or a part of the Registrable Securities held by such Holder
(a "Demand Registration"), the Company shall use all reasonable efforts to
cause to be filed and declared effective as soon as reasonably practicable
(but in no event later than the 45th day after such Holder's request is made)
a registration statement, on such appropriate form as the Company in its
discretion shall determine, providing for the sale of all such Registrable
Securities by such Holder. The Company agrees to use its
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<PAGE>
reasonable efforts to keep any such registration statement continuously
effective and usable for resale of Registrable Securities for so long as the
Holder whose Registrable Securities are included therein shall request. The
Company shall be obligated to file registration statements pursuant to this
Section 2(a) until all Registrable Securities have ceased to be Registrable
Securities. Each registration statement filed pursuant to this Section 2(a) is
hereinafter referred to as a "Demand Registration Statement."
(b) The Company agrees (i) not to effect any public or private sale,
distribution or purchase of any of its securities which are the same as or
similar to the Registrable Securities, including a sale pursuant to Regulation
D under the Securities Act, during the 15-day period prior to, and during the
45-day period beginning on, the closing date of each underwritten offering
under any Demand Registration Statement, and (ii) to use reasonable efforts to
cause each holder of its securities purchased from the Company, at any time on
or after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale or distribution of any such
securities during such period, including a sale pursuant to Rule 144 under the
Securities Act.
(c) The Company may postpone for a reasonable period of time, not to
exceed 30 days, the filing or the effectiveness of any Demand Registration
Statement if the Board of Directors of the Company in good faith determines
that (A) such registration might have a material adverse effect on any plan or
proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or (B) the
Company is in possession of material non-public information that, if publicly
disclosed, could result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company.
(d) If at any time any Holder of Registrable Securities to be covered
by a Demand Registration Statement desires to sell Registrable Securities in
an underwritten offering, such Holder shall have the right to select any
nationally recognized investment banking firm(s) to administer the offering,
subject to the ap-
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proval of the Company, which approval shall not be unreasonably withheld, and
the Company shall enter into underwriting agreements with the underwriter(s)
of such offering, which agreements shall contain such representations and
warranties by the Company, and such other terms, conditions and indemnities as
are at the time customarily contained in underwriting agreements for similar
offerings.
3. Incidental Registration. Subject to Section 5 hereof and the
other terms and conditions set forth in this Section 3, if the Company
proposes at any time to register any shares of Class A Common Stock (the
"Initially Proposed Shares") under the Securities Act for sale, whether or not
for its own account, pursuant to an underwritten offering, the Company will
promptly give written notice to the Holders of its intention to effect such
registration (such notice to specify, among other things, the proposed
offering price, the kind and number of securities proposed to be registered
and the distribution arrangements, including identification of the
underwriter(s)), and the Holders shall be entitled to include in such
registration statement, as a part of such underwritten offering, such number
of shares (the "Holder Shares") to be sold for the account of the Holders (on
the same terms and conditions as the Initially Proposed Shares) as shall be
specified in a request in writing delivered to the Company within 15 days
after the date upon which the Company gave the aforementioned notice.
The Company's obligations to include Holder Shares in a registration
statement pursuant to this Section 3 is subject to each of the following
limitations, conditions and qualifications:
i) If, at any time after giving written notice of its intention
to effect a registration of any of its shares of Common Stock and prior to
the effective date of any registration statement filed in connection with
such registration, the Company shall determine for any reason not to
register all of such shares, the Company may, at its election, give
written notice of such determination to the Holders and thereupon it shall
be relieved of its obligation to use any efforts to register any Holder
Shares in connection with such aborted registration.
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ii) If, in the opinion of the managing underwriter(s) of such
offering, the distribution of all or a specified portion of the Holder
Shares would materially interfere with the registration and sale, in
accordance with the intended method thereof, of the Initially Proposed
Shares, then the number of Holder Shares to be included in such
registration statement shall be reduced to such number, if any, that, in
the opinion of such managing underwriter(s), can be included without such
interference. If, as a result of the cutback provisions of the preceding
sentence, the Holders are not entitled to include all of the Holder Shares
in such registration, such Holders may elect to withdraw their request to
include Holder Shares in such registration (a "Withdrawal Election").
If the Company shall so request in writing, each Holder agrees not to
effect any public or private sale or distribution of any Registrable
Securities (other than the Holder Shares) during the 15-day period prior to
and during the 45-day period beginning on, the closing date of any
underwritten public offering of shares of Common Stock made for the Company's
own account.
4. Registration Procedures. (a) Whenever the Company is required to
use all reasonable efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to the terms and conditions of
Section 2(a) or 3 (such Registrable Securities being hereinafter referred to
as "Subject Shares"), the Company will use all reasonable efforts to effect
the registration and sale of the Subject Shares in accordance with the
intended method of disposition thereof. Without limiting the generality of the
foregoing, the Company will as soon as practicable:
i) prepare and file with the SEC a registration statement with
respect to the Subject Shares in form and substance satisfactory to the
Holders of the Subject Shares, and use all reasonable efforts to cause
such registration statement to become effective as soon as possible;
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<PAGE>
ii) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective for the applicable period and to comply with the
provisions of the Securities Act with respect to the disposition of all
Subject Shares and other securities covered by such registration
statement;
iii) furnish the Holders covered by such registration statement,
without charge, such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (in each case
including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus),
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such Holders may reasonably
request;
iv) use all reasonable efforts to register or qualify the
Subject Shares covered by such registration statement under the securities
or blue sky laws of such jurisdictions as the managing underwriter(s)
shall reasonably recommend, and do any and all other acts and things which
may be reasonably necessary or advisable to enable the Holders to
consummate the disposition in such jurisdictions of the Subject Shares
covered by such registration statement, except that the Company shall not
for any such purpose be required to (A) qualify generally to do business
as a foreign corporation in any jurisdiction wherein it is not so
qualified, (B) subject itself to taxation in any jurisdiction wherein it
is not so subject, or (C) consent to general service of process in any
such jurisdiction or otherwise take any action that would subject it to
the general jurisdiction of the courts of any jurisdiction in which it is
not so subject;
v) otherwise use its reasonable efforts to comply with all
applicable rules and regulations of the SEC;
6
<PAGE>
vi) furnish, at the Company's expense, unlegended certificates
representing ownership of the securities being sold in such denominations
as shall be requested and instruct the transfer agent to release any stop
transfer orders with respect to the Subject Shares being sold;
vii) notify each Holder at any time when a prospectus relating
to the Subject Shares is required to be delivered under the Securities Act
of the happening of any event as a result of which the prospectus included
in such registration statement contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
therein (in the case of the prospectus or any preliminary prospectus, in
light of the circumstances under which they were made) not misleading, and
the Company will, as promptly as practicable thereafter, prepare and file
with the SEC and furnish a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of Subject Shares such
prospectus will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading;
viii) enter into customary agreements (including an underwriting
agreement in customary form in the case of an underwritten offering) and
make such representations and warranties to the sellers and underwriter(s)
as in form and substance and scope are customarily made by issuers to
underwriters in underwritten offerings and take such other actions as the
Holders or the managing underwriter(s) or agent, if any, reasonably
require in order to expedite or facilitate the disposition of such Subject
Shares;
ix) make available for inspection by the Holders, any
underwriter or agent participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other similar
professional advisor retained by any such holders or underwriter
(collectively the "Inspectors"), all pertinent financial and other
records, pertinent corporate documents and properties of the Company
7
<PAGE>
(collectively, the "Records"), as shall be reasonably necessary to enable
them to exercise their due diligence responsibility, and cause the
Company's officers, directors and employees to supply all information
reasonably requested by any such Inspector in connection with such
registration statement. The Holders agree that Records and other
information which the Company determines, in good faith, to be
confidential and of which determination the Inspectors are so notified
shall not be disclosed by the Inspectors unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in the
registration statement, (ii) the release of such Records is ordered
pursuant to a subpoena, court order or regulatory or agency request or
(iii) the information in such Records has been generally disseminated to
the public. Each Holder agrees that it will, upon learning that disclosure
of such Record is sought in a court of competent jurisdiction or by a
governmental agency, give notice to the Company and allow the Company, at
the Company's expense, to undertake appropriate action to prevent
disclosure of the Records deemed confidential;
x) obtain for delivery to the Company, the underwriter(s) or
their agent, with copies to the Holders, a "cold comfort" letter from the
Company's independent public accountants in customary form and covering
such matters of the type customarily covered by "cold comfort" letters as
the Holders or the managing underwriter(s) reasonably request;
xi) obtain for delivery to the Holders and the underwriter(s) or
their agent an opinion or opinions from counsel for the Company in
customary form and reasonably satisfactory to the Holder, underwriters or
agents and their counsel;
xii) make available to its security holders earnings statements,
which need not be audited, satisfying the provisions of Section 11(a) of
the Securities Act no later than 90 days after the end of the 12-month
period beginning with the first month of the Company's first quarter
commencing after the effective date of the registration state-
8
<PAGE>
ment, which earnings statements shall cover said 12-month period;
xiii) make every reasonable effort to prevent the issuance of
any stop order suspending the effectiveness of the registration statement
or of any order preventing or suspending the effectiveness of such
registration statement at the earliest possible moment;
xiv) cause the Subject Shares to be registered with or
approved by such other governmental agencies or authorities within the
United States as may be necessary to enable the sellers thereof or the
underwriters(s), if any, to consummate the disposition of such Subject
Shares;
xv) cooperate with the Holders and the managing
underwriter(s), if any, or any other interested party (including any
interested broker-dealer) in making any filings or submission required to
be made, and the furnishing of all appropriate information in connection
therewith, with the National Association of Securities Dealers, Inc.
("NASD");
xvi) cause its subsidiaries to take action necessary to effect
the registration of the Subject Shares contemplated hereby, including
filing any required financial information;
xvii) effect the listing of the Subject Shares on the New York
Stock Exchange or such other national securities exchange or
over-the-counter market on which shares of the Class A Common Stock shall
then be listed; and
(xviii) take all other steps necessary to effect the
registration of the Subject Shares contemplated hereby.
(b) The Holders shall provide (in writing and signed by the
Holders and stated to be specifically for use in the related registration
statement, preliminary prospectus, prospectus or other document incident
thereto) all such information and materials and take all such action as may be
required in order to permit the Company to comply with all applicable
requirements of the
9
<PAGE>
SEC and any applicable state securities laws and to obtain any desired
acceleration of the effective date of any registration statement prepared and
filed by the Company pursuant to this Agreement.
(c) The Holders shall, if requested by the Company or the
managing underwriter(s) in connection with any proposed registration and
distribution pursuant to this Agreement, (i) agree to sell the Subject Shares
on the basis provided in any underwriting arrangements entered into in
connection therewith and (ii) complete and execute all questionnaires, powers
of attorney, indemnities, underwriting agreements and other documents
customary in similar offerings.
(d) Upon receipt of any notice from the Company that the Company
has become aware that the prospectus (including any preliminary prospectus)
included in any registration statement filed pursuant to Section 2(a) or 3, as
then in effect, contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make the
statements therein not misleading, the Holders shall forthwith discontinue
disposition of Subject Shares pursuant to the registration statement covering
the same until the Holders" receipt of copies of a supplemented or amended
prospectus and, if so directed by the Company, deliver to the Company (at the
Company's expense) all copies other than permanent file copies then in the
Holder's possession, of the prospectus covering the Subject Shares that was in
effect prior to such amendment or supplement.
(e) The Company shall pay all out-of-pocket expenses incurred in
connection with any registration statement filed pursuant to
Section 2(a) or Section 3 of this Agreement, including, without limitation, all
SEC and blue sky registration and filing fees (including NASD fees), printing
expenses, transfer agents and registrars' fees, fees and disbursements of the
Company's counsel and accountants and fees and disbursements of experts used by
the Company in connection with such registration statement. Notwithstanding the
foregoing, the Holders shall pay all underwriting discounts, commissions and
expenses attributable to the Subject Shares sold pursuant to any such
registration statement.
10
<PAGE>
(f) In connection with any sale of Subject Shares that are
registered pursuant to this Agreement, the Company and the Holders shall enter
into an agreement providing for indemnification of the Holders by the Company,
and indemnification of the Company by the Holders, on terms customary for such
agreements at that time (it being understood that any disputes arising as to
what is customary shall be resolved by counsel to the underwriter(s)).
5. Condition to Company's Obligations. Not-withstanding any other
provision in this Agreement to the contrary, the Company shall have no
obligation to effect any registration of Registrable Securities pursuant to
this Agreement within 180 days of the date of the prospectus for the
Offerings, unless Goldman, Sachs & Co. shall have given its prior written
consent to such filing.
6. Notices. Any notice or other communication required or permitted
to be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answerback received), telecopy or
facsimile at the address or number designated below (if delivered on a
business day during normal business hours where such notice is to be
received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the third business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual service, fully prepaid, addressed to such address, or upon actual
receipt of such mailing, whichever shall first occur. The addresses for such
communications shall be:
If to the Company, to:
Consolidated Cigar Holdings Inc.
5900 North Andrews Ave.
Fort Lauderdale, FL 33309-7098
Attn: Gary R. Ellis
Telecopy: (954) 938-7835
11
<PAGE>
If to MCG, to:
General Counsel
MacAndrews & Forbes Holdings Inc.
35 East 62nd Street
New York, New York 10021
Telecopy: (212) 572-5056
If to any other Holder, to such name at such address as such
Holder shall have indicated in a written notice delivered to
the other parties to this Agreement.
Any party hereto may from time to time change its address for notices under
this Section 6 by giving at least 10 days' notice of such changes to the
other parties hereto.
7. Waivers. No waiver by any party of any default with respect to
any provision, condition or requirement hereof shall be deemed to be a
continuing waiver in the future thereof or a waiver of any other provision,
condition or requirement hereof; nor shall any delay or omission of any party
to exercise any right hereunder in any manner impair the exercise of any such
right accruing to it thereafter.
8. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
9. Successors and Assigns; Amendments. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns, including without limitation and without the need for an express
assignment each subsequent Holder of any Registrable Securities. Except as
provided in this Section 9, neither the Company nor any Holder shall assign
this Agreement or any rights hereunder without the prior written consent of
the other parties hereto. The assignment by a party of this Agreement or any
rights hereunder shall not affect the obligations of such party hereunder.
This Agreement may not be amended except by a written instrument executed by
the parties hereto.
12
<PAGE>
10. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of laws.
12. Entire Agreement. This Agreement contains the entire agreement of
the parties hereto in respect of the subject matter hereof and supersedes all
prior agreements and understandings between the parties with respect to the
subject matter hereof.
13. Execution. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party, it being understood that both parties need not
sign the same counterpart.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the date
hereof.
CONSOLIDATED CIGAR HOLDINGS INC.
By:
----------------------------
Name:
Title:
MAFCO CONSOLIDATED GROUP INC.
By:
----------------------------
Name:
Title:
14
PROMISSORY NOTE
$70,000,000.00 New York, New York
August __, 1996
FOR VALUE RECEIVED, the undersigned, Consolidated Cigar Holdings
Inc., a Delaware corporation ("Maker"), hereby promises to pay to the order of
Mafco Consolidated Group Inc., a Delaware corporation ("MCG"), the sum of
seventy million dollars ($70,000,000.00), in twenty-eight consecutive equal
quarterly installments of two million five hundred thousand dollars
($2,500,000.00) each. Said installments shall be due and paid on March 31,
June 30, September 30 and December 31 of each calendar year, with the first
installment due and payable on March 31, 1997 and the final installment due
and payable on December 31, 2003. Each such installment shall be paid in
lawful money of the United States of America in immediately available funds
without deduction for or on account of any present or future taxes, duties or
other charges levied or imposed on this Note or the proceeds or holder hereof
by the government of the United States of America or any political subdivision
or taxing authority thereof. This Note shall not bear interest.
1. Events of Default. The occurrence of any of the following events shall
constitute a default under this Note (each an "Event of Default"):
(a) the failure by Maker to pay all or any part of the indebtedness
evidenced by this Note when and as the same becomes due and payable and the
continuance of such failure for 60 days;
(b) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of Maker or Consolidated Cigar in an
involuntary case or proceeding under any applicable federal or state
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree
or order adjudging Maker or Consolidated Cigar bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization, arrangement,
adjustment or composition of or in respect of Maker or Consolidated Cigar
under any applicable federal or state law, or appointing a custodian,
receiver, liquida-
<PAGE>
tor, assignee, trustee, sequestrator or other similar official of Maker or
Consolidated Cigar or of any substantial part of their respective property, or
ordering the winding up or liquidation of affairs, and the continuance of any
such decree or order for relief or any such other decree or order unstayed and
in effect for a period of 90 consecutive days; or
(c) the commencement by Maker or Consolidated Cigar of a voluntary
case or proceeding under any applicable federal or state bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated bankrupt or insolvent, or the consent to the
entry of a decree or order for relief in respect of Maker or Consolidated
Cigar in an involuntary case or proceeding under any applicable federal or
state bankruptcy, insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or proceeding against Maker
or Consolidated Cigar, or the filing of a petition or answer or consent
seeking reorganization or relief under any applicable federal or state law, or
the consent to the filing of such petition or to the appointment of or taking
possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of Maker or Consolidated Cigar or of
any substantial part of their respective property, or the making of an
assignment for the benefit of creditors, or the admission in writing of
inability to pay debts generally as they become due, or the taking of
corporate action by Maker or Consolidated Cigar in furtherance of any such
action.
2. Acceleration Upon Event of Default. Upon the occurrence and
continuance of any Event of Default, the holder may, at its option, declare
the remaining principal amount of this Note to be immediately due and payable
upon written notice to Maker.
3. Prepayment Right. Maker shall have the right to prepay this Note,
in whole or in part, at any time or from time to time without penalty or
premium, any such prepayment to be applied to the remaining installments of
indebtedness in the order of their maturities or as otherwise directed by
Maker.
2
<PAGE>
4. Subordination. (a) The holder, by its acceptance of this Note, agrees
that the indebtedness evidenced by this Note is subordinate and junior in
right of payment to (i) all indebtedness of Maker for money borrowed; (ii) all
obligations of Maker evidenced by a bond, note, debenture, or similar
instrument; (iii) all direct or indirect obligations of Maker in respect of
letters of credit or other similar instruments whether contingent or
otherwise; (iv) all obligations of Maker to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business; (v) all obligations of Maker as lessee under any lease of
property which is reflected on Maker's balance sheet as a capitalized lease;
(vi) all indebtedness of others secured by a lien on any asset of Maker; (vii)
to the extent not otherwise included, all obligations under currency swap
agreements, interest rate swap agreements, interest rate hedge agreements,
equity hedge contracts, foreign exchange contracts and other similar
agreements; (viii) all indebtedness of others described in the preceding
clause (i) which Maker has guaranteed or for which it is otherwise liable;
(ix) all obligations of Maker pursuant to the U.S. Underwriting Agreement,
dated August __, 1996, among the Company and Goldman, Sachs & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated
and Chase Securities Inc., as representatives of the several U.S. underwriters
named therein, and the International Underwriting Agreement, dated August __,
1996, among the Company and Goldman Sachs International, Merrill Lynch
International, Morgan Stanley & Co. International and Chase Manhattan
International Limited, as representatives of the several international
underwriters named therein, and all obligations of Maker arising in connection
with the offer and sale of securities of Maker after the date of this Note;
(x) all obligations of Maker upon which interest charges are customarily paid;
(xi) all obligations of Maker under conditional sale or other title retention
agreements relating to property purchased by Maker (even though the rights and
remedies of the seller or lender under such agreement in the event of default
are limited to repossession or sale of such property); (xii) all obligations
of Maker to purchase, redeem, retire, defease or otherwise acquire for value
any securities of Maker; (xiii) any deferral, amendment, renewal, extension,
supplement or refunding of any liability of the kind described in any of the
preceding clauses (i) through (xii); and (xiv) all obligations of the kind
described in any of the preceding clauses (i) through (xii) created, incurred,
3
<PAGE>
assumed or guaranteed after the date hereof (the foregoing indebtedness of
Maker to which this Note is subordinate and junior being hereinafter referred
to as the "senior indebtedness"). Except as set forth in the preceding
sentence, the indebtedness evidenced by this Note is not subordinate and
junior in right of payment to any indebtedness that by its terms or by
operation of law is subordinated to or on a parity with this Note.
(b) The holder further agrees, by its acceptance of this Note, that
if any default or event of default under Section 10 of the Credit Agreement,
dated as of February 23, 1993, between Consolidated Cigar Corporation and The
Chase Manhattan Bank, N.A. (as amended from time to time, the "Credit
Agreement") has occurred and is continuing (i) no payment or distribution may
be made by or on behalf of Maker on account of or with respect to indebtedness
outstanding under this Note and (ii) no action may be taken to accelerate the
maturity of this Note, in each case, until such default or event of default
shall have been cured or waived or have ceased to exist or the outstanding
indebtedness under the Credit Agreement shall have been paid in full.
(c) The holder further agrees, by its acceptance of this Note (i)
that upon acceleration of any senior indebtedness or any distribution of
assets of Maker, upon any dissolution, winding up, total or partial
liquidation or reorganization of Maker, whether voluntary or involuntary, in
bankruptcy, insolvency, receivership or similar proceeding or upon assignment
for the benefit of creditors, the holders of all senior indebtedness shall
first be entitled to receive payments in full (or to have such payment duly
provided for) of all other amounts payable in respect thereof, before the
holder is entitled to receive any payment on account of amounts due and
payable under this Note and, in such case, any payment or distribution of any
kind or character either in cash, property or securities which shall be
payable or deliverable upon or in respect of the indebtedness evidenced by
this Note shall be paid or delivered direct to the holders of the senior
indebtedness for application in payment of the amounts then due on the senior
indebtedness until the senior indebtedness shall have been paid in full; and
(ii) to hold in trust for the holders of the senior indebtedness and
immediately remit to the holders of the senior indebtedness any payment or
distribution received by the holder in contravention of the foregoing.
4
<PAGE>
(d) The foregoing provisions as to subordination are solely for the
purpose of defining the relative rights of the holders of the senior
indebtedness on the one hand, and the holder of the Note on the other than,
and none of such provisions shall impair, as between Maker and the holder, the
obligations of Maker, which is unconditional and absolute, to pay to the
holder the indebtedness evidenced by this Note in accordance with the terms of
this Note, nor shall any such provisions prevent the holder of this Note from
exercising all remedies otherwise permitted by applicable law or under the
terms of this Note upon default, subject to the rights under the foregoing
provisions of holders of senior indebtedness to receive cash, property or
securities otherwise payable or deliverable to the holder of this Note.
5. Waiver. No failure by the holder to exercise, or delay by the holder
in exercising, any right or remedy hereunder shall operate as a waiver thereof
or of any other right or remedy and no single or partial exercise of any right
or remedy shall preclude any other or further exercise thereof or of any other
right or remedy. Acceptance by the holder of any payment after the maturity of
this Note has been accelerated shall not constitute a waiver of such
acceleration.
6. Assignment. Holder may assign to one or more Permitted Assignees all
or a portion of its interests, rights and obligations under this Note. The
phase "Permitted Assignees", as used herein, shall mean MacAndrews & Forbes
Holdings Inc. ("MacAndrews & Forbes") and each corporation, individual, joint
stock company, joint venture, partnership, unincorporated association, trust
or other entity, directly or indirectly, through one or more intermediaries,
controlling or controlled by, or under common control with MacAndrews &
Forbes.
7. Meaning of Holder. The word "holder", as used herein, shall mean MCG
or any endorsee of this Note, in accordance with the provisions of Section 6,
who is in possession of it.
8. Governing Law. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAW OF THE STATE OF NEW YORK.
5
<PAGE>
IN WITNESS WHEREOF, Maker has caused this Note to be duly executed by
the undersigned officer.
CONSOLIDATED CIGAR HOLDINGS INC.
By:
------------------------------
Name: Glenn P. Dickes
Title: Vice President
6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sell(s), assign(s) and
transfer(s) unto
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Name and Address
the within Note and all rights hereunder, hereby irrevocably constituting and
appointing
- -----------------------------------------------------------------------------
to transfer said Note on the books of Maker, with full power and substitution
in the premisses.
Dated:
--------------------------
By:
-----------------------------
7
GUARANTEE AND SECURITY AGREEMENT
GUARANTEE AND SECURITY AGREEMENT dated as of March 3, 1993 between:
CONSOLIDATED CIGAR (PARENT) HOLDINGS INC., a corporation
duly organized and validly existing under the laws of Delaware
(together with its successors and assigns, the "Parent Guarantor");
and
THE CHASE MANHATTAN BANK (NATIONAL ASSOCIATION), as agent
for the lenders party to the Credit Agreement referred to below (in
such capacity, together with its successors in such capacity, the
"Agent").
Consolidated Cigar Corporation, a Delaware corporation ("Cigar"), Congar
Newco Inc., a Delaware corporation ("Congar Newco"), Congar International
Corp. ("Congar International"), certain lenders and the Agent are parties to a
Credit Agreement dated as of February 23, 1993 (as modified and supplemented
and in effect from time to time, the "Credit Agreement"), providing, subject
to the terms and conditions thereof, for extensions of credit (by making of
loans and issuing letters of credit) to be made by said lenders in an
aggregate principal or stated amount not exceeding $80,000,000 at any one time
outstanding.
To induce said lenders to enter into the Credit Agreement and to extend
credit thereunder, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the Parent Guarantor has
agreed to guarantee the Guaranteed Obligations (as hereinafter defined) and
has agreed to pledge and grant a security interest in the Collateral (as
hereinafter defined) as security for the Secured Obligations (as hereinafter
defined).
Accordingly, the parties hereto agree as follows:
Section 1. Definitions. Terms defined in the Credit Agreement are used
herein as defined therein. In addition, as used herein:
"Collateral" shall have the meaning ascribed thereto in
Section 4 hereof.
"Collateral Account" shall have the meaning ascribed thereto in
Section 5.1 hereof.
Guaranty and Security Agreement
-------------------------------
<PAGE>
"Guaranteed Obligations" shall have the meaning ascribed
thereto in Section 2.1 hereof.
"Pledged Stock" shall have the meaning ascribed thereto in
Section 4(a) hereof.
"Permitted Investments" shall mean Investments of the type
referred to in clauses (a) through (c) of the definition of "Permitted
Investments" in Section 1.1 of the Credit Agreement.
"Secured Obligations" shall mean, collectively, (a) the
Guaranteed Obligations and (b) all obligations of the Parent Guarantor to the
Banks and the Agent hereunder.
"Secured Parties" shall mean the Agent, the Issuing Bank,
the Banks and all other holders of Secured Obligations.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of New York.
Section 2. The Guarantee.
2.1 The Guarantee. The Parent Guarantor hereby guarantees to
each Bank, the Issuing Bank and the Agent and their respective successors and
assigns the prompt payment in full when due (whether at stated maturity, by
acceleration or otherwise) of the principal of and interest on the Loans made
by the Banks to, and the Note(s) held by each Bank of, each Borrower and all
other amounts from time to time owing to the Banks or the Agent by the
Borrowers under the Credit Agreement and under the Notes and all Reimbursement
Obligations and interest thereon, in each case strictly in accordance with the
terms thereof (such obligations being herein collectively called the
"Guaranteed Obligations"). The Parent Guarantor hereby further agrees that if
any Borrower shall fail to pay in full when due (whether at stated maturity,
by acceleration or otherwise) any of the Guaranteed Obligations, the Guarantor
will promptly pay the same, without any demand or notice whatsoever, and that
in the case of any extension of time of payment or renewal of any of the
Guaranteed Obligations, the same will be promptly paid in full when due
(whether at extended maturity, by acceleration or otherwise) in accordance
with the terms of such extension or renewal.
2.2 Obligations Unconditional. The obligations of the Parent
Guarantor under Section 2.1 hereof are absolute and unconditional,
irrespective of the value,
Guaranty and Security Agreement
-------------------------------
2
<PAGE>
genuineness, validity, regularity or enforceability of the obligations of the
Borrowers under the Credit Agreement, the Notes or any other agreement or
instrument referred to herein or therein, or any substitution, release or
exchange of any other guarantee of or security for any of the Guaranteed
Obligations, and, to the fullest extent permitted by applicable law,
irrespective of any other circumstance whatsoever which might otherwise
constitute a legal or equitable discharge or defense of a surety or guarantor,
it being the intent of this Section 2.2 that the obligations of the Parent
Guarantor hereunder shall be absolute and unconditional under any and all
circumstances. Without limiting the generality of the foregoing, it is agreed
that the occurrence of any one or more of the following shall not alter or
impair the liability of the Parent Guarantor hereunder which shall remain
absolute and unconditional as described above:
(i) at any time or from time to time, without notice to the
Parent Guarantor, the time for any performance of or compliance with
any of the Guaranteed Obligations shall be extended, or such
performance or compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
the Credit Agreement or the Notes or any other agreement or
instrument referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations
shall be accelerated, or any of the Guaranteed Obligations shall be
modified, supplemented or amended in any respect, or any right under
the Credit Agreement or the Notes or any other agreement or
instrument referred to herein or therein shall be waived or any other
guarantee of any of the Guaranteed Obligations or any security
therefor shall be released or exchanged in whole or in part or
otherwise dealt with; or
(iv) any lien or security interest granted to, or in favor
of, the Agent or any Bank or Banks as security for any of the
Guaranteed Obligations shall fail to be perfected.
The Parent Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and, to the fullest extent permitted by applicable law, all
notices whatsoever, and any requirement that the Agent or any Bank exhaust any
right, power or remedy or proceed against any Borrower under the Credit
Agreement or the Notes or any other agreement or instrument referred to herein
or therein, or against any other Person under any other guarantee of, or
security for, any of the Guaranteed Obligations.
Guaranty and Security Agreement
-------------------------------
3
<PAGE>
2.3 Reinstatement. The obligations of the Parent Guarantor
under this Section 2 shall be automatically reinstated if and to the extent
that for any reason any payment by or on behalf of a Borrower in respect of
the Guaranteed Obligations is rescinded or must be otherwise restored by any
holder of any of the Guaranteed Obligations, whether as a result of any
proceedings in bankruptcy or reorganization or otherwise, and the Parent
Guarantor agrees that it will indemnify the Agent and each Bank on demand for
all reasonable costs and expenses (including, without limitation, reasonable
fees of counsel) incurred by the Agent or such Bank in connection with such
rescission or restoration, including any such costs and expenses incurred in
defending against any claim alleging that such payment constituted a
preference, fraudulent transfer or similar payment under any bankruptcy,
insolvency or similar law.
2.4 Subrogation. The Parent Guarantor hereby waives all
rights of subrogation or contribution, whether arising by contract or
operation of law (including, without limitation, any such right arising under
the Federal Bankruptcy Code) or otherwise by reason of any payment by it of
any Guaranteed Obligations and further agrees with each Borrower for the
benefit of each of its creditors (including, without limitation, each Bank and
the Agent) that any such payment by it shall constitute a contribution of
capital by the Parent Guarantor to such Borrower.
2.5 Remedies. The Parent Guarantor agrees that, as between
the Parent Guarantor and the Banks, the obligations of a Borrower under the
Credit Agreement and the Notes may be declared to be forthwith due and payable
as provided in Section 10 of the Credit Agreement (and shall be deemed to have
become automatically due and payable in the circumstances provided in said
Section 10) for purposes of Section 2.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or such
obligations from becoming automatically due and payable) as against such
Borrower and that, in the event of such declaration (or such obligations being
deemed to have become automatically due and payable), such obligations
(whether or not due and payable by such Borrower) shall forthwith become due
and payable by the Parent Guarantor for purposes of said Section 2.1.
2.6 Continuing Guarantee. The guarantee in this Section 2 is a
continuing guarantee, and shall apply to all Guaranteed Obligations whenever
arising.
Section 3. Representations and Warranties. The Parent Guarantor
represents and warrants to the Banks and the Agent that:
(a) The Parent Guarantor is the sole beneficial owner of the
Collateral in which it purports to grant a security interest pursuant
to Section 4 hereof.
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(b) At all times on and after the Closing Date, no Lien will
exist upon any Collateral (and no right or option to acquire the same
exists in favor of any other Person), except for the pledge and
security interest in favor of the Agent for the benefit of the
Secured Parties created hereby.
(c) The pledge and security interest created hereby will, at
the time of its attachment (and assuming continued possession by the
Agent of the certificates delivered to the Agent by the Parent
Guarantor pursuant to said Section 7.1), constitute a perfected
pledge and security interest in and to all of the Collateral.
(d) The Pledged Stock represented by the certificates
identified in Annex 1 hereto in, and all other Pledged Stock in which
the Parent Guarantor shall hereafter grant a security interest
pursuant to Section 4 hereof will be, duly authorized, validly
issued, fully paid and non-assessable and none of such Pledged Stock
is or will be subject to any contractual restriction, or any
restriction under the charter or by-laws of Cigar, upon the transfer
of such Pledged Stock (except for any such restriction contained
herein or in the Credit Agreement).
(e) The Pledged Stock represented by the certificates
identified in Annex 1 hereto constitutes all of the issued and
outstanding shares of capital stock of any class of Cigar
beneficially owned by the Parent Guarantor on the date hereof
(whether or not registered in the name of the Parent Guarantor) and
said Annex 1 correctly identifies, as at the date hereof, the
respective class and par value of the shares comprising such Pledged
Stock and the respective number of shares (and registered owners
thereof) represented by each such certificate.
Section 4. The Pledge. As collateral security for the prompt payment in
full when due (whether at stated maturity, by acceleration or otherwise) of
the Secured Obligations, the Parent Guarantor hereby pledges and grants to the
Agent, for the benefit of the Secured parties as hereinafter provided, a
security interest in all of the Parent Guarantor's right, title and interest
in the following property, whether now owned or hereafter acquired and whether
now existing or hereafter coming into existence (all being collectively
referred to herein as "Collateral"):
(a) the shares of capital stock of Cigar represented by the
certificates identified in Annex I hereto and all other shares of
capital stock of whatever class of Cigar, now or hereafter owned by
the Parent Guarantor, in each case together with the certificates
representing the same (collectively, the "Pledged Stock");
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(b) all Property (including, without limitation, shares,
other securities and moneys) representing a dividend on any of the
Pledged Stock, or representing a distribution or return of capital
upon or in respect of the Pledged Stock, or resulting from a
split-up, revision, reclassification or other like change of the
Pledged Stock or otherwise received in exchange therefor, and any
subscription warrants, rights or options issued to the holders of, or
otherwise in respect of, the Pledged Stock;
(c) without affecting the obligations of any Credit Party
under any provision prohibiting such action under any Basic Document,
in the event of any consolidation or merger in which Cigar is not the
surviving corporation, all shares of each class of the capital stock
of the successor corporation formed by or resulting from such
consolidation or merger;
(d) all Indebtedness from time to time owing by Cigar or
any of its Subsidiaries to the Parent Guarantor;
(e) all payments of principal of and interest on, and all
other rights arising with respect to, all Indebtedness from time to
time owing by Cigar or any of its Subsidiaries to the Parent
Guarantor;
(f) the balance from time to time in the Collateral
Account; and
(g) all proceeds of and to any of the property described
in the preceding clauses of this Section 4.
Section 5. Cash Proceeds of Collateral.
5.1 Collateral Account. The Agent has established with Chase
a cash collateral account (the "Collateral Account") in the name and under the
control of the Agent into which there shall be deposited from time to time the
cash proceeds of any of the Collateral required to be delivered to the Agent
pursuant hereto and into which the Parent Guarantor may from time to time
deposit any additional amounts which the Parent Guarantor wishes to pledge to
the Agent for the benefit of the Secured Parties as additional collateral
security hereunder. The balance from time to time in the Collateral Account
shall constitute part of the Collateral hereunder and shall not constitute
payment of the Secured Obligations until applied as hereinafter provided.
Except as expressly provided in the next sentence, the Agent shall promptly
remit the collected balance standing to the credit of the Collateral Account
to or upon the order of the Parent Guarantor as the Parent Guarantor shall
from time to time instruct. However, at any time
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following the occurrence and during the continuance of an Event of Default,
the Agent may (and, if instructed by the Banks as specified in Section 11.9 of
the Credit Agreement, shall) in its (or their) discretion apply or cause to be
applied (subject to collection) the balance from time to time standing to the
credit of the Collateral Account to the payment of the Secured Obligations in
the manner specified in Section 7.9 hereof. The balance from time to time in
the Collateral Account shall be subject to withdrawal only as provided herein.
In addition to the foregoing, the Parent Guarantor agrees that if the proceeds
of any Collateral hereunder shall be received by it, the Parent Guarantor
shall, except to the extent otherwise provided in Section 7.4(3) hereof, as
promptly as possible deposit such proceeds into the Collateral Account. Until
so deposited, all such proceeds shall be held in trust by the Parent Guarantor
for and as the property of the Agent and shall not be commingled with any
other funds or property of the Parent Guarantor.
5.2 Investment of Balance in Collateral Account. Amounts on
deposit in the Collateral Account shall be invested from time to time in such
Permitted Investments as the Parent Guarantor (or, after the occurrence and
during the continuance of an Event of Default, the Agent) shall determine,
which Permitted Investments shall be held in the name and be under the control
of the Agent, provided that at any time after the occurrence and during the
continuance of an Event of Default, the Agent may (and, if instructed by the
Banks as specified in Section 11.9 of the Credit Agreement, shall) in its (or
their) discretion at any time and from time to time elect to liquidate any
such Permitted Investments and to apply or cause to be applied the proceeds
thereof to the payment of the Secured Obligations in the manner specified in
Section 7.9 hereof.
Section 6. Covenants. The Parent Guarantor agrees that, until the
termination of this Agreement pursuant to Section 7.12 hereof:
6.1 Limitation on Liens on Property. The Parent Guarantor
shall not create, incur, assume or suffer to exist any Lien upon any of its
Property (including, without limitation, the shares of capital stock of Cigar
owned by it), whether now owned or hereafter acquired, except for the Liens
created by this Agreement.
6.2 Holding Company. The Parent Guarantor shall not (a)
create, incur, assume or suffer to exist any Indebtedness other than
Indebtedness hereunder, (b) engage in any business or transaction other than
those associated with holding or administering the assets referred to in the
succeeding clause (c) or (c) acquire or hold any assets other than shares of
capital stock of Cigar, cash, Permitted Investments (as defined in the Credit
Agreement) and rights in respect of transactions referred to in the preceding
clause (b).
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6.3 Notice of Default. Promptly after the Parent Guarantor
knows that any Default has occurred, the Parent Guarantor shall, unless a
notice of such Default shall have theretofore been given to the Banks by Cigar
under Section 9.1 of the Credit Agreement, give to the Agent and each Bank a
notice of such Default specifying that such notice is a "Notice of Default"
and describing the same in reasonable detail and, together with such notice or
as soon thereafter as possible, a description of the action that the Parent
Guarantor has taken or proposes to take with respect thereto.
Section 7. Further Assurances; Remedies. In furtherance of the grant of
the pledge and security interest pursuant to Section 4 hereof, the Parent
Guarantor hereby agrees with each Bank and the Agent as follows:
7.1 Delivery and Other Perfection. The Parent Guarantor shall:
(a) if any of the above-described shares, securities, moneys
or property required to be pledged by the Parent Guarantor under
clauses (a), (b) and (c) of Section 4 hereof are received by the
Parent Guarantor, forthwith either (x) transfer and deliver to the
Agent such shares or securities so received by the Parent Guarantor
(together with the certificates for any such shares and securities
duly endorsed in blank or accompanied by undated stock powers duly
executed in blank), all of which thereafter shall be held by the
Agent, pursuant to the terms of this Agreement, as part of the
Collateral or (y) take such other action as the Agent shall deem
necessary or (or in the reasonable judgment of the Agent) desirable
to duly record the Lien created hereunder in such shares, securities,
moneys or property in said clauses (a), (b) and (c);
(b) give, execute, deliver, file and/or record any financing
statement, notice, instrument, document, agreement or other papers
that may be necessary or (in the reasonable judgment of the Agent)
desirable to create, preserve, perfect or validate the security
interest granted pursuant hereto or to enable the Agent to exercise
and enforce its rights hereunder with respect to such pledge and
security interest, including, without limitation, if an Event of
Default shall have occurred and be continuing, causing any or all of
the Collateral to be transferred of record into the name of the Agent
or its nominee (and the Agent agrees that if any Collateral is
transferred into its name or the name of its nominee, the Agent will
thereafter promptly give to the Parent Guarantor copies of any
notices and communications received by it with respect to the
Collateral pledged by the Parent Guarantor hereunder);
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(c) keep full and accurate books and records relating to the
Collateral, and stamp or otherwise mark such books and records in
such manner as the Agent may reasonably require in order to reflect
the security interests granted by this Agreement; and
(d) permit representatives of the Agent, upon reasonable
notice, at any time during normal business hours to inspect and make
abstracts from the Parent Guarantor's books and records pertaining to
the Collateral, and (so long as an Event of Default shall have
occurred and be continuing) permit representatives of the Agent to be
present at the Parent Guarantor's place of business to receive copies
of all communications and remittances relating to the Collateral, and
forward copies of any notices or communications received by the
Parent Guarantor with respect to the Collateral, all in such manner
as the Agent may reasonably require.
7.2 Other Financing Statements and Liens. Without the prior
written consent of the Agent (granted with the authorization of the Banks as
specified in Section 11.9 of the Credit Agreement), the Parent Guarantor shall
not file or suffer to be on file, or authorize or permit to be filed or to be
on file, in any jurisdiction, any financing statement or like instrument with
respect to the Collateral in which the Agent is not named as the sole secured
party for the benefit of the Secured Parties.
7.3 Preservation of Rights. The Agent shall not be required
to take steps necessary to preserve any rights against prior parties to any of
the Collateral.
7.4 Collateral.
(1) The Parent Guarantor will cause the Collateral to
include at all times 100% of the total number of shares of each class of
capital stock of Cigar then outstanding.
(2) So long as no Event of Default shall have occurred and
be continuing, the Parent Guarantor shall have the right to exercise all
voting, consensual and other powers of ownership pertaining to the Collateral
for all purposes not inconsistent with the terms of this Agreement, the Credit
Agreement, the Notes or any other instrument or agreement referred to herein
or therein, provided that the Parent Guarantor agrees that it will not vote
the Collateral in any manner that is inconsistent with the terms of this
Agreement, the Credit Agreement, the Notes or any such other instrument or
agreement; and the Agent shall execute and deliver to the Parent Guarantor or
cause to be executed and delivered to the Parent Guarantor all such proxies,
powers of attorney, dividend and
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other orders, and all such instruments, without recourse, as the Parent
Guarantor may reasonably request for the purpose of enabling the Parent
Guarantor to exercise the rights and powers which it is entitled to exercise
pursuant to this Section 7.4(2).
(3) Unless and until an Event of Default has occurred and is
continuing, the Parent Guarantor shall be entitled to receive and retain,
subject in each case to Section 9.9 of the Credit Agreement, (a) any dividends
on the Collateral paid in cash out of earned surplus legally available for the
payment of dividends and (b) any payments of principal of or interest on any
Indebtedness owing by Cigar or any of its Subsidiaries to the Parent
Guarantor.
(4) If any Event of Default shall have occurred, then so
long as such Event of Default shall continue, and whether or not the Agent or
any Bank exercises any available right to declare any Secured Obligation due
and payable or seeks or pursues any other relief or remedy available to it
under applicable law or under this Agreement, the Credit Agreement, the Notes
or any other agreement relating to such Secured Obligation, all dividends,
principal, interest and other distributions on the Collateral shall be paid
directly to the Agent and retained by it in the Collateral Account as part of
the Collateral, subject to the terms of this Agreement, and, if the Agent
shall so request in writing, the Parent Guarantor agrees to execute and
deliver to the Agent appropriate additional dividend, distribution and other
orders and documents to that end, provided that if such Event of Default is
cured, any such dividend, principal, interest or distribution theretofore paid
to the Agent shall, upon request of the Parent Guarantor (except to the extent
theretofore applied to the Secured Obligations with respect to such
Collateral), be returned promptly by the Agent to the Parent Guarantor.
7.5 Events of Default, Etc. During the period during which an
Event of Default shall have occurred and be continuing:
(a) the Agent shall have all of the rights and remedies with
respect to the Collateral of a secured party under the Uniform
Commercial Code (whether or not said Code is in effect in the
jurisdiction where the rights and remedies are asserted) and such
additional rights and remedies to which a secured party is entitled
under the laws in effect in any jurisdiction where any rights and
remedies hereunder may be asserted, including, without limitation,
the right, to the maximum extent permitted by law, to exercise all
voting, consensual and other powers of ownership pertaining to the
Collateral as if the Agent were the sole and absolute owner thereof
(and the Parent Guarantor agrees to take all such action as the Agent
may reasonably request to give effect to such right);
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(b) the Agent in its discretion may, in its name or in the
name of the Parent Guarantor or otherwise, demand, sue for, collect
or receive any money or property at any time payable or receivable on
account of or in exchange for any of the Collateral, but shall be
under no obligation to do so; and
(c) the Agent may, upon ten Business Days' prior written
notice to the Parent Guarantor of the time and place, with respect to
the Collateral or any part thereof which shall then be or shall
thereafter come into the possession, custody or control of the Agent,
the Banks or any of their respective agents, sell, lease, assign or
otherwise dispose of all or any part of such Collateral, at such
place or places as the Agent deems best, and for cash or for credit
or for future delivery (without thereby assuming any credit risk), at
public or private sale, without demand of performance or notice of
intention to effect any such disposition or of the time or place
thereof (except such notice as is required above or by applicable
statute and cannot be waived), and the Agent or any Bank or anyone
else may be the purchaser, lessee, assignee or recipient of any or
all of the Collateral so disposed of at any public sale (or, to the
extent permitted by law, at any private sale) and thereafter hold the
same absolutely, free from any claim or right of whatsoever kind,
including any right or equity of redemption (statutory or otherwise),
of the Parent Guarantor, any such demand, notice and right or equity
being hereby expressly waived and released. The Agent may, without
notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at any
time or place to which the sale may be so adjourned.
The proceeds of each collection, sale or other disposition under this Section
7.5 shall be applied in accordance with Section 7.9 hereof.
The Parent Guarantor recognizes that, by reason of certain
prohibitions contained in the Securities Act of 1933, as amended, and
applicable state securities laws, the Agent may be compelled, with respect to
any sale of all or any part of the Collateral, to limit purchasers to those
who will agree, among other things, to acquire the Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. The Parent Guarantor acknowledges that any such private sales may be
at prices and on terms less favorable to the Agent than those obtainable
through a public sale without such restrictions, and, notwithstanding such
circumstances, agree that any such private sale shall be deemed to have been
made in a commercially reasonable manner and that the Agent shall have no
obligation to engage in public sales and no obligation to
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delay the sale of any Collateral for the period of time necessary to permit
Cigar to register it for public sale.
7.6 Deficiency. If the proceeds of sale, collection or other
realization of or upon the Collateral pursuant to Section 7.5 hereof are
insufficient to cover the reasonable costs and expenses of such realization
and the payment in full of the Secured Obligations, the Parent Guarantor shall
remain liable for any deficiency.
7.7 Removals, Etc. Without at least 30 days' prior written
notice to the Agent, the Parent Guarantor shall not (i) maintain any of its
books and records with respect to the Collateral at any office or maintain its
principal place of business at any place other than at the address indicated
beneath its signature hereto or at 625 Madison Avenue, New York, New York
10022 or (ii) change its corporate name, or the name under which it does
business, from the name shown on the signature pages hereto.
7.8 Private Sale. The Agent and the Banks shall incur no
liability as a result of the sale of the Collateral, or any part thereof, at
any private sale pursuant to Section 7.5 hereof conducted in a commercially
reasonable manner. The Parent Guarantor hereby waives any claims against the
Agent or any Bank arising by reason of the fact that the price at which the
Collateral may have been sold at such a private sale was less than the price
which might have been obtained at a public sale or was less than the aggregate
amount of the Secured obligations, even if the Agent accepts the first offer
received and does not offer the Collateral to more than one offeree.
7.9 Application of Proceeds. Except as otherwise herein
expressly provided, the proceeds of any collection, sale or other realization
of any item of Collateral pursuant hereto, and any other cash at the time held
by the Agent under Section 5 hereof or this Section 7, shall be applied by the
Agent:
First, to the payment of the reasonable costs and expenses
of such collection, sale or other realization, including reasonable
out-of-pocket costs and expenses of the Agent and the reasonable fees
and expenses of its agents and counsel, and all reasonable expenses
incurred and advances made by the Agent in connection therewith;
Next, to the payment of the Secured Obligations, in each
case equally and ratably in accordance with the respective amounts
thereof then due and owing; and
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Finally, to the payment to the Parent Guarantor, or its
successors or assigns, or as a court of competent jurisdiction may
direct, of any surplus then remaining.
As used in this Section 7, "proceeds" of Collateral shall mean cash,
securities and other property realized in respect of, and distributions in
kind of, Collateral, including any thereof received under any reorganization,
liquidation or adjustment of debt of the Parent Guarantor or Cigar.
7.10 Attorney-in-Fact. Without limiting any rights or powers
granted by this Agreement to the Agent while no Event of Default has occurred
and is continuing, upon the occurrence and during the continuance of any Event
of Default the Agent is hereby appointed the attorney-in-fact of the Parent
Guarantor for the purpose of carrying out the provisions of this Section 7 and
taking any action and executing any instruments which are necessary or (in the
reasonable judgment of the Agent) desirable to accomplish the purposes hereof,
which appointment as attorney-in-fact is irrevocable and coupled with an
interest. Without limiting the generality of the foregoing, so long as the
Agent shall be entitled under this Section 7 to make collections in respect of
the Collateral, the Agent shall have the right and power to receive, endorse
and collect all checks made payable to the order of the Parent Guarantor
representing any dividend, payment or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the same.
7.11 Perfection. Prior to or concurrently with the execution
and delivery of this Agreement, the Parent Guarantor shall deliver to the
Agent all certificates identified in Annex 1 hereto.
7.12 Termination. When the principal of, and all interest
accrued on, all Loans and Reimbursement Obligations outstanding shall have
been paid in full, all fees and expenses then due and payable under Sections
2.4 and 12.3 of the Credit Agreement shall have been paid in full, all
Commitments of the Banks under the Credit Agreement and all Letter of Credit
Liabilities shall have expired or been terminated (or provision of cover for
all Letters of Credit that have not been fully drawn or expired shall have
been made pursuant to Section 12.7(b) of the Credit Agreement), the Collateral
shall be released from the Liens created hereby and this Agreement shall
terminate, all without delivery of any instrument or performance of any act by
any party, and all rights to the Collateral shall revert to the respective
Obligors. Upon any such termination, the Agent shall forthwith cause to be
assigned, transferred and delivered, against receipt but without any recourse,
warranty or representation whatsoever, any remaining Collateral and money
received in respect thereof, to or on the order of the Parent Guarantor.
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7.13 Expenses. The Parent Guarantor agrees to pay to the
Agent all reasonable out-of-pocket expenses (including reasonable expenses for
legal services of every kind) of, or incident to, the enforcement of any of
the provisions of this Section 7, or performance by the Agent of any
obligations of the Parent Guarantor in respect of the Collateral which the
Parent Guarantor shall have failed or refused to perform, or any actual or
attempted sale, or any exchange, enforcement, collection, compromise or
settlement in respect of any of the Collateral, and for the care of the
Collateral and defending or asserting rights and claims of the Agent in
respect thereof, by litigation or otherwise, and all such expenses shall be
Secured Obligations to the Agent secured under Section 4 hereof.
7.14 Further Assurances. The Parent Guarantor agrees that,
from time to time upon the written request of the Agent, the Parent Guarantor
will execute and deliver such further documents and do such other acts and
things as the Agent may reasonably request in order fully to effect the
purposes of this Agreement.
Section 8. Miscellaneous.
8.1 No Waiver. No failure on the part of the Agent or any of
its agents to exercise, and no course of dealing with respect to, and no delay
in exercising, any right, power or remedy hereunder shall operate as a waiver
thereof; nor shall any single or partial exercise by the Agent or any of its
agents of any right, power or remedy hereunder preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. The
remedies herein are cumulative and are not exclusive of any remedies provided
by law.
8.2 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the law of the State of New York.
8.3 Notices. All notices, requests, consents and demands
hereunder shall be in writing and telexed, telecopied or delivered to the
intended recipient at the "Address for Notices" specified beneath its name on
the signature pages hereof or, as to any party, at such other address as shall
be designated by such party in a notice to each other party. Except as
otherwise provided in this Agreement, all such communications shall be deemed
to have been duly given when transmitted by telex or telecopier or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
8.4 Waivers, Etc. The terms of this Agreement may be waived,
altered or amended only by an instrument in writing duly executed by the
Parent Guarantor and
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the Agent (with the consent of the Banks as specified in Section 11.9 of the
Credit Agreement). Any such amendment or waiver shall be binding upon the
Agent and each Bank, each holder of any of the Secured Obligations and the
Parent Guarantor.
8.5 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
Parent Guarantor and the Secured Parties (provided that the Parent Guarantor
shall not assign or transfer its rights hereunder without the prior written
consent of the Agent).
8.6 Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument and any of the parties hereto may execute this Agreement
by signing any such counterpart.
8.7 Agents. The Agent may employ agents and attorneys-in-fact in
connection herewith and shall not be responsible for the negligence or
misconduct of any such agents or attorneys-in-fact selected by it in good faith.
8.8 Severability. If any provision hereof is invalid and
unenforceable in any jurisdiction, then, to the fullest extent permitted by
law, (a) the other provisions hereof shall remain in full force and effect in
such jurisdiction and shall be liberally construed in favor of the Agent and
the Banks in order to carry out the intentions of the parties hereto as nearly
as may be possible and (b) the invalidity or unenforceability of any provision
hereof in any jurisdiction shall not affect the validity or enforceability of
such provision in any other jurisdiction.
8.9 Credit Agreement. The Parent Guarantor hereby agrees
(for the express benefit of the Agent, the Issuing Bank, the Banks and the
Borrowers) to take all actions necessary to permit Cigar to comply with all
covenants, agreements and other obligations made or undertaken by Cigar in the
Credit Agreement. The Parent Guarantor hereby agrees not to assert any claim
against the Agent, the Issuing Bank, any Bank, any of their affiliates, or any
of their respective directors, officers, employees, attorneys and agents, on
any theory of liability, for special, indirect, consequential or punitive
damages arising out of or otherwise relating to any of the transactions
contemplated herein or in any other Basic Document. The Parent Guarantor
hereby instructs the counsel referred to in Section 7.1(d) of the Credit
Agreement to deliver the opinions referred to in said Section to the Banks,
the Issuing Bank and the Agent.
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IN WITNESS WHEREOF, the parties hereto have caused this
Guarantee and Security Agreement to be duly executed and delivered as of the
day and year first above written.
CONSOLIDATED CIGAR (PARENT)
HOLDINGS INC.
By /s/ Joram C. Salig
--------------------------
Title: Assistant Secretary
Address for Notices:
Consolidated Cigar (Parent)
Holdings Inc.
c/o Mafco Holdings Inc.
38 East 63rd Street
New York, New York 10021
Telecopier No.: 212-421-1639
Telephone No.: 212-688-9000
Attention: Corporate Secretary
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By /s/ Edward G. Lupulty
--------------------------
Title:
Guaranty and Security Agreement
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<PAGE>
Address for Notices:
The Chase Manhattan Bank
(National Association)
4 Metrotech Center
13th Floor
Brooklyn, New York 11245
Telex No.: 6720516
(Answerback: CMBNYAUW)
Telecopier No.: 718-242-6910
Telephone No.: 718-242-7979
Attention: New York Agency
Guaranty and Security Agreement
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ANNEX 1
PLEDGED STOCK
-------------
<TABLE>
<CAPTION?
Number of Shares,
Certificate No. Record Owner Class and Par Value
- --------------- ------------ ---------------------
<S> <C> <C>
1 Parent Guarantor 1,000 shares of common
stock, par value $1.00
per share
</TABLE>
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<PAGE>
FIRST AMENDMENT
FIRST AMENDMENT, dated as of July 31, 1996 (this "Amendment"), to the
Guarantee and Security Agreement, dated as of March 3, 1993 (as amended,
supplemented or otherwise modified from time to time, the "Guarantee"),
between Consolidated Cigar Holdings Inc. (the "Parent Guarantor") and The
Chase Manhattan Bank (as successor by merger to The Chase Manhattan Bank,
N.A.), as agent (in such capacity, the "Agent").
WITNESSETH:
WHEREAS, the Parent Guarantor is a party to the Guarantee and has
requested that the Agent amend the Guarantee as more fully set forth herein;
WHEREAS, the Agent is willing to consent to such amendment only upon the
terms, and subject to the conditions, set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the Parent Guarantor and the Agent hereby agree as follows:
1. Definitions. All terms defined in the Guarantee shall have such defined
meanings when used herein unless otherwise defined herein.
2. Amendment of Section 6.02. Section 6.02 of the Guarantee hereby is
amended by inserting therein, immediately before the period at the end
thereof, the following:
"; provided that nothing contained herein shall be deemed to prohibit the
Parent Guarantor from making a non-interest bearing promissory note in the
principal amount of $70,000,000, payable to Mafco Consolidated Group".
3. Conditions to Effectiveness. This Amendment shall become effective on and
as of the date upon which (a) the Consent and Tenth Amendment, dated as of the
date hereof, to the Credit Agreement shall have become effective in accordance
with its terms and (b) the Agent shall have received counterparts of this
Amendment, duly executed by the Parent Guarantor.
4. Representations and Warranties. The Parent Guarantor, as of the date
hereof and after giving effect to the consents and waivers contained herein,
hereby confirms, reaffirms and restates the representations and warranties
made by the Company in Section 8 of the Credit Agreement and otherwise in the
Credit Documents to which the Parent Guarantor or any of its Subsidiaries is a
party; provided that each reference to the Guarantee therein shall be deemed
to be a reference to the Guarantee after giving effect to this Amendment.
5. Continuing Effect of Guarantee. This Amendment shall not constitute a
waiver or amendment of any other provision of the Guarantee not expressly
referred to herein and shall not be construed as a waiver or consent to any
further or future action on the part of
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the Parent Guarantor that would require a waiver or consent of the Agent.
Except as expressly amended herein, the provisions of the Guarantee are and
shall remain in full force and effect.
6. Counterparts. This Amendment may be executed by one or more of the
parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
7. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
CONSOLIDATED CIGAR HOLDINGS INC.
BY: /s/ Gary R. Ellis
--------------------------------
Name: Gary R. Ellis
Title: Senior VP & CFO
THE CHASE MANHATTAN BANK (as
successor by merger to The Chase
Manhattan Bank, N.A.), as Agent and
as a Bank
By: /s/ Bruce S. Borden
--------------------------------
Name: Bruce S. Borden
Title: Vice President
Theo W. Folz
Executive Employment Agreement
o TERM. August 1, 1996 - December 31, 1999.
o END-OF-TERM. After 12/31/98, Company may give notice of non-renewal;
term extends for 12 months. After 12/31/99, term extends on
one-day-at-a-time basis until notice of non-renewal given; then, term
extends for 12 months.
o BASE SALARY. $770,000 per year; if adjusted upward at
sole discretion of Company, increased amount becomes
Base Salary.
o BONUS. If Company achieves the percentage of business plan set forth
below, Employee receives performance bonus of the corresponding
percentage of Base Salary; provision for alternative discretionary
bonus.
Percentage of Percentage of
Cigar EBITDA Base Salary
------------ -----------
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
o DEATH. Estate gets 60% of Base Salary for longer of balance of term
or 12 months; if end-of-term provisions are in effect, for balance of
12 month period.
o DISABILITY. After six months, Company can terminate; employee gets
60% of Base Salary for longer of balance of term or 12 months; if
end-of-term provisions are in effect, for balance of 12 month period;
life and medical insurance continue for the shorter of employee's
disability or until age 65.
o BENEFITS. Standard Company officer benefits.
o CAUSE. Upon gross neglect, conviction of felony, conviction of any
crime relating to Company property, willful misconduct or material
breach by employee or material prejudice to Company, Company can
terminate without further liability.
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o COMPANY BREACH. Employee receives Base Salary, performance bonuses
and all benefits for longer of balance of term or 12 months; if
end-of-term provisions are in effect, for balance of 12 month period;
prorated performance bonus paid if otherwise due for balance of term;
employee obligated to mitigate.
o OTHER PROVISIONS. Protection of confidential information, non-compete
during term, assignment of inventions, legal fees to employee if he
prevails in action for breach or injunction; legal fees to Company if
it prevails in action for injunction.
This summary page is for convenience of reference only. It shall not
constitute a part of the Agreement
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Employment Agreement
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EMPLOYMENT AGREEMENT, dated as of August 1, 1996, between
Consolidated Cigar Corporation, a Delaware corporation (the "Company") and
Theo W. Folz (the "Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement;
WHEREAS, Executive is currently party to an employment agreement
dated as of July 1, 1995 (the "Parent Employment Agreement") with Mafco
Consolidated Group Inc. ("MCG"), the indirect parent of the Company, for a
term commencing on July 1, 1995 and ending on December 31, 1998 providing,
among other things, for the Executive to serve as president and chief
executive officer of the Company;
WHEREAS, the Company reimburses to MCG seventy percent (70%) of the
cost of the Executive's base salary and fringe benefits under the Parent
Employment Agreement and that portion of the Executive's bonus under the
Parent Employment Agreement which equals the Company's contribution to the
performance target described therein (the Company's reimbursement obligations
to MCG hereinafter, collectively, the "Cigar Compensation Obligations");
WHEREAS, the Company desires to assume from MCG the Cigar
Compensation Obligations and, simultaneously therewith, enter into this
Agreement with the Executive;
WHEREAS, simultaneously herewith, MCG and the Executive will enter
into a second amendment to the Parent Employment Agreement reflecting the
assignment and assumption of the Cigar Compensation Obligations;
Accordingly, the Company, the Executive and, for purposes of the
assignment and assumption described in Section 1.1 hereof, MCG, hereby agree
as follows:
1. Assignment and Assumption.
1.1 MCG hereby assigns to the Company and the Company hereby
assumes from MCG the Cigar Compensation Obligations. MCG agrees that the
Company is relieved of any liability to MCG for services rendered by the
Executive under the Parent Employment Agreement after the date hereof and the
Executive agrees that MCG is relieved of any liability to him for services
rendered by him to the Company after the date hereof.
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2. Employment, Duties and Acceptance.
2.1 Employment, Duties. The Company hereby employs the Executive
for the Term (as defined in Section 3.1), to render exclusive and full-time
services to the Company as President and Chief Executive Officer or in such
other executive position as may be mutually agreed upon by the Company and the
Executive, and to perform such other duties consistent with such position as
may be assigned to the Executive by the Board of Directors or the Chairman or
the Vice Chairman of the Company.
2.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment, and to use the Executive's best efforts, skill and ability to
promote the Company's interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an officer or
director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of
Directors of the Company or of any subsidiary or affiliate, as the case may
be.
2.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in Fort
Lauderdale, Florida, subject to reasonable travel requirements on behalf of
the Company.
3. Term of Employment; Certain Post-Term Benefits.
3.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence on August 1, 1996 and shall end on
December 31, 1999 or such later date to which the Term is extended pursuant to
Section 3.2.
3.2 End-of-Term Provisions. At any time on or after
December 31, 1998 the Company shall have the right to give written notice of
non-renewal of the Term. In the event the Company gives such notice of
non-renewal, the Term automatically shall be extended so that it ends twelve
months after the last day of the month in which the Company gives such notice.
From and after January 1, 2000, unless and until the Company gives written
notice of non-renewal as provided in this Section 3.2, the Term automatically
shall be extended day-by-day; upon the giving of such notice by the Company,
the Term automatically shall be extended so that it ends twelve months after
the last day of the month in which the Company gives such notice.
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3.3 Special Curtailment. The Term shall end earlier than the
original December 31, 1999 termination date provided in Section 3.1 or any
extended termination date provided in Section 3.2, in either case if sooner
terminated pursuant to Section 5. Non-extension of the Term shall not be
deemed to be a wrongful termination of the Term or this Agreement by the
Company pursuant to Section 5.4.
4. Compensation; Benefits.
4.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $770,000, less such deductions or amounts to be withheld as required
by applicable law and regulations (the "Base Salary"). In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
4.2 Bonus. In addition to the amounts to be paid to the
Executive pursuant to Section 4.1, the Executive will be eligible to receive a
bonus with respect to each calendar year included within the Term computed in
accordance with the provisions of the next two succeeding sentences. If, with
respect to any calendar year, the Company achieves EBITDA of at least the
percentage set forth in the table below of its business plan for such year,
such bonus shall be the percentage set forth in the table below of Base Salary
with respect to the year for which the bonus (any such bonus, a "performance
bonus") was earned:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -----------
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
In the event that the Term or this Agreement is terminated other than pursuant
to Section 5.3, the Executive shall be entitled to receive a prorated
performance bonus (if such a bonus is otherwise payable) with respect to (A)
the year in which the Term or this Agreement terminated or, (B) in the
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event of a termination pursuant to Section 5.4, the year in which the
Executive was last entitled to receive any payments of Base Salary, in an
amount equal to (x) the percentage of Base Salary otherwise payable as a
performance bonus with respect to such year multiplied by (y) a fraction, the
numerator of which is the number of whole months elapsed from the beginning of
such year to the date as of which the Term or this Agreement terminated or the
last day as of which the Executive is entitled to receive payments of Base
Salary, as applicable and the denominator of which is 12. A performance bonus
or other bonus, if either or both are earned in accordance with this
Agreement, shall be paid no later than March 31st of the year next following
the year with respect to which such bonus was earned. The maximum bonus
payable pursuant to this Section 4.2 shall be $2,000,000 with respect to any
calendar year. The bonus payable hereunder on account of calendar years
commencing after December 31, 1996 shall be subject to approval by the
shareholders of the Company of the bonus plan described herein.
4.3 Discretionary Bonus. In addition to amounts, if any, payable
as a performance bonus pursuant to Section 4.2, the Executive may be awarded a
supplemental bonus at the discretion of the Board of Directors of the Company.
4.4 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the
Executive during the Term in the performance of the Executive's services under
this Agreement, upon presentation of expense statements or vouchers or such
other supporting information as the Company customarily may require of its
officers provided, however, that the maximum amount available for such
expenses during any period may be fixed in advance by the Chairman or the Vice
Chairman of the Company.
4.5 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four (4) weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited.
4.6 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, non-qualified benefit restoration plan,
group insurance or other so-called "fringe" benefit plan which the Company
provides to its executive employees generally. Such benefits include the right
to the use of an automobile as is currently available to the Company's
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executive employees. In addition, the Company shall "gross up" the income
imputed to the Executive under federal and any applicable state income tax
laws for his personal use of the Company-furnished automobile and for any life
insurance furnished to the Executive, such that the Executive effectively will
suffer no personal cost for such fringe benefits.
5. Termination.
5.1 Death. If the Executive shall die during the Term, the Term
shall terminate and no further amounts or benefits shall be payable hereunder,
except that the Executive's legal representatives shall be entitled to receive
(i) continued payments in an amount equal to 60% of the Base Salary, in the
manner specified in Section 4.1, until the end of the Term (as in effect
immediately prior to the Executive's death) or, if the Company has not then
given written notice of non-renewal pursuant to Section 3.2, for a period of
twelve months after the last day of the month in which termination described
in this Section 5.1 occurred, whichever is longer and (ii) performance bonuses
in the manner and amount specified in Section 4.2.
5.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (i) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equalled an aggregate of six months,
by written notice to the Executive (but before the Executive has recovered
from such disability), terminate the Term and no further amounts or benefits
shall be payable hereunder, except that the Executive shall be entitled to
receive (i) continued payments in an amount equal to 60% of the Base Salary,
in the manner specified in Section 4.1, until the end of the Term (as in
effect immediately prior to such termination) or, if the Company has not then
given notice of non-renewal pursuant to Section 3.2, for a period of twelve
months after the last day of the month in which termination described in this
Section 5.2 occurred, whichever is longer, (ii) performance bonuses in the
manner and amount specified in Section 4.2 and (iii) for the shorter of the
period the Executive remains disabled or until the Executive has attained the
age of 65, benefits for the Executive under the Company's corporate group life
insurance plan and for the Executive, his spouse and children under the
Company's corporate group medical (including the executive medical
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plan) insurance plan, to the extent permitted by such plans and to the extent
such benefits continue to be provided to the Company's employees or officers,
as applicable, generally. If the Executive shall die before receiving all
payments to be made by the Company in accordance with the foregoing, such
payments shall be made to a beneficiary designated by the Executive on a form
prescribed for such purpose by the Company, or in the absence of such
designation to the Executive's legal representative.
5.3 Cause. In the event of gross neglect by the Executive of the
Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement or any other conduct on the part of the
Executive which would make the Executive's continued employment by the Company
materially prejudicial to the best interests of the Company, the Company may
at any time by written notice to the Executive terminate the Term and, upon
such termination, this Agreement shall terminate and the Executive shall be
entitled to receive no further amounts or benefits hereunder, except any as
shall have been earned to the date of such termination.
5.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company, the Executive shall be entitled to
terminate the Term upon 60 days' prior written notice to the Company. Upon
such termination, or in the event the Company terminates the Term or this
Agreement other than pursuant to the provisions of Section 5.2 or 5.3, the
Company shall continue to provide the Executive (i) payments of Base Salary,
in the manner and amount specified in Section 4.1, (ii) performance bonuses,
in the manner and amount specified in Section 4.2 and (iii) fringe benefits
and additional benefits in the manner and amounts specified in Section 4.6
until the end of the Term (as in effect immediately prior to such termination)
or, if the Company has not then given written notice of non-renewal pursuant
to Section 3.2, for a period of twelve months after the last day of the month
in which termination described in this Section 5.4 occurred, whichever is
longer (the "Damage Period"). The Company's obligations pursuant to this
Section 5.4 are subject to the Executive's duty to mitigate damages by seeking
other employment provided, however, that the Executive shall not be required
to accept a position of lesser importance or of substantially different
character than the
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position held with the Company immediately prior to the effective date of
termination or in a location outside of the Fort Lauderdale, Florida
metropolitan area. To the extent that the Executive shall earn compensation
during the Damage Period (without regard to when such compensation is paid),
the Base Salary and bonus payments to be made by the Company pursuant to this
Section 5.4 shall be correspondingly reduced.
5.5 Litigation Expenses. Except as provided for in Section
6.7, if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is
rendered in favor of the Executive, the Company shall reimburse the Executive
for all expenses (including reasonable attorneys' fees) incurred by the
Executive in connection with such action, suit or proceeding. Such costs shall
be paid to the Executive promptly upon presentation of expense statements or
other supporting information evidencing the incurrence of such expenses.
6. Protection of Confidential Information; Non-Competition.
6.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for
future developments, the Executive agrees:
6.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know
how", trade secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects, and other
business affairs of the Company, learned by the Executive heretofore or
hereafter, and not to disclose them to anyone outside of the Company, either
during or after the Executive's employment with the Company, except in the
course of performing the Executive's duties hereunder or with the Company's
express written consent. The foregoing prohibitions shall include, without
limitation, directly or indirectly publishing (or causing, participating in,
assisting or providing any statement, opinion or information in connection
with the publication of) any diary, memoir, letter, story, photograph,
interview, article, essay, account or description (whether fictionalized or
not) concerning any of the foregoing,
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publication being deemed to include any presentation or reproduction of any
written, verbal or visual material in any communication medium, including any
book, magazine, newspaper, theatrical production or movie, or television or
radio programming or commercial; and
6.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's
business and all property associated therewith, which the Executive may then
possess or have under the Executive's control.
6.2 During the Term, the Executive shall not, directly or
indirectly, enter the employ of, or render any services to, any person, firm
or corporation engaged in any business competitive with the business of the
Company or of any of its subsidiaries or affiliates; the Executive shall not
engage in such business on the Executive's own account; and the Executive
shall not become interested in any such business, directly or indirectly, as
an individual, partner, shareholder, director, officer, principal, agent,
employee, trustee, consultant, or in any other relationship or capacity
provided, however, that nothing contained in this Section 6.2 shall be deemed
to prohibit the Executive from acquiring, solely as an investment, up to five
percent (5%) of the outstanding shares of capital stock of any public
corporation.
6.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 6.1 or 6.2 hereof, the Company
shall have the following rights and remedies:
6.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and
6.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any
of the provisions of the preceding paragraph, and the Executive hereby agrees
to account for and pay over such Benefits to the Company.
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Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
6.4 If any of the covenants contained in Sections 6.1 or 6.2, or
any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall
be given full effect, without regard to the invalid portions.
6.5 If any of the covenants contained in Sections 6.1 or 6.2, or
any part thereof, are held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
6.6 The parties hereto intend to and hereby confer jurisdiction
to enforce the covenants contained in Sections 6.1 and 6.2 upon the courts of
any state within the geographical scope of such covenants. In the event that
the courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is
the intention of the parties hereto that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of
any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
6.7 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 6.1
and 6.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive
in such action, suit or other proceeding shall (on demand of the Executive) be
paid by the Company.
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7. Inventions and Patents.
7.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the
Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its subsidiaries or affiliates, are related in any
manner to the business (commercial or experimental) of the Company or any of
its subsidiaries or affiliates or are conceived or made on the Company's time
or with the use of the Company's facilities or materials. The Executive shall
further: (a) promptly disclose such Inventions to the Company; (b) assign to
the Company, without additional compensation, all patent and other rights to
such Inventions for the United States and foreign countries; (c) sign all
papers necessary to carry out the foregoing; and (d) give testimony in support
of the Executive's inventorship.
7.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company,
it is to be presumed that the Invention was conceived or made during the Term.
7.3 The Executive agrees that the Executive will not assert any
rights to any Invention as having been made or acquired by the Executive prior
to the date of this Agreement, except for Inventions, if any, disclosed to the
Company in writing prior to the date hereof.
8. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its
right, title or interest in or to any such properties.
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9. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred
or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
10. Notices.
All notices, requests, consents and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, sent by overnight
courier or mailed first class, postage prepaid, by registered or certified
mail (notices mailed shall be deemed to have been given on the date mailed),
as follows (or to such other address as either party shall designate by notice
in writing to the other in accordance herewith):
If to the Company, to:
Consolidated Cigar Corporation
c/o Mafco Consolidated Group Inc.
35 East 62nd Street
New York, New York 10021
Attn: Vice Chairman
If to the Executive, to:
Theo W. Folz
936 Intracoastal Drive, #6F
Fort Lauderdale, Florida 33304-3631
11. General.
11.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
11.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
11.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the Executive's employment by the
Company, and supersedes all prior agreements, arrangements and understandings,
written
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or oral, relating to the Executive's employment by the Company. No
representation, promise or inducement has been made by either party that is
not embodied in this Agreement, and neither party shall be bound by or liable
for any alleged representation, promise or inducement not so set forth.
11.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii)
to third parties in connection with any sale, transfer or other disposition of
all or substantially all of the business or assets of the Company; in any
event the obligations of the Company hereunder shall be binding on its
successors or assigns, whether by merger, consolidation or acquisition of all
or substantially all of its business or assets.
11.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by each of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of any party at
any time or times to require performance of any provision hereof shall in no
manner affect the right at a later time to enforce the same. No waiver by any
party of the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
to be, or construed as, a further or continuing waiver of any such breach, or
a waiver of the breach of any other term or covenant contained in this
Agreement.
12. Subsidiaries and Affiliates.
12.1 As used herein, the term "subsidiary" shall mean any corporation
or other business entity controlled directly or indirectly by the corporation
or other business entity in question, and the term "affiliate" shall mean and
include any corporation or other business entity directly or indirectly
controlling, controlled by or under common control with the corporation or
other business entity in question.
12
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
CONSOLIDATED CIGAR CORPORATION
By: /s/ Howard Gittis
-----------------------------------
Howard Gittis
Vice Chairman
/s/ Theo W. Folz
------------------------------------
Theo W. Folz
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Howard Gittis
-----------------------------------
Howard Gittis
Vice Chairman
13
Executive Employment Agreement
o Term. August 1, 1996 - December 31, 1999.
o End-of-Term. After 12/31/98, Company may give notice of non-renewal;
term extends for 12 months. After 12/31/99, term extends on
one-day-at-a-time basis until notice of non-renewal given; then, term
extends for 12 months.
o Base Salary. $ per year; if adjusted upward at sole discretion
of Company, increased amount becomes Base Salary.
o Bonus. If Company achieves the percentage of business plan set forth
below, Employee receives performance bonus of the corresponding
percentage of Base Salary; provision for alternative discretionary
bonus.
Percentage of Percentage of
Cigar EBITDA Base Salary
------------ -----------
% %
o Death. Base Salary paid until death; prorated performance bonus paid
if otherwise due for the year in which Employee dies.
o Disability. Company may terminate Agreement after six months. Base
salary, reduced by any disability benefits received by Employee, paid
until Company terminates; prorated performance bonus paid if
otherwise due for the year in which Agreement is terminated.
o Benefits. Standard Company officer benefits.
o Cause. Upon gross neglect, conviction of felony, conviction of any
crime relating to Company property, willful misconduct or material
breach by employee or material prejudice to Company, Company can
terminate without further liability.
<PAGE>
o Company Breach. Employee receives Base Salary, performance bonuses
and all benefits for longer of balance of term or 12 months; if
end-of-term provisions are in effect, for balance of 12 month period;
prorated performance bonus paid if otherwise due for balance of term;
employee obligated to mitigate.
o Other Provisions. Protection of confidential information, non-compete
during term, assignment of inventions, legal fees to employee if he
prevails in action for breach or injunction; legal fees to Company if
it prevails in action for injunction.
This summary page is for convenience of reference only. It shall not
constitute a part of the Agreement
<PAGE>
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of August , 1996, between Consolidated
Cigar Corporation, a Delaware corporation (the "Company") and (the
"Executive").
WHEREAS, the Company wishes to employ the Executive, and the
Executive wishes to accept such employment, on the terms and conditions set
forth in this Agreement;
Accordingly, the Company and the Executive hereby agree as follows:
1. Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the Executive
for the Term (as defined in Section 2.1), to render exclusive and full-time
services to the Company as Executive Vice President and Chief Operating
Officer or in such other executive position as may be mutually agreed upon by
the Company and the Executive, and to perform such other duties consistent
with such position as may be assigned to the Executive by the Board of
Directors or any officer of the Company Senior to the Executive.
1.2 Acceptance. The Executive hereby accepts such employment and
agrees to render the services described above. During the Term, the Executive
agrees to serve the Company faithfully and to the best of the Executive's
ability, to devote the Executive's entire business time, energy and skill to
such employment, and to use the Executive's best efforts, skill and ability to
promote the Company's interests. The Executive further agrees to accept
election, and to serve during all or any part of the Term, as an officer or
director of the Company and of any subsidiary or affiliate of the Company,
without any compensation therefor other than that specified in this Agreement,
if elected to any such position by the shareholders or by the Board of
Directors of the Company or of any subsidiary or affiliate, as the case may be.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in Fort
Lauderdale, Florida, subject to reasonable travel requirements on behalf of
the Company.
<PAGE>
2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment under this
Agreement (the "Term") shall commence on August 1, 1996 and shall end on
December 31, 1999 or such later date to which the Term is extended pursuant to
Section 2.2.
2.2 End-of-Term Provisions. At any time on or after December 31,
1998 the Company shall have the right to give written notice of non-renewal of
the Term. In the event the Company gives such notice of non-renewal, the Term
automatically shall be extended so that it ends twelve months after the last
day of the month in which the Company gives such notice. From and after
January 1, 2000, unless and until the Company gives written notice of
non-renewal as provided in this Section 2.2, the Term automatically shall be
extended day-by-day; upon the giving of such notice by the Company, the Term
automatically shall be extended so that it ends twelve months after the last
day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall end earlier than the
original December 31, 1999 termination date provided in Section 2.1 or any
extended termination date provided in Section 2.2, in either case if sooner
terminated pursuant to Section 4. Non-extension of the Term shall not be
deemed to be a wrongful termination of the Term or this Agreement by the
Company pursuant to Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $ , less such deductions or amounts to be withheld as required
by applicable law and regulations (the "Base Salary"). In the event that the
Company, in its sole discretion, from time to time determines to increase the
Base Salary, such increased amount shall, from and after the effective date of
the increase, constitute "Base Salary" for purposes of this Agreement.
3.2 Bonus. In addition to the amounts to be paid to the
Executive pursuant to Section 3.1, the Executive will be eligible to receive a
bonus with respect to each calendar year included within the Term computed in
accordance with the provisions of the next two succeeding sentences. If, with
respect to any calendar year, the Company achieves EBITDA of at least the
percentage set
2
<PAGE>
forth in the table below of its business plan for such year, such bonus shall
be the percentage set forth in the table below of Base Salary with respect to
the year for which the bonus (any such bonus, a "performance bonus") was
earned:
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -----------
% %
In the event that the Term or this Agreement is terminated other than pursuant
to Section 4.3, the Executive shall be entitled to receive a prorated
performance bonus (if such a bonus is otherwise payable) with respect to (A)
the year in which the Term or this Agreement terminated or, (B) in the event
of a termination pursuant to Section 4.4, the year in which the Executive was
last entitled to receive any payments of Base Salary, in an amount equal to
(x) the percentage of Base Salary otherwise payable as a performance bonus
with respect to such year multiplied by (y) a fraction, the numerator of which
is the number of whole months elapsed from the beginning of such year to the
date as of which the Term or this Agreement terminated or the last day as of
which the Executive is entitled to receive payments of Base Salary, as
applicable and the denominator of which is 12. A performance bonus or other
bonus, if either or both are earned in accordance with this Agreement, shall
be paid no later than March 31st of the year next following the year with
respect to which such bonus was earned. The maximum bonus payable pursuant to
this Section 3.2 shall be $ with respect to any calendar year. The bonus
payable hereunder on account of calendar years commencing after December 31,
1996 shall be subject to approval by the shareholders of the Company of the
bonus plan described herein.
3.3 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the
Executive during the Term in the performance of the Executive's services under
this Agreement, upon presentation of expense statements or vouchers or such
other supporting information as the Compa-
3
<PAGE>
ny customarily may require of its officers provided, however, that the maximum
amount available for such expenses during any period may be fixed in advance
by the Chairman, the Vice Chairman or the Chief Executive Officer of the
Company.
3.4 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four (4) weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited, except that one week of vacation
pay may be "banked" in accordance with Company policy.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, non-qualified benefit restoration plan,
group insurance or other so-called "fringe" benefit plan which the Company
provides to its executive employees generally. Such benefits include the right
to the use of an automobile as is currently available to the Company's
executive employees. In addition, the Company shall "gross up" the income
imputed to the Executive under federal and any applicable state income tax
laws for his personal use of the Company-furnished automobile and for any life
insurance furnished to the Executive, such that the Executive effectively will
suffer no personal cost for such fringe benefits.
4. Termination.
4.1 Death. If the Executive dies during the Term, the Term shall
terminate forthwith upon the Executive's death and the Company shall have no
obligation hereunder to make any payments to the Executive's beneficiaries on
account of any period of time after such termination. After such termination,
the Executive's beneficiaries shall receive any benefits to which the
Executive or such beneficiaries may be entitled under any fringe benefit
program that may have been provided by the Company pursuant to Section 3.5.
4.2 Disability. If, during the Term the Executive becomes
disabled or incapacitated to the extent he is unable to perform his duties
hereunder ("Totally Disabled") for a period of six (6) consecutive months, the
Company shall have the right at any time thereafter, so long as the Executive
is then still Totally Disabled, to terminate the Term upon sending written
notice of termination to the Executive. If the Company elects to terminate the
Term by reason of the Executive becoming
4
<PAGE>
Totally Disabled, the Company shall have no obligation hereunder to make any
payments to the Executive on account of any period of time after such
termination. After such termination, the Executive shall receive any benefits
to which he may be entitled under any fringe benefit program that may have
been provided by the Company pursuant to Section 3.5. While the Executive is
Totally Disabled prior to the Term being terminated, Base Salary payable
pursuant to Section 3.1 shall be reduced by any other benefits payable to the
Executive under any disability plan provided for hereunder or otherwise
furnished to the Executive by the Company.
4.3 Cause. In the event of gross neglect by the Executive of the
Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement or any other conduct on the part of the
Executive which would make the Executive's continued employment by the Company
materially prejudicial to the best interests of the Company, the Company may
at any time by written notice to the Executive terminate the Term and, upon
such termination, this Agreement shall terminate and the Executive shall be
entitled to receive no further amounts or benefits hereunder, except any as
shall have been earned to the date of such termination.
4.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company, the Executive shall be entitled to
terminate the Term upon 60 days' prior written notice to the Company. Upon
such termination, or in the event the Company terminates the Term or this
Agreement other than pursuant to the provisions of Section 4.2 or 4.3, the
Company shall continue to provide the Executive (i) payments of Base Salary,
in the manner and amount specified in Section 3.1, (ii) performance bonuses,
in the manner and amount specified in Section 3.2 and (iii) fringe benefits
and additional benefits in the manner and amounts specified in Section 3.5
until the end of the Term (as in effect immediately prior to such termination)
or, if the Company has not then given written notice of non-renewal pursuant
to Section 2.2, for a period of twelve months after the last day of the month
in which termination described in this Section 4.4 occurred, whichever is longer
(the "Damage Period"). The Company's obligations pursuant to this
Section 4.4 are subject to the Executive's duty to mitigate damages by
5
<PAGE>
seeking other employment provided, however, that the Executive shall not be
required to accept a position of lesser importance or of substantially
different character than the position held with the Company immediately prior
to the effective date of termination or in a location outside of the Fort
Lauderdale, Florida metropolitan area. To the extent that the Executive shall
earn compensation during the Damage Period (without regard to when such
compensation is paid), the Base Salary and bonus payments to be made by the
Company pursuant to this Section 4.4 shall be correspondingly reduced.
4.5 Litigation Expenses. Except as provided for in Section 5.7,
if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is
rendered in favor of the Executive, the Company shall reimburse the Executive
for all expenses (including reasonable attorneys' fees) incurred by the
Executive in connection with such action, suit or proceeding. Such costs shall
be paid to the Executive promptly upon presentation of expense statements or
other supporting information evidencing the incurrence of such expenses.
5. Protection of Confidential Information; Non-Competition.
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for
future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confi dential matters of the Company, including, without limitation, "know
how", trade secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects, and other
business affairs of the Company, learned by the Executive heretofore or
hereafter, and not to disclose them to anyone outside of the Company, either
during or after the Executive's employment with the Company, except in the
course of performing the Executive's duties hereunder or with the Company's
express written consent. The foregoing prohibitions shall include, without
limitation, directly or indirectly publishing (or causing, participating in,
assisting or providing any statement, opinion or information in connection
with the publication of) any diary, memoir, letter, story, photograph,
interview, article, essay, account or description (whether
6
<PAGE>
fictionalized or not) concerning any of the foregoing, publication being
deemed to include any presentation or reproduction of any written, verbal or
visual material in any communication medium, including any book, magazine,
newspaper, theatrical production or movie, or television or radio programming
or commercial; and
5.1.2 To deliver promptly to the Company on termination of
the Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's
business and all property associated therewith, which the Executive may then
possess or have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, enter the employ of, or render any services to, any person, firm
or corporation engaged in any business competitive with the business of the
Company or of any of its subsidiaries or affiliates; the Executive shall not
engage in such business on the Executive's own account; and the Executive
shall not become interested in any such business, directly or indirectly, as
an individual, partner, shareholder, director, officer, principal, agent,
employee, trustee, consultant, or in any other relationship or capacity
provided, however, that nothing contained in this Section 5.2 shall be deemed
to prohibit the Executive from acquiring, solely as an investment, up to five
percent (5%) of the outstanding shares of capital stock of any public
corporation.
5.3 If the Executive commits a breach, or threatens to commit a
breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits (collectively "Benefits") derived or
received by the Executive as the result of any transactions constituting a
breach of any of the provisions of the preceding paragraph, and the Executive
hereby agrees to account for and pay over such Benefits to the Company.
7
<PAGE>
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2, or
any part thereof, hereafter are construed to be invalid or unenforceable, the
same shall not affect the remainder of the covenant or covenants, which shall
be given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2, or
any part thereof, are held to be unenforceable because of the duration of such
provision or the area covered thereby, the parties agree that the court making
such determination shall have the power to reduce the duration and/or area of
such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer jurisdiction
to enforce the covenants contained in Sections 5.1 and 5.2 upon the courts of
any state within the geographical scope of such covenants. In the event that
the courts of any one or more of such states shall hold such covenants wholly
unenforceable by reason of the breadth of such covenants or otherwise, it is
the intention of the parties hereto that such determination not bar or in any
way affect the Company's right to the relief provided above in the courts of
any other states within the geographical scope of such covenants as to
breaches of such covenants in such other respective jurisdictions, the above
covenants as they relate to each state being for this purpose severable into
diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 5.1
and 5.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive
in such action, suit or other proceeding shall (on demand of the Executive) be
paid by the Company.
8
<PAGE>
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the
Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its subsidiaries or affiliates, are related in any
manner to the business (commercial or experimental) of the Company or any of
its subsidiaries or affiliates or are conceived or made on the Company's time
or with the use of the Company's facilities or materials. The Executive shall
further: (a) promptly disclose such Inventions to the Company; (b) assign to
the Company, without additional compensation, all patent and other rights to
such Inventions for the United States and foreign countries; (c) sign all
papers necessary to carry out the foregoing; and (d) give testimony in support
of the Executive's inventorship.
6.2 If any Invention is described in a patent application or is
disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company,
it is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert any
rights to any Invention as having been made or acquired by the Executive prior
to the date of this Agreement, except for Inventions, if any, disclosed to the
Company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and proceeds
of the Executive's services hereunder, including, but not limited to, all
materials, ideas, concepts, formats, suggestions, developments, arrangements,
packages, programs and other intellectual properties that the Executive may
acquire, obtain, develop or create in connection with and during the Term,
free and clear of any claims by the Executive (or anyone claiming under the
Executive) of any kind or character whatsoever (other than the Executive's
right to receive payments hereunder). The Executive shall, at the request of
the Company, execute such assignments, certificates or other instruments as
the Company may from time to time deem necessary or desirable to evidence,
establish, maintain, perfect, protect, enforce or defend its right, title or
interest in or to any such properties.
9
<PAGE>
8. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred
or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
9. Notices.
All notices, requests, consents and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by overnight courier or
mailed first class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed), as follows (or
to such other address as either party shall designate by notice in writing to
the other in accordance herewith):
If to the Company, to:
Consolidated Cigar Corporation
5900 North Andrews Avenue
Suite 700
Fort Lauderdale, FL 33309-2367
Attn: Chief Executive Officer
If to the Executive, to:
10. General.
10.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the Executive's employment by the
Company, and supersedes all prior agreements, arrangements and understandings,
written or oral, relating to the
10
<PAGE>
Executive's employment by the Company, including, without limitation, the
Employment Agreement dated as of July 1, 1995 (the "Prior Agreement") between
the Company and the Executive, which Prior Agreement is deemed terminated
hereby and of no further force or effect. No representation, promise or
inducement has been made by either party that is not embodied in this
Agreement, and neither party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
10.4 This Agreement, and the Executive's rights and obligations
hereunder, may not be assigned by the Executive. The Company may assign its
rights, together with its obligations, hereunder (i) to any affiliate or (ii)
to third parties in connection with any sale, transfer or other disposition of
all or substantially all of the business or assets of the Company; in any
event the obligations of the Company hereunder shall be binding on its
successors or assigns, whether by merger, consolidation or acquisition of all
or substantially all of its business or assets.
10.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in
no manner affect the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate"
shall mean and include any corporation or other business entity directly or
indirectly controlling, controlled by or under common control with the
corporation or other business entity in question.
11
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
CONSOLIDATED CIGAR CORPORATION
By:
------------------------------------
Theo W. Folz
Chief Executive Officer
---------------------------------------
12
<PAGE>
List of Subsidiaries
<TABLE>
<CAPTION>
State of
Name of Subsidiary Incorporation
- ------------------ -------------
<S> <C>
Consolidated Cigar Corporation Delaware
Congar International Corporation Delaware
Cuban Cigar Brands, NV Netherlands-Antilles
Jamaica Tobacco Manufacturing
Company (1995) Ltd. Jamaica
Tabacalera de Garcia, Ltd. Bermuda
Tabacos San Andres S.A. de C.V. Honduras
Triple C Marketing Inc. Delaware
</TABLE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated January 24, 1996, in the Registration Statement (Form
S-1 No. 6819) and related Prospectus of Consolidated Cigar Holdings Inc. for
the registration of 4,500,000 shares of its Class A common stock.
Ernst & Young LLP
New York, New York
August 13, 1996
