<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 30, 1997
REGISTRATION NO. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 LLP 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. [ ]
CALCULATION OF REGISTRATION FEE
- -----------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
- --------------------------- -------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Class A Common Stock,
$0.01 par value ........... 5,750,000 $22.94 $131,905,000 $39,972
- --------------------------- -------------- ---------------- ----------------- ----------------
</TABLE>
(1) Includes an aggregate of 750,000 shares of Class A Common Stock which
the U.S. Underwriters and the International Underwriters have an option
to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee and based on the average of high and low sales prices
of the Class A Common Stock as reported on the New York Stock Exchange
on January 27, 1997 pursuant to Rule 457(c) under the Securities Act of
1933.
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 (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States (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 JANUARY 30, 1997
5,000,000 SHARES
CONSOLIDATED CIGAR HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
Of the 5,000,000 shares of Class A Common Stock offered, 4,000,000 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."
All of the shares of Class A Common Stock are being sold by Mafco
Consolidated Group Inc. (NYSE: MFO) ("Mafco Consolidated Group" or the
"Selling Stockholder"), a corporation 85% owned by Ronald O. Perelman through
his ownership of Mafco Holdings Inc. ("Mafco Holdings"). The Company will not
receive any of the proceeds from the sale of the shares.
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. 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 94.7% of the combined voting power of the outstanding shares of
Common Stock.
The last reported sales price of the Common Stock, which is listed on the
New York Stock Exchange under the symbol "CIG," on January 29, 1997 was $23
5/8 per share. See "Price Range of Class A Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
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>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDER (2)
------------------ ---------------- ---------------
<S> <C> <C> <C>
Per Share ....
Total(2) .....
</TABLE>
- ------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
(2) Estimated expenses of $________ are payable by the Company.
(3) The Selling Stockholder has granted the U.S. Underwriters an option for
30 days to purchase up to an additional 600,000 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 Selling Stockholder 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 Selling Stockholder 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 , 1997, against payment therefor in immediately available
funds.
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO. MORGAN STANLEY & CO.
INCORPORATED
The date of this Prospectus is , 1997.
<PAGE>
[ARTWORK]
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, the information contained in this Prospectus
assumes the Underwriters' over-allotment options are not exercised. Unless
the context otherwise requires, references to the Selling Stockholder shall
mean Mafco Consolidated Group Inc. and references to the Company shall mean
Consolidated Cigar Holdings Inc. and its subsidiaries, including its
operating subsidiary Consolidated Cigar Corporation ("Consolidated Cigar").
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 magazines, the
increased visibility of use by celebrities and the proliferation of "Cigar
Smokers" dinners and other special events for cigar smokers.
Consumption of cigars in the United States is currently increasing
following a decline in consumption at a compound annual unit 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
rate of 2.4% from 1976 to 1991, at a compound annual unit rate of 8.9% from
1991 to 1994 and at a unit rate of 30.6% from 1994 to 163.9 million units in
1995. Growth in the premium segment continued to accelerate in 1996. The mass
market segment of the industry has also experienced increased consumption
with a compound annual unit rate of 7.2% from 1993 to 3.8 billion units in
1995, with consumption of large cigars increasing at a compound annual unit
rate of 8.8% from 1993 to 2.4 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 rate of 9.3% from 1991 to $1.0 billion in
1995, while the corresponding compound annual unit rate was only 3.6%. There
can be no assurance
3
<PAGE>
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 thirty-nine week period ended
September 28, 1996, the Company had net sales of $152.8 million, operating
income of $37.8 million and net income of $20.8 million, representing
increases of 32.7%, 63.2% and 110.7%, respectively, from the thirty-nine week
period ended September 30, 1995. For the year ended December 31, 1995 and the
thirty-nine week period ended September 28, 1996, cigars accounted for
approximately 92% 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 recently
completed facility in Jamaica and continued expansion of its facilities in
the Dominican Republic and Honduras, (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. The
Company plans to increase production capacity for its mass market cigars by
acquiring additional manufacturing equipment.
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.
RECENT DEVELOPMENTS
On January 30, 1997, the Company announced its preliminary results of
operations for the fourth quarter and the year ended December 31, 1996. Net
sales were $64.0 million for the fourth quarter ended December 31, 1996, a
49% increase from the same period in 1995. Operating income was $16.2 million
for the fourth quarter ended December 31, 1996, a 97% increase from the same
period in 1995. Net income was $9.0 million for the fourth quarter ended
December 31, 1996, a 120% increase from the same period in 1995. Income per
share was $0.29 for the fourth quarter ended December 31, 1996, a 71%
increase from the same period in 1995.
4
<PAGE>
Net sales were $216.9 million for the year ended December 31, 1996, a 37%
increase from 1995. Operating income was $54.1 million for the year ended
December 31, 1996, a 72% increase from 1995. Net income was $29.8 million
for the year ended December 31, 1996, a 114% increase from 1995. Income per
share was $1.11 for the year ended December 31, 1996, a 95% increase from 1995.
The increases in the Company's net sales for the fourth quarter and the
year ended December 31, 1996 reflect, particularly in the premium market,
the continuing shift in sales mix to higher-priced cigars and price increases
on certain cigar brands and, to a lesser extent, an increase in cigar units
volume. The Company's operating margins increased to 25.4% and 24.9% for the
fourth quarter and the year ended December 31, 1996, respectively, from 19.1%
and 19.9% for the comparable periods in 1995. The increase in operating
margins was a result of higher gross margins and a reduction in selling,
general and administrative expenses as a percentage of net sales.
Preliminary industry statistics indicate that both unit consumption and
retail sales of cigars continued to increase in 1996. Overall consumption of
cigars increased by approximately 13.0% from approximately 4.0 billion units
in 1995 to an estimated 4.5 billion units in 1996. Consumption of premium
cigars increased by approximately 67.0% in 1996 as compared to 1995. In the
mass market segment of the industry, consumption increased by approximately
11.0% for 1996 as compared to 1995, with unit sales of mass market large
cigars increasing by approximately 13.6%. Consumption of large (premium and
mass market) cigars increased by approximately 17.0% for 1996 as compared to
1995. The Company believes that unit consumption of cigars and retail sales
in the cigar industry should continue to increase in 1997 at rates similar to
that experienced by the industry in 1996 and is very optimistic about the
long-term future of the cigar industry and the Company. See "Risk
Factors--Implementation of Business Strategy."
On January 21, 1997, Mafco Consolidated Group announced that Mafco
Holdings, its 85% stockholder, had proposed a transaction (the "Going Private
Transaction") to the Board of Directors of Mafco Consolidated Group pursuant
to which Mafco Consolidated Group would acquire all publicly held shares of
its common stock. Consummation of the Offerings is not contingent upon
consummation of the Going Private Transaction and there can be no assurance
that the Going Private Transaction will be completed.
5
<PAGE>
OWNERSHIP OF THE COMPANY
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")
80.2%
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, through which the Company conducts its business
operations.
On August 21, 1996, the Company completed an initial public offering (the
"IPO") of 6,075,000 shares of Class A Common Stock. Immediately after
consummation of the Offerings, Mafco Consolidated Group will beneficially own
all of the remaining 19,600,000 outstanding shares of Class B Common Stock,
which will represent approximately 94.7% of the combined voting power of the
outstanding shares of Common Stock (or 18,850,000 shares, representing
approximately 94.1% of the combined voting power if the Underwriters'
over-allotment options are exercised in full). Mafco Consolidated Group is
85% owned through Mafco Holdings by Ronald O. Perelman. See "Security
Ownership of Certain Beneficial Holders" 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.
6
<PAGE>
THE OFFERINGS
The offering of 4,000,000 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>
U.S. Offering ......................4,000,000 shares
International Offering ............ 1,000,000 shares
Common Stock to be outstanding
after the Offerings .............. 11,075,000 shares of Class A Common Stock (a)
19,600,000 shares of Class B Common Stock (b)
30,675,000 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
94.7% of the combined voting power of the outstanding
shares of Common Stock (approximately 94.1% if the
Underwriters' over-allotment options are exercised in
full).
Use of Proceeds ................... The Company will not receive any of the proceeds from the
sale of the shares. See "Use of Proceeds."
New York Stock Exchange symbol ... CIG
</TABLE>
- ------------
(a) Based on the number of shares outstanding as of December 31, 1996.
Excludes an aggregate of 3,000,000 shares of Class A Common Stock
reserved for issuance under the Consolidated Cigar Holdings Inc. 1996
Stock Plan (the "Stock Plan") as of December 31, 1996, including
1,150,000 shares as to which options were then outstanding, none of
which were exercisable on such date.
(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" for a discussion of certain risks that should be
considered in connection with an investment in the Class A Common Stock
offered hereby.
7
<PAGE>
SUMMARY HISTORICAL 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 thirty-nine
week periods ended September 30, 1995 and September 28, 1996 and as of
September 28, 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 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 financial data therefore reflects the
consolidated results of Consolidated Cigar.
The following summary historical financial data should be read in
conjunction with "Selected Historical 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.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31, THIRTY-NINE WEEKS ENDED
---------------------- --------------------------------------
1994 1995 SEPTEMBER 30, 1995 SEPTEMBER 28, 1996
---------- ---------- ------------------ ------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $131,510 $158,166 $115,136 $152,820
Cost of sales ............................... 78,836 94,347 68,312 88,391
---------- ---------- ------------------ ------------------
Gross profit ................................ 52,674 63,819 46,824 64,429
Selling, general and administrative expenses 29,413 32,393 23,637 26,596
---------- ---------- ------------------ ------------------
Operating income ............................ 23,261 31,426 23,187 37,833
Interest expense, net ....................... (12,838) (12,635) (9,691) (7,961)
Minority interest ........................... 78 (262) (147) (175)
Miscellaneous, net .......................... (828) (1,000) (719) (666)
---------- ---------- ------------------ ------------------
Income before provision for income taxes ... 9,673 17,529 12,630 29,031
Provision for income taxes .................. 1,989 3,599 2,780 8,277
---------- ---------- ------------------ ------------------
Net income .................................. $ 7,684 $ 13,930 $ 9,850 $ 20,754
========== ========== ================== ==================
Net income per common share ................. $ 0.31 $ 0.57 $ 0.40 $ 0.81
========== ========== ================== ==================
Weighted average common shares
outstanding ................................ 24,600 24,600 24,600 25,583
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
BALANCE SHEET DATA (AT PERIOD END):
Total assets ............................. $206,922
Long-term debt (including current portion
and the Promissory Note) ................ 180,000
Total stockholders' deficiency ........... (7,686)
</TABLE>
<TABLE>
<CAPTION>
OTHER DATA:
<S> <C> <C> <C> <C>
Gross margin (a) ........................... 40.1% 40.3% 40.7% 42.2%
Operating margin (a) ....................... 17.7 19.9 20.1 24.8
EBITDA (b) ................................. $ 30,046 $ 38,125 $ 28,198 $ 42,666
EBITDA margin (b) .......................... 22.8% 24.1% 24.5% 27.9%
Capital expenditures ....................... $ 788 $ 983 $ 561 $ 4,376
Amortization of goodwill ................... 1,771 1,771 1,329 1,238
Cash flows provided by operating activities 14,259 19,801 10,399 20,183
Cash flows provided by (used for) investing
activities ................................ 5,036 (989) 389 (4,874)
Cash flows used for financing activities .. (18,810) (19,367) (11,286) (13,827)
</TABLE>
- ------------
(a) 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.
(b) 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
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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. Information contained or incorporated
by reference in this Prospectus contains "forward-looking statements" which
can be identified by the use of forward-looking terminology such as
"believes," "expects," "may," "will," "should" or "anticipates" or the
negative thereof or other variations thereon or comparable terminology, or by
discussions of strategy. Such statements include, without limitation, the
Company's beliefs about trends in the cigar industry and its views about the
long-term future of the industry and the Company. See, e.g., "Prospectus
Summary--The Company" and "--Recent Developments," "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business--
Business Strategy." No assurance can be given that the future results covered
by the forward-looking statements will be achieved. The following matters
constitute cautionary statements identifying important factors with respect to
such forward-looking statements, including certain risks and uncertainties that
could cause actual results to vary materially from the future results covered
in such forward-looking statements. Other factors could also cause actual
results to vary materially from the future results covered in such forward-
looking statements.
SIGNIFICANT LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company has a significant amount of outstanding indebtedness. As of
September 28, 1996, the outstanding indebtedness of the Company was $180.0
million, including its obligations under the Promissory Note, and the Company
had a stockholders' deficiency of $7.7 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
9
<PAGE>
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. In
addition to limiting the overall operating and financial flexibility of the
Company and its subsidiaries, the restrictions imposed by these debt
instruments restrict the ability of Consolidated Cigar to pay dividends and
distribute funds to the Company. As a result, the Company's ability to pay
dividends, as well as the Company's sources of funds for other purposes, will
be limited by such provision. As of September 28, 1996, there was
approximately $20.0 million outstanding and $16.4 million available under the
Credit Agreement and $90.0 million aggregate principal amount of Senior
Subordinated Notes outstanding .
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 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 events that would constitute a
change of control are described under "Description of Certain Indebtedness."
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 promissory note (the "Promissory Note") in an original principal amount
of $70.0 million issued by the Company to Mafco Consolidated Group in
connection with the IPO, 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
10
<PAGE>
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."
DECLINING MARKET FOR CIGARS THROUGH 1993
According to industry sources, the cigar industry experienced declining
consumption between 1964 and 1993 at a compound annual unit rate of 3.6%
(and, with respect to large cigar consumption, at a compound annual unit 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."
IMPLEMENTATION OF BUSINESS STRATEGY
The Company's business strategy is to (i) capitalize on growth
opportunities in the premium cigar market, (ii) expand mass market cigar and
pipe tobacco products business, (iii) broaden mass market cigar distribution
channels, (iv) improve manufacturing processes and raw material procurement
and (v) pursue selectively strategic acquisitions. See "Business--Business
Strategy." The Company's ability to implement its business strategy
successfully will be dependent on business, financial and other factors
beyond the Company's control, including, among others, prevailing changes in
consumer preferences, access to sufficient quantities of raw materials,
availability of trained laborers and changes in tobacco products regulation.
There can be no assurance that the Company will continue to be successful in
implementing its business strategy or that the Company's net sales, operating
margin and net margin will continue to increase at rates similar to those
experienced by the Company in 1996.
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 have recently proposed to
regulate the tobacco industry. The FDA recently adopted final regulations
relating to the marketing, promotion and advertisement of smokeless tobacco
and cigarettes. These regulations are currently being challenged in the
United States District Court for the Eastern District of North Carolina and
the United States District Court for the Southern District of New York. While
the Company is unable to predict the effect of these regulations on its
business, these and other regulations promulgated by the FDA in
11
<PAGE>
the future could have a material adverse effect on the operations of the
Company. Numerous proposals have also been considered at the state and local
legislative level and by regulatory bodies, including restricting smoking in
certain public areas, requiring cigar or pipe tobacco to carry health warnings
and requiring little cigars to be "fire-safe" (i.e., cigars that extinguish
themselves if not continuously smoked). Passage of legislation requiring little
cigars to be "fire-safe" could have a material adverse effect on the Company's
little cigar sales because of the technological difficulties in complying with
such legislation. The Company does not expect the passage of any such
legislation to have a material adverse effect on the Company's business or
results of operations taken as a whole. 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. In one such recent case against a cigarette
manufacturer, the plaintiffs were awarded compensatory damages totalling
$750,000. 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 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 subject to the provisions of Section 936
of the Internal Revenue Code of 1986, as amended (the "Code") . Section 936
of the Code allowed for 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"), for the years after December
31, 1993, 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, and expects that it will
continue to qualify for the possessions tax credit for every year that such
credit is available in amounts to offset the majority of any United States
federal income tax related thereto, 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 possessions tax credit attributable to the Company's Puerto
Rico operations would have a material adverse effect on the Company.
12
<PAGE>
On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"SBJPA") was enacted into law. Under the SBJPA, Section 936 of the Code, the
possessions tax credit, was 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 the
possessions tax credit 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. Although it does not currently have
any definitive plans with respect thereto, the Company expects to evaluate
alternatives that may be available to it in order to mitigate the effects of
the SBJPA. 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 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 37.0 million cigars at December 31, 1996.
Although the demand for premium cigars has continued to increase, the
substantial increase in backorders of premium cigars experienced by the
Company in 1996 was due, at least in part, to the practice by retailers of
submitting orders well in excess of required quantities in an attempt to
ensure a larger allocation of the Company's premium cigar production. As
such, the increase in backorders does not accurately reflect the demand for
the Company's premium cigars. Beginning in 1997, as part of the Company's
continuing effort to improve customer service, the Company established new
ordering policies. These policies are also expected to result in a reduction
of backorders. The Company's ability to increase its production of premium
cigars and decrease its backorders is, however, 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
13
<PAGE>
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. 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. To date, these shortages have
not materially adversely affected 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 "--Social, Political and
Economic Risks Associated with Foreign Operations and International Trade,"
"Business--Backorders" and "Business--Raw Materials."
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.
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 remaining 19,600,000
outstanding shares of Class B Common Stock, which will represent
approximately 94.7% of the combined voting power of the outstanding shares of
Common Stock (or 18,850,000 shares, representing approximately 94.1% of the
combined voting power if the Underwriters' over-allotment options are
exercised in full). Accordingly, Mafco Consolidated Group will continue to 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 shares of intermediate holding companies are or may
from time to time be, pledged to secure obligations of Mafco Holdings or its
affiliates. 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 obligations which are secured
by the pledge of such shares and the pledgees thereunder proceed to realize
on such security. A sale of a sufficient
14
<PAGE>
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 or
intermediate holding companies 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," "Security Ownership of
Certain Beneficial Holders," "Certain Relationships and Related
Transactions--Relationship with Mafco Consolidated Group and Mafco Holdings"
and "Description of Certain Indebtedness."
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
continue to 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 11,075,000 shares of Class A Common Stock and 19,600,000 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 remaining 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, including
the shares being offered hereby. 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."
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Class A Common
Stock by the Selling Stockholder.
DIVIDEND POLICY
The Company does not anticipate that 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 thirty-nine week period ended September 28, 1996, the
Company paid cash dividends of $5.0 million and $12.8 million (excluding the
dividend of the proceeds of the IPO), respectively.
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 $4.8
million as of September 28, 1996. In connection with the IPO, Consolidated
Cigar entered into an amendment to the Credit Agreement, which, among other
things, permitted Consolidated Cigar to pay a $5.6 million dividend to the
Company and permits Consolidated Cigar 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."
PRICE RANGE OF CLASS A COMMON STOCK
Since the IPO of the Company's Class A Common Stock at $23.00 per share in
August 1996, the Class A Common Stock has been traded on the New York Stock
Exchange (the "NYSE") under the symbol "CIG." The following table sets forth
for the periods indicated the high and low sale prices per share of the Class
A Common Stock as reported by the NYSE.
<TABLE>
<CAPTION>
HIGH LOW
-------- ---------
<S> <C> <C>
1996
- ----------------------------------------------
Third Quarter (August 21 to September 30) .... $32 5/8 $26
Fourth Quarter ................................ 31 1/4 23 1/2
1997
- ----------------------------------------------
First Quarter (through January 29) ............ 27 1/2 22 7/8
</TABLE>
A recently reported last sales price of the Class A Common Stock as
reported on the NYSE is set forth on the cover page of this Prospectus. As of
December 31, 1996, there were approximately 139 holders of record of the
Class A Common Stock.
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<PAGE>
CAPITALIZATION
The following table sets forth the unaudited actual capitalization of the
Company as of September 28, 1996. This table should be read in conjunction
with the Consolidated Financial Statements of the Company included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
--------------------
ACTUAL(A)
--------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents .................................... $ 2,627
Short-term debt:
Current portion of Promissory Note .......................... 7,500
Long-term debt:
Credit Agreement ............................................ 20,000
Senior Subordinated Notes ................................... 90,000
Promissory Note ............................................. 62,500
--------------------
Total long-term and short-term debt ........................ 180,000
--------------------
Stockholders' equity (deficiency):
Preferred stock, par value $0.01 per share, 20,000,000
shares authorized, no shares issued and outstanding ....... --
Class A Common Stock, par value $0.01 per share; 300,000,000
shares authorized; 6,075,000 shares issued and
outstanding (b)(c) ......................................... 61
Class B Common Stock, par value $0.01 per share; 250,000,000
shares authorized, 24,600,000 shares issued and
outstanding (c) ............................................ 246
Capital deficiency .......................................... (13,314)
Retained earnings ........................................... 5,321
--------------------
Total stockholders' deficiency ............................. (7,686)
--------------------
Total capitalization ...................................... $172,314
====================
</TABLE>
- ------------
(a) Reflects the IPO and the distribution of the net proceeds therefrom to
Mafco Consolidated Group. Also reflects the issuance of the Promissory
Note 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 and Option Grants."
(c) In connection with the Offerings, 5,000,000 shares of Class B Common
Stock held by Mafco Consolidated Group will be automatically converted
into an equal number of shares of Class A Common Stock. As adjusted to
reflect the Offerings, there would be 11,075,000 shares of Class A
Common Stock issued and outstanding and 19,600,000 shares of Class B
Common Stock issued and outstanding.
17
<PAGE>
SELECTED HISTORICAL 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
thirty-nine week periods ended September 30, 1995 and September 28, 1996 and
as of September 28, 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 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 financial data therefore reflects 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").
On August 21, 1996, the Company completed the IPO of 6,075,000 shares of
Class A Common Stock at an initial public offering price of $23.00 per share.
The proceeds, net of underwriters' discount and related fees and expenses, of
$127.8 million, were paid as a dividend to Mafco Consolidated Group.
Simultaneously with the IPO, each of the Company's then outstanding shares of
common stock were converted into 24,600 shares of the newly created Class B
Common Stock, resulting in a total of 24,600,000 shares of Class B Common
Stock outstanding following the IPO. In addition, the Company issued a
non-interest bearing Promissory Note in an original principal amount of $70.0
million to Mafco Consolidated Group.
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.
18
<PAGE>
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRE-ACQUISITION
--------------------------------------------
TWO MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, DECEMBER 31, 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
-------------- -------------- ------------
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)
============== ============== ============
Net income (loss) per
common share (a) ... $ 0.19 $ 0.45 --
============== ============== ============
Weighted average
common shares
outstanding (a) ..... 24,600 24,600 24,600
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST-ACQUISITION
--------------------------------------------------------------------------------
TEN MONTHS THIRTY-NINE THIRTY-NINE
ENDED YEAR ENDED YEAR ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996
-------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales ............ $110,384 $131,510 $158,166 $115,136 $152,820
Cost of sales ........ 69,871 78,836 94,347 68,312 88,391
-------------- -------------- -------------- --------------- ---------------
Gross profit ......... 40,513 52,674 63,819 46,824 64,429
Selling, general and
administrative
expenses ............ 24,956 29,413 32,393 23,637 26,596
-------------- -------------- -------------- --------------- ---------------
Operating income .... 15,557 23,261 31,426 23,187 37,833
-------------- -------------- -------------- --------------- ---------------
Interest expense, net (10,930) (12,838) (12,635) (9,691) (7,961)
Gain on sale of
trademarks .......... -- -- -- -- --
Minority interest ... 209 78 (262) (147) (175)
Miscellaneous, net .. (690) (828) (1,000) (719) (666)
-------------- -------------- -------------- --------------- ---------------
Income before
provision for income
taxes and
extraordinary items 4,146 9,673 17,529 12,630 29,031
Provision for income
taxes ............... 1,267 1,989 3,599 2,780 8,277
Extraordinary items . -- -- -- -- --
-------------- -------------- -------------- --------------- ---------------
Net income (loss) ... $ 2,879 $ 7,684 $ 13,930 $ 9,850 $ 20,754
============== ============== ============== =============== ===============
Net income (loss) per
common share (a) ... $ 0.12 $ 0.31 $ 0.57 $ 0.40 $ 0.81
============== ============== ============== =============== ===============
Weighted average
common shares
outstanding (a) ..... 24,600 24,600 24,600 24,600 25,583
</TABLE>
<PAGE>
<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 stockholders' equity (deficiency) 3,157 14,314
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST-ACQUISITION
---------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 28,
1993 1994 1995 1996(B)
-------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Total assets ........................... $205,906 $196,909 $191,730 $206,922
Long-term debt (including current
portion and the Promissory Note) ..... 145,300 126,200 110,600 180,000
Total stockholders' equity (deficiency) 32,879 40,563 54,328 (7,686)
</TABLE>
<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(c) ....... 36.7% 38.8% 41.6%
Operating margin(c) .. 15.8 16.9 12.2
EBITDA(d) ............. $ 28,817 $ 29,330 $ 2,792
EBITDA margin(d) ...... 23.1% 23.1% 17.9%
Capital expenditures . $ 572 $ 926 $ 115
Amortization of
goodwill ............. 104 110 18
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)
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
POST-ACQUISITION
--------------------------------------------------------------------------------
TEN MONTHS THIRTY-NINE THIRTY-NINE
ENDED YEAR ENDED YEAR ENDED WEEKS ENDED WEEKS ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31, SEPTEMBER 30, SEPTEMBER 28,
1993 1994 1995 1995 1996(B)
-------------- -------------- -------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Gross margin(c) ....... 36.7% 40.1% 40.3% 40.7% 42.2%
Operating margin(c) .. 14.1 17.7 19.9 20.1 24.8
EBITDA(d) ............. $ 25,156 $ 30,046 $ 38,125 $ 28,198 $ 42,666
EBITDA margin(d) ...... 22.8% 22.8% 24.1% 24.5% 27.9%
Capital expenditures . $ 881 $ 788 $ 983 $ 561 $ 4,376
Amortization of
goodwill ............. 1,399 1,771 1,771 1,329 1,238
Cash flows provided by
operating activities 8,842 14,259 19,801 10,399 20,183
Cash flows provided by
(used for) investing
activities ........... (611) 5,036 (989) 389 (4,874)
Cash flows used for
financing activities (12,143) (18,810) (19,367) (11,286) (13,827)
</TABLE>
(footnotes on following page)
19
<PAGE>
(a) Prior to the IPO, the Company had 1,000 shares of common stock
outstanding. Simultaneously with the IPO, each of the Company's
outstanding shares of common stock was converted into 24,600 shares of
newly created Class B Common Stock, resulting in a total of 24,600,000
shares of Class B Common Stock outstanding following the IPO. Net
income per common share has been computed assuming the conversion of
the Company's common stock into shares of Class B Common Stock as of
the beginning of all periods presented and is therefore based upon the
weighted average of 24,600,000 shares of common stock outstanding prior
to the IPO and 30,675,000 shares of Common Stock outstanding after the
IPO.
(b) Reflects the IPO and the distribution of the net proceeds therefrom
to Mafco Consolidated Group. Also reflects the issuance by the Company
of the Promissory Note in an original principal amount of $70.0 million
to Mafco Consolidated Group in connection with the IPO.
(c) 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.
(d) 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.
20
<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 thirty-nine week period ended September
28, 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 37.0 million cigars at December 31, 1996.
Although the demand for premium cigars has continued to increase in 1996, the
substantial increase in backorders of premium cigars experienced by the
Company in 1996 was due, at least in part, to the practice by retailers of
submitting orders well in excess of required quantities in an attempt to
ensure a larger allocation of the Company's premium cigar production. As
such, the increase in backorders does not accurately reflect the demand for
the Company's premium cigars. Beginning in 1997, as part of the Company's
continuing effort to improve customer service, the Company established new
ordering policies. These policies are also expected to result in a reduction
of backorders. In addition, 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, 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 for the year ended December 31, 1995 and net
sales of $152.8 million, operating income of $37.8 million and net income of
$20.8 million for the thirty-nine weeks ended September 28, 1996.
RECENT DEVELOPMENTS
On January 30, 1997, the Company announced its preliminary results of
operations for the fourth quarter and the year ended December 31, 1996. Net
sales were $64.0 million for the fourth quarter ended December 31, 1996, a
49% increase from the same period in 1995. Operating income was $16.2 million
for the fourth quarter ended December 31, 1996, a 97% increase from the same
period in 1995. Net income was $9.0 million for the fourth quarter ended
December 31, 1996, a 120% increase from the same period in 1995. Income per
share was $0.29 for the fourth quarter ended December 31, 1996, a 71%
increase from the same period in 1995.
21
<PAGE>
Net sales were $216.9 million for the year ended December 31, 1996, a 37%
increase from 1995. Operating income was $54.1 million for the year ended
December 31, 1996, a 72% increase from 1995. Net income was $29.8 million
for the year ended December 31, 1996, a 114% increase from 1995. Income per
share was $1.11 for the year ended December 31, 1996, a 95% increase from 1995.
The increases in the Company's net sales for the fourth quarter and the
year ended December 31, 1996 reflect, particularly in the premium market,
the continuing shift in sales mix to higher-priced cigars and price increases
on certain cigar brands and, to a lesser extent, an increase in cigar units
volume. The Company's operating margins increased to 25.4% and 24.9% for the
fourth quarter and the year ended December 31, 1996, respectively, from 19.1%
and 19.9% for the comparable periods in 1995. The increase in operating
margins was a result of higher gross margins and a reduction in selling,
general and administrative expenses as a percentage of net sales.
Preliminary industry statistics indicate that both unit consumption and
retail sales of cigars continued to increase in 1996. Overall consumption of
cigars increased by approximately 13.0% from approximately 4.0 billion units
in 1995 to an estimated 4.5 billion units in 1996. Consumption of premium
cigars increased by approximately 67.0% in 1996 as compared to 1995. In the
mass market segment of the industry, consumption increased by approximately
11.0% for 1996 as compared to 1995, with mass market large cigars increasing
by approximately 13.6%. Consumption of large (premium and mass market) cigars
increased by approximately 17.0% for 1996 as compared to 1995. The Company
believes that unit consumption of cigars and retail sales in the cigar
industry should continue to increase in 1997 at rates similar to those
experienced by the industry in 1996 and is very optimistic about the
long-term future of the cigar industry and the Company. The Company's ability
to implement its business strategy successfully will be dependent on business,
financial, and other factors beyond the Company's control, including, among
others, prevailing changes in consumer preferences, access to sufficient
quantities of raw materials, availability of trained laborers and changes in
tobacco products regulation. There can be no assurance that the Company will
continue to be successful in implementing its business strategy. See "Risk
Factors--Implementation of Business Strategy."
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 thirty-nine
week periods ended September 28, 1996 and September 30, 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, 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
22
<PAGE>
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,
AND TWO MONTHS
ENDED MARCH 2, --------------------------------------
1993 1994 1995
------------------ ------------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales ............ $125.9 100.0% $131.5 100.0% $158.2 100.0%
Cost of sales ........ 78.9 62.7 78.8 59.9 94.4 59.7
-------- -------- -------- -------- -------- --------
Gross profit ......... 47.0 37.3 52.7 40.1 63.8 40.3
Selling, general and
administrative
expenses ............ 29.5 23.4 29.4 22.4 32.4 20.4
-------- -------- -------- -------- -------- --------
Operating income .... 17.5 13.9 23.3 17.7 31.4 19.9
Interest expense, net 12.6 10.0 12.8 9.7 12.6 8.0
Minority interest and
miscellaneous
expense, net ........ 0.7 0.6 0.8 0.6 1.3 0.8
Provision for income
taxes ............... 1.4 1.1 2.0 1.5 3.6 2.3
-------- -------- -------- -------- -------- --------
Net income ........... $ 2.8 2.2% $ 7.7 5.9% $ 13.9 8.8%
======== ======== ======== ======== ======== ========
</TABLE>
(RESTUBBED TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
--------------------------------------
SEPTEMBER 30, 1995 SEPTEMBER 28, 1996
------------------ ------------------
<S> <C> <C> <C> <C>
Net sales ............ $115.1 100.0% $152.8 100.0%
Cost of sales ........ 68.3 59.3 88.4 57.8
-------- -------- -------- --------
Gross profit ......... 46.8 40.7 64.4 42.2
Selling, general and
administrative
expenses ............ 23.6 20.5 26.6 17.4
-------- -------- -------- --------
Operating income .... 23.2 20.2 37.8 24.8
Interest expense, net 9.7 8.4 7.9 5.2
Minority interest and
miscellaneous
expense, net ........ 0.8 0.8 0.8 0.6
Provision for income
taxes ............... 2.8 2.4 8.3 5.4
-------- -------- -------- --------
Net income ........... $ 9.9 8.6% $ 20.8 13.6%
======== ======== ======== ========
</TABLE>
THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996 COMPARED TO THIRTY-NINE WEEKS
ENDED SEPTEMBER 30, 1995
Net sales were $152.8 million and $115.1 million for the first thirty-nine
weeks of 1996 and 1995, respectively, an increase of $37.7 million or 32.7%.
The increase in net sales was primarily due to higher sales of cigars. Cigar
sales, particularly in the premium market, 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 lesser extent, an increase in cigar units
volume.
Gross profit was $64.4 million and $46.8 million for the first thirty-nine
weeks of 1996 and 1995, respectively, an increase of $17.6 million or 37.6%.
The increase in gross profit for the first thirty-nine 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 42.2% for
the first thirty-nine weeks of 1996 from 40.7% for the first thirty-nine
weeks of 1995, primarily due to fixed manufacturing costs spread over
increased production volume.
Selling, general and administrative ("SG&A") expenses were $26.6 million
and $23.6 million for the first thirty-nine weeks of 1996 and 1995,
respectively, an increase of $3.0 million or 12.5% primarily due to increased
compensation expense in addition to increased marketing and selling expenses.
As a percentage of net sales, SG&A expenses decreased to 17.4% for the first
thirty-nine weeks of 1996 from 20.5% for the first thirty-nine 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 $37.8 million and $23.2 million for the first
thirty-nine weeks of 1996 and 1995, respectively, an increase of $14.6
million or 63.2%. As a percentage of net sales, operating income increased to
24.8% for the first thirty-nine weeks of 1996 from 20.1% for the first
thirty-nine 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 $8.0 million and $9.7 million for the first
thirty-nine weeks of 1996 and 1995, respectively. The decrease of $1.7
million or 17.9% was primarily due to a lower amount of debt outstanding
during 1996.
23
<PAGE>
The provision for income taxes as a percentage of income before income
taxes was 28.5% and 22.0% for the first thirty-nine 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 1996 partially
offset by tax benefits associated with the Company's operations in Puerto
Rico. Income tax expense for the first thirty-nine weeks of 1996 reflects
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 thirty-nine weeks of 1995 reflects 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 $20.8 million
in the first thirty-nine weeks of 1996, compared to $9.9 million in the first
thirty-nine weeks of 1995, an increase of $10.9 million or 110.7%.
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
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<PAGE>
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.
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 $20.2 million
and $10.4 million for the first thirty-nine weeks of 1996 and 1995,
respectively. The increase of $9.8 million from the first thirty-nine weeks
of 1995 to the first thirty-nine 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 for investing in 1995 and 1993 and the first thirty-nine
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 $4.4 million and $0.6 million in the
first thirty-nine weeks of 1996 and 1995, respectively. The capital
expenditures in 1993, 1994, and 1995 and the first thirty-nine 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 thirty-nine weeks of 1996
relate primarily to investments in the Company's manufacturing facilities to
meet increased demand for the Company's premium cigars, including expansion
of its existing manufacturing facilities in the Dominican Republic and
Honduras and construction, as part of a joint venture, of a new facility in
Jamaica. These projects were completed in 1996, with capital expenditures for
the remainder of 1996 of approximately $0.9 million. For 1997, the Company
plans to continue expanding its facilities in the Dominican Republic and
Honduras as well as acquire additional equipment for other facilities for a
total cost of approximately $4.0 million. For the first thirty-nine 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. In each period, such
cash flows were used to make net repayments of borrowings, primarily under
the Credit Agreement, and in 1995 to pay a $5.0 million dividend to Mafco
Holdings, which at the time held 100% of the capital stock of the Company.
Cash flows used for financing
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<PAGE>
activities in the first thirty-nine weeks of 1996 and 1995 were $13.8 million
and $11.3 million, respectively, and were primarily used to pay $12.8 million
of dividends to Mafco Consolidated Group during 1996 and a $5.0 million
dividend to Mafco Holdings during 1995. In addition, the first thirty-nine
weeks of 1995 included net repayments of borrowings under the Credit
Agreement of $5.9 million. In the first thirty-nine weeks of 1996, cash flows
included $127.8 million of net proceeds from the IPO, which were immediately
paid as a dividend to Mafco Consolidated Group.
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 October 16, 1996, the Company would have realized a
combined loss of approximately $1.0 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
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<PAGE>
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 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 September 28, 1996, there was approximately $16.4 million
unused and available under the Credit Agreement, after taking into account
approximately $1.0 million utilized to support letters of credit.
The Senior Subordinated Notes Indenture contains 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. See "Description
of Certain Indebtedness--Senior Subordinated Notes."
In connection with the IPO, the Company issued the Promissory Note in an
original principal amount of $70.0 million to Mafco Consolidated Group. The
Promissory Note is 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 subject to the provisions of Section 936 of the Code.
Section 936 of the Code allowed for 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, for the
years after December 31, 1993, 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 for every year
that such credit is available 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
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<PAGE>
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
possessions tax credit attributable to the Company's Puerto Rico operations
would have a material adverse effect on the Company.
On August 20, 1996, the SBJPA was enacted into law. Under the SBJPA,
Section 936 of the Code, the possessions tax credit, was 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 the possessions tax credit 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. Although
it does not currently have any definitive plans with respect thereto, the
Company expects to evaluate alternatives that may be available to it in order
to mitigate the effects of the SBJPA. 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 thirty-nine weeks of 1996, the
Company had net sales of $152.8 million, operating income of $37.8 million,
and net income of $20.8 million, representing increases of 32.7%, 63.2%, and
110.7%, respectively, from the first thirty-nine weeks of 1995.
BUSINESS STRATEGY
The Company's business strategy includes:
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
recently completed facility in Jamaica and continued expansion of its
existing facilities in the Dominican Republic and Honduras, (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) continuing to
expand its manufacturing facilities in the Dominican Republic and Honduras,
(iv) evaluating joint venture opportunities in countries where it may be
advantageous to produce premium cigars and (v) continuing to improve
manufacturing efficiencies. The Company currently estimates that it will
spend approximately $4.0 million in 1997 for expansion of existing facilities
and acquisition of additional manufacturing equipment.
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.
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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 introduced, 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 TOBACCO 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. The Company
plans to increase production capacity for its mass market cigars by acquiring
additional manufacturing equipment as well as adding workers for second and
third shifts.
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 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.
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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 magazines,
the increased visibility of use by celebrities and the proliferation of
"Cigar Smokers" dinners and other special events for cigar smokers.
Consumption of cigars in the United States is currently increasing
following a decline in consumption at a compound annual unit 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
rate of 2.4% from 1976 to 1991, at a compound annual unit rate of 8.9% from
1991 to 1994 and at a unit rate of 30.6% from 1994 to 163.9 million units in
1995. Growth in the premium segment continued to accelerate in 1996. The mass
market segment of the industry has also experienced increased consumption
with a compound annual unit rate of 7.2% from 1993 to 3.8 billion units in
1995, with consumption of large cigars increasing at a compound annual unit
rate of 8.8% from 1993 to 2.4 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 rate of 9.3% from 1991 to $1.0 billion in
1995, while the corresponding compound annual unit 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 1996.
U.S. CIGAR INDUSTRY(A)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995 1996E(B)
--------- --------- --------- --------- ---------- ---------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Unit Consumption:
Premium Large Cigars(c) . 97.8 99.4 110.0 125.9 164.3 275.0
Mass Market Large Cigars 2,136.4 2,112.0 2,025.7 2,208.8 2,397.7 2,725.0
--------- --------- --------- --------- ---------- ---------
Total Large Cigars ..... 2,234.2 2,211.4 2,135.7 2,334.7 2,562.0 3,000.0
Mass Market Little Cigars 1,296.2 1,306.7 1,287.7 1,383.4 1,408.3 1,500.0
--------- --------- --------- --------- ---------- ---------
Total ................... 3,530.4 3,518.1 3,423.4 3,718.1 3,970.3 4,500.0
========= ========= ========= ========= ========== =========
Retail Sales .............. $ 705.0 $ 715.0 $ 730.0 $ 860.0 $1,005.0 $1,250.0
========= ========= ========= ========= ========== =========
</TABLE>
- ------------
(a) Source: Cigar Association of America, Inc. ("CAA").
(b) Estimated results for 1996 represent CAA's data for the first eleven
months of 1996, presented on an annualized basis.
(c) 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
The Company manufactures cigars in all subcategories and at all price
levels. The Company also 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.
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.
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. Net sales attributable to the distribution of such accessories was
not material to the Company's results of operations in fiscal 1995.
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
32
<PAGE>
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.
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 37.0 million cigars at December 31, 1996. Although the
demand for premium cigars has continued to increase, the substantial increase
in backorders of premium cigars experienced by the Company in 1996 was due,
at least in part, to the practice by customers of submitting orders well in
excess of required quantities in an attempt to ensure a larger allocation of
the Company's premium cigar production. As such, the increase in backorders
does not accurately reflect the demand for the Company's premium cigars.
Beginning in 1997, as part of the Company's continuing effort to improve
customer service, the Company established new ordering policies. These
policies are also expected to result in a reduction of backorders. The
Company's ability to increase its production of premium cigars and decrease
its backorders is, however, 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 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, 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
33
<PAGE>
from home and car, maintaining close familiarity with local customers. Most
salespeople 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 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>
PREMIUM CIGAR TRADEMARKS
<S> <C> <C>
Cabanas Henry Clay Primo Del Rey
Don Diego Las Cabrillas Santa Damiana
Don Marcos Malaguena Santa Ynez
Don Miguel Montecristo(a) Super Value
Flor de Canarias Montecruz Te-Amo
H. Upmann(a) Por Larranaga(a) Wonder Blend
</TABLE>
<TABLE>
<CAPTION>
MASS MARKET CIGAR TRADEMARKS
<S> <C> <C>
Antonio y Cleopatra El Producto Roi-Tan
Backwoods Harvester Super Value
Ben Franklin Headline Supre Sweets
Dutch Masters La Corona Wonder Blend
Dutch Treats Muriel
</TABLE>
34
<PAGE>
PIPE TOBACCO TRADEMARKS
<TABLE>
<CAPTION>
<S> <C> <C>
China Black Mixture No. 79 Three Star Royal
Dutch Masters Super Value Wonder Blend
Kriswill
</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.
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. To date, these shortages of tobacco have
not materially adversely affected 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."
In addition, the Company purchases packaging materials from multiple
suppliers predominantly in the United States. No single supplier accounts for
10% or more of the Company's raw materials.
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 Swisher International Group Inc., General Cigar Co. Inc., currently a
division of Culbro Corporation and Havatampa/Phillies Cigar Corporation, 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,
35
<PAGE>
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 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 industry.
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.
The Company does not expect the passage of any such legislation to have a
material adverse effect on the Company's business or results of operations
taken as a whole. 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. In addition, various
legislative proposals have been introduced in Massachusetts that would extend
such reporting requirement to cigar manufacturers and that would require
health warnings on cigars. Similar legislation has been introduced in other
states.
36
<PAGE>
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 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 recently
adopted final regulations relating to the marketing, promotion and
advertisement of smokeless tobacco and cigarettes. Although the FDA's
definition of cigarettes originally included little cigars, little cigars
were excluded from the final regulations. These regulations are currently
being challenged in the United States District Court for the Eastern District
of North Carolina and the United States District Court for the Southern
District of New York. While the Company is unable to predict the effect of
these regulations on its business, these and other regulations promulgated by
the FDA in the future 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, on August 9, 1996, a Florida jury
in Carter v. Brown & Williamson Tobacco Corporation 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 compensatory damages. The
verdict is on appeal.
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 or localities 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
attorneys general to bring Medicaid actions attributable to tobacco-related
illnesses and, in some states, bringing preemptive lawsuits to enjoin the
state attorneys general from instituting litigation.
37
<PAGE>
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
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.
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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,
which in turn is likely to have an adverse effect on the Company's results of
operations. The Company is unable to predict the materiality or likelihood of
the enactment of new state excise taxes or the increase in existing state
excise taxes and, therefore, is unable to predict the extent of any adverse
effect on the Company's business or results of operations that may result
from the imposition of such taxes.
EMPLOYEES
The Company employs approximately 4,800 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 due to labor problems in the last ten years.
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<PAGE>
PROPERTIES
As of December 31, 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>
McAdoo, Pennsylvania Mass market cigar manufacturing and Owned 369,000
distribution
Cayey, Puerto Rico Mass market cigar manufacturing Owned 280,000
La Romana, Dominican Republic Premium cigar manufacturing Leased 170,000
Comerio, Puerto Rico Tobacco processing Owned 151,000
Richmond, Virginia Pipe tobacco manufacturing and Leased 90,000
premium cigar distribution
Danli, Honduras Premium cigar manufacturing Owned 35,000
Maypen, Jamaica Premium cigar manufacturing Owned 25,000
Fort Lauderdale, Florida Administrative office Leased 19,000
</TABLE>
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. For 1997, the Company is expanding its existing
manufacturing facilities in the Dominican Republic and Honduras and acquiring
additional manufacturing equipment for a total expected cost of approximately
$4 million. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
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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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
THE COMPANY
The following table sets forth certain information (ages as of January 30,
1997) 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 ......... 54 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 ............... 53 President, Chief Executive Officer and a Director
Lee A. Iacocca ............. 72 Director
Robert Sargent Shriver III 42 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 ....... 48 Vice President and Controller
</TABLE>
CONSOLIDATED CIGAR
The following table sets forth certain information (ages as of January 30,
1997) 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 .... 54 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 ........... 53 President, Chief Executive Officer and a Director
Richard L. DiMeola .... 62 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 .... 51 Senior Vice President -- Manufacturing
James M. Parnofiello .. 48 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, Meridian Sports Incorporated
("Meridian Sports"), 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 Marvel Entertainment Group, Inc. ("Marvel"), 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 Securities Exchange Act of 1934, as amended (the "Exchange
Act"): Andrews Group, California Federal Bank, a Federal Savings Bank
("California Federal"), The Coleman Company, Inc. ("Coleman"), Coleman
Holdings Inc. ("Coleman Holdings"), Coleman Worldwide Corporation ("Coleman
Worldwide"), First Nationwide Holdings, Inc. ("First Nationwide"), First
Nationwide (Parent) Holdings Inc. ("First Nationwide Parent"), Mafco
Consolidated Group, Marvel, Marvel Holdings Inc. ("Marvel Hold-
41
<PAGE>
ings"), Marvel (Parent) Holdings Inc. ("Marvel Parent"), Marvel III Holdings
Inc. ("Marvel III"), Meridian Sports, PCT, Pneumo Abex Corporation ("Pneumo
Abex"), successor by merger to Mafco Worldwide Corporation("Mafco Worldwide"),
Revlon, Revlon Products, Revlon Worldwide Corporation ("Revlon Worldwide") and
Toy Biz. (On December 27, 1996, Marvel Holdings, Marvel Parent, Marvel III and
Marvel and several of its subsidiaries filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code.)
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, California Federal, First
Nationwide, First Nationwide Parent, Jones Apparel Group, Inc., Loral Space &
Communications Ltd., Mafco Consolidated Group, PCT, Pneumo Abex, Revlon,
Revlon Products, Revlon Worldwide and Rutherford-Moran Oil Corporation.
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 LLP 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: Algos Pharmaceutical Corporation, 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. (On December 27,
1996, Marvel Holdings, Marvel Parent, Marvel III and Marvel and several of
its subsidiaries filed voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code.)
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 Pneumo Abex, successor by
merger to Mafco Worldwide, since January 1995. Mr. Folz is a Director of PCT,
which files reports pursuant to the Exchange Act.
Mr. Iacocca has been a director of the Company since October 1996. Mr.
Iacocca was elected a Director and President of Chrysler Corporation in
November 1978 and served as Chairman of the Board from September 1979 until
his retirement in December 1992. Mr. Iacocca was employed by Ford Motor
Company from 1946 to October 1978. After serving in various field and
executive positions, he was elected a Director of Ford Motor Company in 1965
and President in 1970 and served in those capacities until October 1978. Mr.
Iacocca is Chairman Emeritus of the Statue of Liberty/Ellis Island
Foundation, Inc. and Chairman of the Advisory Board of the Iacocca Institute
of Lehigh University.
Mr. Shriver has been a Director of the Company since January 1997. Mr.
Shriver has been President of Special Olympic Productions, Inc. for more than
the past five years. Mr. Shriver also is a Director of MK Gold Company, which
files reports pursuant to the Exchange Act.
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.
(On December 27, 1996, Marvel Holdings, Marvel Parent and Marvel III and
several of its subsidiaries filed voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code.)
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 Drug, Inc. and from 1985 to 1987 he
was the Vice President and Controller of MacAndrews & Forbes Holdings.
42
<PAGE>
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.
Mr. McQuillen has been Senior Vice President of Manufacturing of
Consolidated Cigar since December 1985. Mr. McQuillen joined Consolidated
Cigar in 1981.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established an Executive Committee consisting of Messrs.
Perelman, Gittis and Folz and a Compensation Committee consisting of Messrs.
Gittis and Drapkin.
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 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.
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.
In connection with the IPO, the Company granted options to purchase shares
of Class A Common Stock to Mr. Perelman in his capacity as Chairman of the
Board of Directors. See "--Stock Plan and Option Grants."
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").
43
<PAGE>
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 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
44
<PAGE>
with Mr. Folz memorializing such assumption and expiring on December 31,
1999. After December 31, 1998, Consolidated Cigar may give notice of
non-renewal, in which case the term of the agreement will be extended for a
period of twelve months following such notice. From and after January 1,
2000, the term will be automatically extended day-by-day until Consolidated
Cigar gives notice of non-renewal, in which case the term will be extended
for a period of twelve months. 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 employment agreement provides for an initial annual
base salary of $770,000. In addition, Mr. Folz is eligible to participate in
the Consolidated Cigar Performance Bonus Plan, subject to stockholder
approval of the plan. See "--Consolidated Cigar Performance Bonus Plan."
On August 1, 1996, Consolidated Cigar entered into an employment agreement
with each of Messrs. DiMeola, Ellis, Colucci and Gershel, each of which
expires on December 31, 1999, 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. After December 31, 1998, Consolidated Cigar may give notice of
non-renewal, in which case the term of the agreement will be extended for a
period of twelve months following such notice. From and after January 1,
2000, the term will be automatically extended day-by-day until Consolidated
Cigar gives notice of non-renewal, in which case the term will be extended
for a period of twelve months. In the event of Consolidated Cigar's breach,
the employee is entitled to terminate the employment agreement; in that
event, base salary, performance bonuses and benefits are to be paid to the
employee for the remaining term of the employment agreement or, if longer and
if no non-renewal notice has been given by Consolidated Cigar prior to that
time, twelve months, offset by any other compensation the employee receives
during this period. The employment agreements provide for initial annual base
salaries of $275,000 for Mr. DiMeola, $217,500 for each of Messrs. Ellis and
Colucci and $247,500 for Mr. Gershel. The employment agreements also provide
for performance bonus payments, based on achievement by Consolidated Cigar of
certain EBITDA targets, which bonus payments shall be made pursuant to the
Consolidated Cigar Performance Bonus Plan, subject to stockholder approval of
the plan.
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 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
45
<PAGE>
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.
Beginning in 1996, the annual 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 35
-------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
$ 50,000 $ 3,788 $ 7,575 $ 11,363 $ 15,150 $ 18,938 $ 25,000
75,000 5,681 11,363 17,044 22,725 28,406 37,500
100,000 7,575 15,150 22,725 30,300 37,875 50,000
125,000 9,469 18,938 28,406 37,875 47,344 62,500
150,000 11,363 22,725 34,088 45,450 56,813 75,000
175,000 13,256 26,513 39,769 53,025 66,281 87,500
200,000 15,150 30,300 45,450 60,600 75,750 100,000
225,000 17,044 34,088 51,131 68,175 85,219 112,500
250,000 18,938 37,875 56,813 75,750 94,688 125,000
300,000 22,725 45,450 68,175 90,900 113,625 150,000
400,000 30,300 60,600 90,900 121,200 151,500 200,000
450,000 34,088 68,175 102,263 136,350 170,438 225,000
500,000 37,875 75,750 113,625 151,500 189,375 250,000
</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 was increased
from approximately $250,000 in 1995 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 AND OPTION GRANTS
The Company has adopted 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 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.
In connection with the IPO, the Company made initial grants under the
Stock Plan of nonqualified stock options having terms of ten years to
purchase Class A Common Stock at an exercise price equal to $23.00, the
initial public offering price, of which options to purchase 250,000, 55,000,
50,000, 50,000 and 50,000 shares of Class A Common Stock were granted to
Messrs. Folz, DiMeola, Ellis, Colucci and Gershel, respectively. These
initial grants vest one-third each year beginning on the first anniversary of
the date of grant and become 100% vested on the third anniversary of the date
of grant. The Company
46
<PAGE>
also granted 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.
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>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth, as of December 31, 1996, adjusted to give
effect to the Offerings (and assuming no exercise of the Underwriters'
over-allotment options), the total number of shares of Common Stock
beneficially owned, and the percent so owned, by (i) each Director of the
Company, (ii) each Named Executive Officer, (iii) each person known to the
Company to be the beneficial owner of more than 5% of any class of
outstanding Common Stock, (iv) the Selling Stockholder and (v) all directors
and executive officers as a group.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
---------------------------- ----------------------------
NUMBER OF NUMBER OF
SHARES SHARES PERCENT OF
NAME AND ADDRESS BENEFICIALLY PERCENT OF BENEFICIALLY PERCENT OF TOTAL VOTING
OF BENEFICIAL OWNER OWNED(1) CLASS OWNED CLASS POWER
- ---------------------------------------- -------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Ronald O. Perelman(2)................... 19,600,000 63.9% 19,600,000 100% 94.7%
35 East 62nd Street
New York, New York 10021
Morgan Stanley Group Inc.(3)............ 799,800 7.2% -- -- *
1585 Broadway
New York, New York 10036
Morgan Stanley Asset Management Inc.(3). 561,800 5.1% -- -- *
1221 Avenue of the Americas
New York, New York 10020
T. Rowe Price Associates, Inc........... 609,800 5.5% -- -- *
100 E. Pratt Street
Baltimore, Maryland 21202
Howard Gittis........................... 5,000 * -- -- *
Donald G. Drapkin(4).................... 6,000 * -- -- *
Theo W. Folz............................ 50,000 * -- -- *
Robert Sargent Shriver III.............. 15,000 * -- -- *
Barry F. Schwartz....................... 3,000 * -- -- *
Gary R. Ellis........................... 3,000 * -- -- *
Richard L. DiMeola ..................... 10,000 * -- -- *
James L. Colucci ....................... 3,000 * -- -- *
George F. Gershel, Jr. ................. 1,000 * -- -- *
All Directors and executive officers as
a group (12 persons)(5)................ 19,697,000 64.2% 19,600,000 100% 94.7%
</TABLE>
- ------------
* Less than 1%.
(1) Shares of Class A Common Stock issuable upon conversion of Class B
Common Stock owned by Mafco Consolidated Group are deemed to be
outstanding for purposes of computing the percentage ownership of Mr.
Perelman through Mafco Consolidated Group, but are not deemed to be
outstanding for the purposes of computing the percentage ownership of
any other person shown in the table.
(2) Represents shares of Class A Common Stock issuable upon the conversion
of Class B Common Stock owned by Mafco Consolidated Group. Mafco
Holdings currently indirectly owns approximately 85% of the outstanding
shares of common stock of Mafco Consolidated Group. Mafco Holdings is
wholly owned by Mr. Perelman.
(3) Morgan Stanley Group, Inc. is deemd to beneficially own the 561,800
shares held by Morgan Stanley Asset Management Inc.
(4) Represents shares held in trust for the benefit of Mr. Drapkin's
children for which Mr. Drapkin disclaims beneficial ownership.
(5) Mr. Iacocca, who is a Director of the Company, does not beneficially
own any shares of Common Stock.
48
<PAGE>
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 80% 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 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.
In connection with the IPO, the Company granted 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 were 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 and Option Grants."
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
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, 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 $448,408,
respectively.
Upon completion of the Offerings, the Company will no longer be included
in the Tax Group's consolidated tax returns and will, instead, file its own
tax returns and pay its own taxes on a separate company basis. The Company
has Pre-Acquisition net operating losses of approximately $15 million which,
pursuant to the Tax Sharing Agreements, were not available to the Company to
offset taxable income generated in the Post-Acquisition period. Upon
completion of the Offerings, the Pre-Acquisition net operating losses that
were previously restricted, pursuant to the Tax Sharing Agreements, will be
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available to the extent that the loss carryforwards are not utilized in a
Mafco Holding's consolidated tax return. Since these losses relate to the
Pre-Acquisition period, a deferred tax asset will be recorded with a
corresponding reduction in goodwill.
In addition, the Company incurred tax losses in the Post-Acquisition
period which the Company utilized under the Tax Sharing Agreements. Upon
completion of the Offerings, a portion of these losses will be allocated to
the Company pursuant to the consolidated return regulation 1.1502-79 of the
Code. This tax attribute will be recorded as a deferred tax asset with a
corresponding decrease to capital deficiency.
Under existing federal income tax regulations the Company, Consolidated
Cigar and Mafco Consolidated Group are severally 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
In connection with the IPO, the Company issued the Promissory Note in an
original principal amount of $70 million to Mafco Consolidated Group. The
Promissory Note is 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,
formerly an indirect wholly owned subsidiary of Mafco Consolidated Group.
During the years ended December 31, 1993, 1994 and 1995, the Company
purchased approximately $210,000, $265,000 and $269,000 of licorice extract
from Pneumo Abex (successor by merger to Mafco Worldwide). The Company
believes that the licorice extract purchased from Pneumo Abex 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 years ended December 31, 1993, 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 IPO, the Company and Mafco Consolidated
Group entered into the Registration Rights Agreement pursuant to which Mafco
Consolidated Group and certain transferees of Class B Common Stock held by
Mafco Consolidated Group (the "Holders") have the right to require the
Company to register (a "Demand Registration") under the Securities Act of
1933, as amended (the "Securities Act"), all or part of the Class A Common
Stock issuable upon conversion of the Class B Common Stock owned by such
Holders, including the shares being offered hereby; provided that the Company
(i) is not obligated to effect a Demand Registration prior to February 11,
1997, 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
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development or transaction then pending or in progress or in other material
adverse consequences to the Company. Mafco Consolidated Group has obtained
the consent of Goldman, Sachs & Co. with respect to the registration of the
shares being offered hereby. 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.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 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"). 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 "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 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 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 Certificate.
The 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 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 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
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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 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 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 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 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 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 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 Certificate.
The Class A Common Stock is listed on the NYSE under the symbol "CIG."
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 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
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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 Certificate
contains a provision electing not to be governed by Section 203.
LIMITATIONS ON DIRECTORS' LIABILITY
The 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 Commission has taken the position that the provision will have
no effect on claims arising under the federal securities laws.
In addition, the 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 11,075,000 shares of Class A Common Stock and 19,600,000 shares
of Class B Common Stock, assuming no exercise of the over-allotment options
granted to the Underwriters. Of these shares, 11,075,000 shares of Class A
Common Stock (or a maximum of 11,825,000 shares if the Underwriter's
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 remaining 19,600,000 shares of Class B Common Stock
owned by Mafco Consolidated Group are, and the 19,600,000 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 are eligible (subject to the lock-up arrangements
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. See "Certain Relationships and Related
Transactions--Registration Rights Agreement."
In connection with the IPO, the Company and Mafco Consolidated Group
agreed that, subject to certain exceptions, they would not offer, sell or
otherwise dispose of any shares of Class A Common Stock or any security
convertible into or exchangeable or exercisable for shares of Class A Common
Stock prior to February 11, 1997, without the prior written consent of
Goldman, Sachs & Co. on behalf of the Underwriters. Mafco Consolidated Group
has obtained the consent of Goldman, Sachs & Co. with respect to the
registration of the shares being offered hereby. In addition, in connection
with the Offerings, the Company and Mafco Consolidated Group will enter into
a similar lock-up arrangement. 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 has registered
under the Securities Act the shares of Class A Common Stock issuable upon the
exercise of options granted pursuant to the Stock Plan.
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 secured
by a pledge of all of the shares of common stock of Consolidated Cigar owned
by the Company.
As of September 28, 1996, there was approximately $16.4 million unused and
available under the Credit Agreement, after taking into account approximately
$1.0 million utilized to support letters of credit. 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, including if Cigar Holdings were to own and control less than all
of the issued and outstanding capital stock of Consolidated Cigar or if a
"Change of Control" (as defined in the Senior Subordinated Notes Indenture)
were to occur. Consolidated Cigar recently entered into an amendment to the
Credit Agreement, which, among other things, permitted Consolidated Cigar to
pay the $5.6 million dividend to the Company and permits Consolidated Cigar
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 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.
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A "Change of Control" means (i) any person, other than Ronald O. Perelman
or any person controlled, directly or indirectly, by Mr. Perelman (the
"Permitted Holders"), is or becomes the beneficial owner, directly or
indirectly, of more than 35% of the total voting power of the voting stock of
Consolidated Cigar and the Permitted Holders beneficially own, directly or
indirectly, a lesser percentage of the total voting power of the voting stock
of Consolidated Cigar than such other person or (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of Consolidated Cigar (together with any
new directors whose election by such Board of Directors or whose nomination
for election by the stockholders of Consolidated Cigar was approved by a vote
of 66 2/3% of the directors of Consolidated Cigar then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of Consolidated Cigar then in
office.
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
In connection with the IPO, the Company issued the Promissory Note in an
original principal amount of $70 million to Mafco Consolidated Group. The
Promissory Note is 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.
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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 (i) effectively connected with the conduct of a trade
or business of the non-U.S. Holder within the United States or (ii) if a tax
treaty applies, is attributable to a United States permanent establishment of
the non-U.S. Holder, 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 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) (A) 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, (B) 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
58
<PAGE>
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.
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 LLP, New York, New York. Cravath, Swaine & Moore,
New York, New York has acted as counsel for the Underwriters. Skadden, Arps,
Slate, Meagher & Flom LLP 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 LLP 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 LLP, 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 is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed by the Company can
be inspected without charge at the office of the Commission at the Public
Reference Section located at 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 , and copies thereof may be obtained from
the Commission upon payment of the prescribed fees. The Commission also
maintains a site on the World Wide Web, the address of which is
http://www.sec.gov, that contains reports, proxy and information statements
and other information regarding issuers, such as the Company, that file
electronically with the Commission. Such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, N.Y. 10005, on which
the Company's Class A Common Stock is traded. 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.
59
<PAGE>
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 without charge at the
public reference facilities maintained by the Commission at the addresses set
forth above and may also be viewed at the Commission's Website.
60
<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 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Unaudited Condensed Consolidated Balance Sheet as of September 28, 1996 .................. F-20
Unaudited Condensed Consolidated Statements of Operations for the thirty-nine week periods
ended September 30, 1995 and September 28, 1996 ........................................ F-21
Unaudited Condensed Consolidated Statements of Stockholders' (Deficiency) Equity for the
thirty-nine week periods ended September 30, 1995 and September 28, 1996 ............... F-22
Unaudited Condensed Consolidated Statements of Cash Flows for the thirty-nine week periods
ended September 30, 1995 and September 28, 1996 ........................................ F-23
Notes to Unaudited Condensed Consolidated Financial Statements ........................... F-25
</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.
F-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
============= ============== ============== ==============
Net income per common share (unaudited) . -- $ 0.12 $ 0.31 $ 0.57
============= ============== ============== ==============
</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.
Initial Public Offering and Earnings per Share (Unaudited)
On August 21, 1996, the Company completed an initial public offering (the
"Offering") in which it issued and sold 6,075,000 shares of its Class A
Common Stock for $23.00 per share. The proceeds, net of underwriters'
discount and related fees and expenses, of $127.8 million, were paid as a
dividend to Mafco Consolidated Group.
Simultaneously with the Offering, each of the Company's then outstanding
shares of common stock was converted into 24,600 shares of the newly created
Class B Common Stock, resulting in a total of 24,600,000 shares of Class B
Common Stock outstanding following the Offering. In addition, the Company
issued a non-interest bearing Promissory Note in an original principal amount
of $70.0 million to Mafco Consolidated Group.
F-10
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE C -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net income per common share has been computed assuming the conversion of
the Company's common stock into shares of Class B Common Stock as of the
beginning of all periods presented and is therefore based upon the weighted
average of 24,600,000 shares of common stock outstanding prior to the
Offering.
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.
F-11
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
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>
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.
F-12
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G -- LONG-TERM DEBT (Continued)
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.
(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
F-13
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE G -- LONG-TERM DEBT (Continued)
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 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.
F-14
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
NOTE I -- INCOME TAXES (Continued)
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.
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 $210,000, $265,000 and $269,000 for the years
ended December 31, 1993, 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 years ended December 31,
1993, 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)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 28,
1996
---------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................................... $ 2,627
Accounts receivable, less an allowance of $4,634 ............................. 19,234
Inventories .................................................................. 47,065
Prepaid expenses and other ................................................... 4,705
---------------
Total current assets .......................................................... 73,631
Property, plant and equipment, net of accumulated depreciation ............... 37,445
Trademarks, less accumulated amortization of $3,102 ........................... 31,372
Goodwill, less accumulated amortization of $6,180 ............................. 60,136
Other intangibles and assets, less accumulated amortization of $4,427 ........ 4,338
---------------
Total assets .................................................................. $206,922
===============
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Current portion of promissory note due to affiliate .......................... $ 7,500
Accounts payable ............................................................. 10,281
Accrued expenses ............................................................. 17,221
---------------
Total current liabilities ..................................................... 35,002
Long-term debt due to third parties ........................................... 110,000
Promissory note due to affiliate .............................................. 62,500
Other liabilities ............................................................. 7,106
---------------
Total liabilities ............................................................. 214,608
---------------
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, par value $0.01 per share, 20,000,000 shares authorized, no
shares issued and outstanding ............................................... --
Common stock, $1.00 par value, 1,000 shares authorized, issued and
outstanding ................................................................. --
Class A Common Stock, par value $0.01 per share; 300,000,000 shares
authorized, 6,075,000 shares issued and outstanding ......................... 61
Class B Common Stock, par value $0.01 per share; 250,000,000 shares
authorized, 24,600,000 shares issued and outstanding ........................ 246
Capital deficiency ........................................................... (13,314)
Retained earnings ............................................................ 5,321
---------------
Total stockholders' deficiency ................................................ (7,686)
---------------
Total liabilities and stockholders' deficiency ................................ $206,922
===============
</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>
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Net sales ................................... $ 152,820 $ 115,136
Cost of sales ............................... 88,391 68,312
--------------- ---------------
Gross profit ................................ 64,429 46,824
Selling, general and administrative expenses 26,596 23,637
--------------- ---------------
Operating income ............................ 37,833 23,187
--------------- ---------------
Other expenses:
Interest expense, net ...................... 7,961 9,691
Miscellaneous .............................. 841 866
--------------- ---------------
8,802 10,557
--------------- ---------------
Income before provision for income taxes ... 29,031 12,630
Provision for income taxes .................. 8,277 2,780
--------------- ---------------
Net income .................................. $ 20,754 $ 9,850
=============== ===============
Net income per common share ................. $ 0.81 $ 0.40
=============== ===============
Weighted average common shares outstanding . 25,582,721 24,600,000
=============== ===============
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-21
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIENCY) EQUITY
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN
CLASS A CLASS B CAPITAL
COMMON COMMON COMMON (CAPITAL RETAINED
STOCK STOCK STOCK DEFICIENCY) EARNINGS TOTAL
-------- --------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994 .................... $ 1 $-- $ -- $ 29,999 $ 10,563 $ 40,563
Net income for the
thirty-nine weeks ....... -- -- -- -- 9,850 9,850
Cash dividends ........... -- -- -- -- (5,000) (5,000)
-------- --------- --------- ------------ ---------- -----------
Balance at September 30,
1995 .................... $ 1 $-- $ -- $ 29,999 $ 15,413 $ 45,413
======== ========= ========= ============ ========== ===========
Balance at December 31,
1995 .................... $ 1 $-- $ -- $ 34,834 $ 19,493 $ 54,328
Net income for the
thirty-nine weeks ....... -- -- -- -- 20,754 20,754
Promissory note dividend -- -- -- (47,842) (22,158) (70,000)
Net proceeds from initial
public offering ......... (1) 61 246 127,503 -- 127,809
Cash dividends ........... -- -- -- (127,809) (12,768) (140,577)
-------- --------- --------- ------------ ---------- -----------
Balance at September 28,
1996 .................... $-- $61 $246 $ (13,314) $ 5,321 $ (7,686)
======== ========= ========= ============ ========== ===========
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-22
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................ $20,754 $ 9,850
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization ............................ 5,499 5,730
Deferred income .......................................... (153) (154)
Changes in assets and liabilities:
Increase in:
Accounts receivable .................................... (4,351) (2,655)
Inventories ............................................ (8,043) (3,629)
Prepaid expenses and other ............................. (751) (282)
Increase (decrease) in:
Accounts payable ....................................... 6,484 2,400
Accrued expenses and other liabilities ................. 744 (861)
--------------- ---------------
Net cash provided by operating activities ................. 20,183 10,399
--------------- ---------------
Cash flows (used for) provided by investing activities:
Capital expenditures ..................................... (4,376) (561)
Investment in joint venture .............................. (482) --
(Increase) decrease in other assets ...................... (16) 950
--------------- ---------------
Net cash (used for) provided by investing activities ..... (4,874) 389
--------------- ---------------
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-23
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows provided by (used for) financing
activities:
Net proceeds from initial public offering ............ $ 127,809 $ --
Repayment of revolving loan, net ..................... (600) (5,900)
Due to affiliates and other borrowings ............... (459) (386)
Dividends paid ....................................... (140,577) (5,000)
--------------- ---------------
Net cash used for financing activities ................ (13,827) (11,286)
--------------- ---------------
Increase (decrease) in cash and cash equivalents ..... 1,482 (498)
Cash and cash equivalents, beginning of period ....... 1,145 1,700
--------------- ---------------
Cash and cash equivalents, end of period .............. $ 2,627 $ 1,202
=============== ===============
Supplemental disclosures of cash flow information:
Interest paid during the period ...................... $ 10,548 $ 12,461
Income taxes paid during the period .................. 8,362 834
Supplemental disclosure of noncash financing activity:
Promissory note issued ............................... 70,000 --
</TABLE>
See notes to unaudited condensed consolidated financial statements.
F-24
<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
its subsidiaries and Mafco Worldwide Corporation, with Mafco Consolidated
Group, which was the surviving corporation in the merger. As a result of the
merger, 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, as filed with Form S-1 dated August 15,
1996. The results of operations for the thirty-nine week period ended
September 28, 1996 and September 30, 1995 are not necessarily indicative of
the results for the entire year.
NOTE B -- INVENTORIES
The components of inventory are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 28, 1996
------------------
(IN THOUSANDS)
<S> <C>
Raw materials and supplies $33,672
Work in process ........... 2,230
Finished goods ............ 11,163
------------------
$47,065
==================
</TABLE>
NOTE C -- INITIAL PUBLIC OFFERING AND PROMISSORY NOTE
On August 21, 1996, the Company completed an initial public offering (the
"Offering") in which it issued and sold 6,075,000 shares of its Class A
Common Stock for $23.00 per share. The proceeds, net of underwriter's
discount and related fees and expenses, of $127.8 million, were paid as a
dividend to Mafco Consolidated Group.
Simultaneously with the Offering, each of the Company's then outstanding
shares of common stock were converted into 24,600 shares of the newly created
Class B Common Stock which totaled 24,600,000 shares. In addition, the
Company issued a non-interest bearing Promissory Note in an original
principal amount of $70.0 million to Mafco Consolidated Group. 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, and, due to
its related party nature, has not been discounted.
NOTE D -- NET INCOME PER COMMON SHARE
Net income per common share has been computed assuming the conversion of
the Company's common stock into shares of Class B Common Stock as of the
beginning of all periods presented and is therefore based upon the weighted
average of 24,600,000 shares of common stock outstanding prior to the
Offering and 30,675,000 shares of common stock outstanding after the
Offering. The dilutive effect of stock options has not been included as it is
less than 3%.
F-25
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the U.S. Underwriting Agreement,
the Selling Stockholder 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 and Morgan Stanley
& Co. Incorporated are acting as representatives (the "Representatives"), has
severally agreed to purchase from the Selling Stockholder, 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.........
----------------
Total ..................................
</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 Selling Stockholder 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 and Morgan Stanley & Co.
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) 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.
U-1
<PAGE>
The Selling Stockholder 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 600,000 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 4,000,000 shares of Class A Common Stock
offered hereby. The Selling Stockholder 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 90 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 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.
The Company and the Selling Stockholder have 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
transactions for the Company and its affiliates.
U-2
<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
Price Range of Class A Common Stock ........ 16
Capitalization .............................. 17
Selected Historical Financial Data .......... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 21
Business .................................... 29
Management .................................. 41
Security Ownership of Certain Beneficial
Holders .................................... 48
Certain Relationships and Related
Transactions ............................... 49
Description of Capital Stock ................ 52
Shares Eligible for Future Sale ............. 55
Description of Certain Indebtedness ........ 56
Certain United States Tax Consequences
to Non-United States Holders ............... 57
Legal Matters ............................... 59
Experts ..................................... 59
Available Information ....................... 59
Index to Consolidated Financial Statements . F-1
Underwriting ................................ U-1
</TABLE>
5,000,000 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
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 JANUARY 30, 1997
5,000,000 SHARES
CONSOLIDATED CIGAR HOLDINGS INC.
CLASS A COMMON STOCK
(PAR VALUE $0.01 PER SHARE)
Of the 5,000,000 shares of Class A Common Stock offered, 1,000,000 shares
are being offered hereby in an international offering outside the United
States and 4,000,000 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."
All of the shares of Class A Common Stock are being sold by Mafco
Consolidated Group, Inc. (NYSE: MFO) ("Mafco Consolidated Group" or the
"Selling Stockholder"), a corporation 85% owned by Ronald O. Perelman through
his ownership of Mafco Holdings, Inc. ("Mafco Holdings"). The Company will
not receive any of the proceeds from the sale of the shares.
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.
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 94.7% of the combined voting power of the outstanding shares of
Common Stock.
The last reported sales price of the Common Stock, which is listed on the
New York Stock Exchange under the symbol "CIG", on January 29, 1997 was $23
5/8 per share. See "Price Range of Class A Common Stock".
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE CLASS A COMMON STOCK.
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>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING SELLING
OFFERING PRICE DISCOUNT(1) STOCKHOLDER 2
------------------ ---------------- ---------------
<S> <C> <C> <C>
Per Share .....
Total(2) ......
</TABLE>
- ------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933.
(2) Estimated expenses of $_________ are payable by the Company.
(3) The Selling Stockholder 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 Selling Stockholder has granted the U.S. Underwriters
a similar option with respect to an additional 600,000 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 the Selling Stockholder 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 , 1997, against payment therefor in
immediately available funds.
GOLDMAN SACHS INTERNATIONAL
MERRILL LYNCH INTERNATIONAL
MORGAN STANLEY & CO.
INTERNATIONAL
The date of this Prospectus is , 1997.
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
[ARTWORK]
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 Selling Stockholder 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 and Morgan Stanley & Co. International Limited are acting as
representatives (the "Representatives"), has severally agreed to purchase
from the Selling Stockholder, 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 STOCK
----------------
UNDERWRITER
- --------------------------------
<S> <C>
Goldman Sachs International ....
Merrill Lynch International ....
Morgan Stanley & Co.
International Limited..........
----------------
Total .........................
================
</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 Selling Stockholder 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
4,000,000 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 and
Morgan Stanley & Co. Incorporated.
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 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 Selling Stockholder 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
U-1
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
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 Selling Stockholder has granted the U.S. Underwriters a similar option to
purchase up to an aggregate of 600,000 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 90 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.
The Company and the Selling Stockholder have 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
transactions for the Company and its affiliates.
U-2
<PAGE>
ALTERNATE PAGE FOR INTERNATIONAL PROSPECTUS
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
Price Range of Class A Common Stock ........ 16
Capitalization .............................. 17
Selected Historical Financial Data .......... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations ................................. 21
Business .................................... 29
Management .................................. 41
Security Ownership of Certain Beneficial
Holders .................................... 48
Certain Relationships and Related
Transactions ............................... 49
Description of Capital Stock ................ 52
Shares Eligible for Future Sale ............. 55
Description of Certain Indebtedness ........ 56
Certain United States Tax Consequences to
Non-United States Holders .................. 57
Legal Matters ............................... 59
Experts ..................................... 59
Available Information ....................... 59
Index to Consolidated Financial Statements . F-1
Underwriting ................................ U-1
</TABLE>
5,000,000 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
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 . $39,972
National Association of Securities Dealers ......... 13,691
New York Stock Exchange ............................. *
Blue Sky Fees ....................................... *
Printing and Engraving Expenses ..................... *
Legal Fees and Expenses ............................. *
Accounting Fees and Expenses ........................ *
Transfer Agent and Registrar Fees ................... *
Miscellaneous ....................................... *
---------
Total ............................................. $
=========
</TABLE>
- ------------
* To be completed by Amendment.
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 X 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.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ------------ -----------------------------------------------------------------------------
<S> <C>
**1.1 Form of Underwriting Agreement.
*3.1 Amended and Restated Certificate of Incorporation of Registrant.
*3.2 Amended and Restated By-laws of Registrant.
4.1 Specimen Certificate of Class A Common Stock (incorporated by reference from
Exhibit 4.1 to Registrant's Registration Statement on Form S-1 (Registration
No. 333-6819)).
4.2 Indenture by and between Consolidated Cigar Corporation and Continental Bank,
National Association, as Trustee, relating to the Senior Subordinated Notes
due 2003 (incorporated by reference from Exhibit 10.3 to Registrant's
Registration Statement on Form S-1 (Registration No. 333-6819)).
**5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP 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)).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(i) Amendment No. 9 to the Credit Agreement dated as of March 13, 1996
(incorporated by reference from Exhibit 10.2(i) to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.1(j) Amendment No. 10 to the Credit Agreement dated as of July 31, 1996
(incorporated by reference from Exhibit 10.2(j) to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.2(a) Employment Agreement, dated July 1, 1995, between Mafco Consolidated Group
Inc. 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).
II-2
<PAGE>
10.2(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).
10.2(c ) Second Amendment, dated August 1, 1996, to the Employment Agreement, dated
July 1, 1995, between Mafco Consolidated Group Inc. and Theo W. Folz
(incorporated by reference from Exhibit 10.4(c) to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
*10.3 Employment Agreement, dated August 1, 1996, between Consolidated Cigar
Corporation and Richard L. DiMeola.
10.4 Employment Agreement, dated August 1, 1996, between Consolidated Cigar
Corporation and Gary R. Ellis (incorporated by reference from Exhibit 10.9 to
Amendment No. 1 of Mafco Consolidated Group Inc.'s Registration Statement on
Form S-1 (Registration No. 333-15257)).
*10.5 Employment Agreement, dated July 1, 1996, between Consolidated Cigar
Corporation and James L. Colucci.
*10.6 Employment Agreement, dated August 1, 1996, between Consolidated Cigar
Corporation and George F. Gershel, Jr.
10.7 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).
10.8 Reimbursement Agreement, dated as of March 3, 1993, between Consolidated
Cigar Corporation and Mafco Holdings Inc. (incorporated by reference from
Exhibit 10.10 to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
10.9 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).
10.10 Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated by reference
from Exhibit 10.12 to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
10.11 Registration Rights Agreement, dated as of August 21, 1996, between the
Registrant and Mafco Consolidated Group Inc. (incorporated by reference from
Exhibit 10.22 to Amendment No. 1 to Mafco Consolidated Group Inc.'s
Registration Statement on Form S-1 (Registration No. 333-15257)).
10.12 Registrant's Promissory Note (incorporated by reference from Exhibit 10.5 to
Amendment No. 1 to Mafco Consolidated Group Inc.'s Registration Statement on
Form S-1 (Registration No. 333-15257)).
10.13 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).
10.14(a) Guarantee and Security Agreement, dated as of March 3, 1993, between the
Registrant and The Chase Manhattan Bank, N.A. (incorporated by reference from
Exhibit 10.16(a) to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
10.14(b) First Amendment to Guarantee and Security Agreement, dated as of July 31,
1996 (incorporated by reference from Exhibit 10.16(b) to Registrant's
Registration Statement on Form S-1 (Registration No. 333-6819)).
10.15 Executive Employment Agreement, dated as of August 1, 1996, between
Consolidated Cigar Corporation and Theo W. Folz (incorporated by reference
from Exhibit 10.17 to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
II-3
<PAGE>
22.1 Subsidiaries of the Registrant (incorporated by reference from Exhibit 22.1
to Registrant's Registration Statement on Form S-1 (Registration No.
333-6819)).
*23.1 Consent of Ernst & Young LLP.
**23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in the opinion
filed as Exhibit 5.1 hereto).
*24.1 Powers of Attorney.
</TABLE>
- ------------
* Filed herewith
** To be filed by Amendment
(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.
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 January 30, 1997.
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Gary R. Ellis
-------------------------------
Gary R. Ellis
Senior Vice President
and Chief Financial 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>
NAME TITLE DATE
- ------------------------------ ------------------------------------------ --------------------
<S> <C> <C>
* Chairman of the Board of Directors January 30, 1997
------------------------------
Ronald O. Perelman
* Director January 30, 1997
------------------------------
Howard Gittis
* Director January 30, 1997
------------------------------
Donald G. Drapkin
* Director January 30, 1997
------------------------------
Lee A. Iacocca
* Director January 30, 1997
------------------------------
Robert Sargent Shriver III
* President, Chief Executive Officer and January 30, 1997
------------------------------ Director (Principal Executive Officer)
Theo W. Folz
/s/ Gary R. Ellis Senior Vice President and Chief Financial January 30, 1997
------------------------------ Officer (Principal Financial Officer)
Gary R. Ellis
* Vice President and Controller January 30, 1997
------------------------------ (Principal Accounting Officer)
James M. Parnofiello
</TABLE>
*Joram C. Salig, 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/ Joram C. Salig
-------------------------------
Joram C. Salig
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 TEN MONTHS
ENDED ENDED YEAR ENDED ENDED
MARCH 2, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1993 1994 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
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES 1) ACCOUNTS 2) DEDUCTIONS OF 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 Amended and Restated Certificate of Incorporation of Registrant.
*3.2 Amended and Restated By-laws of Registrant.
4.1 Specimen Certificate of Class A Common Stock (incorporated by reference from Exhibit
4.1 to Registrant's Registration Statement on Form S-1 (Registration No. 333-6819)).
4.2 Indenture by and between Consolidated Cigar Corporation and Continental Bank, National
Association, as Trustee, relating to the Senior Subordinated Notes due 2003
(incorporated by reference from Exhibit 10.3 to Registrant's Registration Statement on
Form S-1 (Registration No. 333-6819)).
**5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP 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)).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(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).
10.1(i) Amendment No. 9 to the Credit Agreement dated as of March 13, 1996 (incorporated by
reference from Exhibit 10.2(i) to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
10.1(j) Amendment No. 10 to the Credit Agreement dated as of July 31, 1996 (incorporated by
reference from Exhibit 10.2(j) to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
<PAGE>
10.2(a) Employment Agreement, dated July 1, 1995, between Mafco Consolidated Group Inc. 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).
10.2(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).
10.2(c) Second Amendment, dated August 1, 1996, to the Employment Agreement, dated July 1,
1995, between Mafco Consolidated Group Inc. and Theo W. Folz (incorporated by
reference from Exhibit 10.4(c) to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
*10.3 Employment Agreement, dated August 1, 1996, between Consolidated Cigar Corporation and
Richard L. DiMeola.
10.4 Employment Agreement, dated August 1, 1996, between Consolidated Cigar Corporation and
Gary R. Ellis (incorporated by reference from Exhibit 10.9 to Amendment No. 1 of Mafco
Consolidated Group Inc.'s Registration Statement on Form S-1 (Registration No.
333-15257)).
*10.5 Employment Agreement, dated July 1, 1996, between Consolidated Cigar Corporation and
James L. Colucci.
*10.6 Employment Agreement, dated August 1, 1996, between Consolidated Cigar Corporation and
George F. Gershel, Jr.
10.7 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).
10.8 Reimbursement Agreement, dated as of March 3, 1993, between Consolidated Cigar
Corporation and Mafco Holdings Inc. (incorporated by reference from Exhibit 10.10 to
Registrant's Registration Statement on Form S-1 (Registration No. 333-6819)).
10.9 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).
10.10 Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated by reference from
Exhibit 10.12 to Registrant's Registration Statement on Form S-1 (Registration No.
333-6819)).
10.11 Registration Rights Agreement, dated as of August 21, 1996, between the Registrant and
Mafco Consolidated Group Inc. (incorporated by reference from Exhibit 10.22 to
Amendment No. 1 to Mafco Consolidated Group Inc.'s Registration Statement on Form S-1
(Registration No. 333-15257)).
10.12 Registrant's Promissory Note (incorporated by reference from Exhibit 10.5 to Amendment
No. 1 to Mafco Consolidated Group Inc.'s Registration Statement on Form S-1
(Registration No. 333-15257)).
10.13 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).
<PAGE>
10.14(a) Guarantee and Security Agreement, dated as of March 3, 1993, between the Registrant
and The Chase Manhattan Bank, N.A. (incorporated by reference from Exhibit 10.16(a) to
Registrant's Registration Statement on Form S-1 (Registration No. 333-6819)).
10.14(b) First Amendment to Guarantee and Security Agreement, dated as of July 31, 1996
(incorporated by reference from Exhibit 10.16(b) to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.15 Executive Employment Agreement, dated as of August 1, 1996, between Consolidated Cigar
Corporation and Theo W. Folz (incorporated by reference from Exhibit 10.17 to
Registrant's Registration Statement on Form S-1 (Registration No. 333-6819)).
22.1 Subsidiaries of the Registrant (incorporated by reference from Exhibit 22.1 to
Registrant's Registration Statement on Form S-1 (Registration No. 333-6819)).
*23.1 Consent of Ernst & Young LLP.
**23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in the opinion filed as
Exhibit 5.1 hereto).
*24.1 Powers of Attorney.
</TABLE>
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* Filed herewith
** To be filed by Amendment
<PAGE>
EXHIBIT 3.1
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 25, 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 24,600 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 24,600,000 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 corpora- tion 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
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<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 con-
verted 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.
6
<PAGE>
(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 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),
7
<PAGE>
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 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.
8
<PAGE>
(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 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
9
<PAGE>
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 (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 trans- feree 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
10
<PAGE>
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
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."
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<PAGE>
(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.
(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
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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
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
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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.
(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 indi-
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rectly, 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 designations, 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.
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(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,
(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.
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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 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 20th day of
August, 1996.
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Joram C. Salig
-------------------------------
Name: Joram C. Salig
Title: Vice President
and Secretary
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EXHIBIT 3.2
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 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
<PAGE>
at such meeting not less than ten nor more than sixty days before the date of
the meeting.
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 or (iii) the Chairman
of the Executive Committee of the Board of Directors. Such request shall state
the purpose or purposes of the proposed meeting. 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 required 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 Chairman of the meeting 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 ten nor more than sixty days before the date of the meeting.
Section 5. Proxies. Any stockholder entitled to vote may do
so in person or by his proxy appointed by an instrument in writing subscribed
by such stockholder or by
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his attorney thereunto authorized, delivered to the Secretary of the meeting;
provided, however, that no proxy shall be voted or acted upon after three
years from its date, unless said proxy provides for a longer period. All
proxies must be filed with the Secretary of the Corporation at the beginning
of the meeting in order to be counted in any vote at the meeting.
Section 6. Voting. At all meetings of the stockholders at
which a quorum is present, except as 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 voting
as a single class. At the Annual Meeting of Stockholders, or any Special
Meeting of Stockholders at which directors are to be elected, the directors
shall be elected by a plurality vote.
Section 7. Organization and Order of Business. At every
meeting of stockholders, the Chairman of the Board of Directors or, in such
person's absence, the Chairman of the Executive Committee of the Board of
Directors or, in the absence of both of them, such person as shall have been
designated by the Board of Directors or, if none, by the Chairman of the Board
of Directors, or, if none, by the Chairman of the Executive Committee of the
Board of Directors, shall act as Chairman of the meeting. The Secretary or, in
such person's absence, an Assistant Secretary, shall act as Secretary of the
meeting. The Chairman of the meeting shall have the sole authority to
prescribe the agenda and rules of order for the conduct of any Annual or
Special Meeting of Stockholders and to determine all questions arising thereat
relating to the order of business and the conduct of the meeting, except as
otherwise required by law. Unless otherwise directed by the Chairman of the
meeting, the vote at any meeting of the stockholders need not be by written
ballot. In case none of the officers above designated to act as Secretary of
the meeting shall be present, the Chairman of the meeting or Secretary of the
meeting shall be appointed by vote 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.
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Section 8. 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 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 8. 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 ("DGCL") 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 written consent has been given in accordance with this
Section 8.
Section 9. 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.
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Section 10. 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 9 of this Article II
or the books of the Corporation, or to vote in person or by proxy at any
meeting of stockholders.
Section 11. 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 a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of a determination of stockholders entitled
to vote at any meeting of stockholders or adjournment thereof, shall not be
more than sixty nor less than ten days before the date of such meeting; (2) in
the case of a determination of stockholders entitled to express consent to
corporate action in writing without a meeting, shall not be more than ten days
after the date upon which the resolution fixing the record date is adopted by
the Board of Directors; and (3) in the case of any other action, shall not be
more than sixty days prior to such other action. If no record date is fixed:
(1) the record date for determining stockholders entitled to notice of or to
vote at a meeting of stockholders shall be at the close of business on the day
next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting
is held; (2) the record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting when no prior action
of the Board of Directors is required by law, shall be the first date on which
a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation in accordance with applicable law, or if
prior action by the Board of Directors is required by law, shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date for determining
stockholders for any other purpose shall be at the close of
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business on the day on which the Board of Directors adopts the resolution
relating thereto. 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 12. Inspectors of Election. The Corporation shall,
in advance of any meeting of stockholders, appoint one or more inspectors of
elections to act at the meeting and make a written report thereof. The
Corporation may designate one or more persons as alternate inspectors to
replace any inspector who fails to act. If no inspector or alternate is able
to act at a meeting of stockholders, the Chairman of the meeting 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 entering upon the discharge of his duties, shall take and
sign an oath faithfully to execute the duties of inspector with strict
impartiality and according to the best of his ability. The inspector 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 three members, the exact number of
which shall from time to time be determined by resolution of the Board of
Directors. Except as provided in Section 2 of this Article, directors shall be
elected by the stockholders at the Annual Meetings of Stockholders, and each
director so elected shall hold office until his successor is duly elected and
qualified, or until his death, or until his earlier resignation or removal.
Directors need not be stockholders.
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Section 2. Vacancies. 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 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 required to be exercised or done by the
stockholders.
Section 4. Organization. At each meeting of the Board of
Directors, the Chairman of the Executive Committee of the Board of Directors
or the Chairman of the Board of Directors, or, in the absence of both of them,
a director chosen by a majority of the directors present, shall act as
Chairman. The Secretary of the Corporation shall act as Secretary at each
meeting of the Board of Directors. In case the Secretary shall be absent from
any meeting of the Board of Directors, an Assistant Secretary shall perform
the duties of Secretary at such meeting; and in the absence from any such
meeting of the Secretary and all the Assistant Secretaries, the Chairman of
the meeting may appoint any person to act as Secretary of the meeting.
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<PAGE>
Section 5. Resignations and Removals of Directors. Any
director of the Corporation may resign at any time, by giving written notice
to the Chairman of the Board of Directors, the Chairman of the Executive
Committee of the Board of Directors, the President or the Secretary of the
Corporation. Such resignation shall take effect at the time therein specified
or, if no time is specified, immediately; and, unless otherwise specified in
such notice, the acceptance of such resignation shall not be necessary to make
it effective. Except as otherwise required by law, any director or the entire
Board of Directors may be removed, with or without cause, by the affirmative
vote or written consent of a majority in total voting power of the issued and
outstanding capital stock of the Corporation represented and entitled to vote
in the election of directors.
Section 6. 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 hours notice; or on such shorter notice as the person or persons
calling such meeting may deem necessary or appropriate in the circumstances.
Section 7. First Yearly Meeting. The Board of Directors
shall meet for the purpose of organization, the election of officers and the
transaction of other business, as soon as practicable after each Annual
Meeting of Stockholders, and no notice of such meeting to the existing or
newly elected directors shall be necessary in order to legally constitute the
meeting, provided a quorum is present. Such first meeting may be held at any
other time or place specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or in a waiver of notice thereof.
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Section 8. Quorum and Manner of Acting. Except as otherwise
required 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.
Section 9. Action by Written Consent. Unless otherwise
required 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 10. Meetings by Means of Conference Telephone.
Unless otherwise required by the Certificate of Incorporation or these
By-Laws, members of the Board of Directors, 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 10 shall
constitute presence in person at such meeting.
Section 11. 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, or such other emoluments, as the Board of
Directors shall from time to time determine. No such payment shall preclude
any director from serving the Corporation in any other capacity and receiving
compensation therefor. Each director who shall serve as a member or Chairman
of special or standing committee may be allowed like compensation for
attending committee meetings.
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Section 12. 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 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.
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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 Corporation 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 three 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
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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.
ARTICLE V
OFFICERS
Section 1. Officers. The Board of Directors shall elect a
Chairman of the Board of Directors, a President, one or more Vice Presidents,
a Treasurer, a Controller and a Secretary. The Board of Directors may
designate one or more Vice Presidents as Senior Executive Vice Presidents,
Executive Vice Presidents or Senior Vice Presidents, and may use such other
descriptive words as it may determine to designate the seniority or areas of
special competence or responsibility of the officers. Any two or more offices
may be held by the same person.
Section 2. Term of Office and Qualifications. Each such
officer shall hold office until such officer's successor shall have been duly
chosen and shall qualify, or until such officer's death, resignation or
removal in the manner hereinafter provided. The Chairman of the Board of
Directors shall be chosen from among the directors, but no other officer need
be a director. Each officer shall have such functions or duties as are
provided in these By-Laws, or as the Board of Directors may from time to time
determine.
Section 3. Subordinate Officers. The Board of Directors may
from time to time elect such other officers or assistant officers as it may
deem necessary, each of whom shall hold office for such period, have such
authority, and perform such duties as are provided in these By-Laws, or as the
Board of Directors may from time to time determine.
Section 4. Removal. Any officer may be removed,
either with or without cause, by the Board of Directors,
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and any officer also may be removed in such other manner as may be specified
by the Board of Directors in the resolution or resolutions electing such
officer. Any officer may be suspended by the Chairman of the Board of
Directors either with or without cause.
Section 5. Resignations. Any officer may resign at any time
by giving written notice to the Board of Directors, the Chairman of the Board
of Directors or the Secretary of the Corporation. Any such resignation shall
take effect at the time therein specified or if no time is specified,
immediately; and, unless otherwise specified in such notice, the acceptance of
such resignation shall not be necessary to make it effective.
Section 6. Vacancies. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be
filled in the manner prescribed in these By-Laws for the regular election to
that office.
Section 7. Compensation. Salaries or other compensation of
the officers may be fixed from time to time by the Board of Directors or any
duly authorized committee of directors and shall be so fixed by the Board of
Directors or such committee as to any officer serving the Corporation as a
director. No officer shall be prevented from receiving proper compensation for
such officer's services by reason of the fact that such officer is also a
director of the Corporation.
Section 8. Chairman of the Board of Directors. The Chairman
of the Board of Directors shall have general supervision of the business,
affairs and property of the Corporation, and over its several officers,
subject, however, to the control of the Board of Directors. The Chairman of
the Board of Directors shall preside at all meetings of the stockholders and
of the Board of Directors. The Chairman of the Board of Directors may, with
the Treasurer or the Secretary or an Assistant Treasurer or an Assistant
Secretary, sign certificates for stock of the Corporation. 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, 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
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agent of the Corporation, or shall be required by law otherwise to be made or
executed. The Chairman of the Board of Directors shall have the power to fix
the compensation of elected officers whose compensation is not fixed by the
Board of Directors or a committee thereof in accordance with Section 7 of this
Article V, and also to engage, discharge, determine the duties and fix the
compensation of all employees and agents of the Corporation necessary or
proper for the transaction of the business of the Corporation. In general, the
Chairman of the Board of Directors shall have all authority incident to the
office of Chairman of the Board of Directors and shall have such other
authority and perform such other duties as may from time to time be assigned
by the Board of Directors or by any duly authorized committee of directors.
Section 9. President. The President shall be the chief
executive officer of the Corporation and, subject to the direction of the
Board of Directors, any duly authorized committee of directors and the
Chairman of the Board of Directors, shall have general supervision of the
operations of the Corporation. The President may, with the Treasurer or the
Secretary or an Assistant Treasurer or an Assistant Secretary, sign
certificates for stock of the Corporation. The President may enter into and
execute in the name of the Corporation deeds, mortgages, bonds, guarantees,
contracts and other instruments, 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 Corporation, or shall be required by law otherwise to be made or executed.
In general, the President shall have all authority incident to the office of
President and chief executive officer and shall have such other authority and
perform such other duties as may from time to time be assigned by the Board of
Directors or by any duly authorized committee of directors or by the Chairman
of the Board of Directors. The President shall, at the request or in the
absence or disability of the Chairman of the Board of Directors, perform the
duties and exercise the powers of such officer.
Section 10. Vice Presidents. The Vice Presidents shall have
supervision over the operations of the Corporation within their respective
areas of special competence or responsibility and in accordance with
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policies, procedures and practices in effect from time to time, subject,
however, to the control of the Board of Directors, any duly authorized
committee of directors, the Chairman of the Board of Directors, the President
and any other officer to whom they report. They shall, within such areas (in
the order of their designation, or in the absence of such designation, in the
order of their seniority based on title or, in the case of officers of equal
title, in order of their tenure), at the request or in the absence or
disability of the President, perform the duties and exercise the powers of
such officer. They may, with the Treasurer or the Secretary or an Assistant
Treasurer or an Assistant Secretary, sign certificates for stock of the
Corporation. They may enter into and execute in the name of the Corporation
deeds, mortgages, guarantees, bonds, contracts and other instruments, 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. In general, they shall have all
authority incident to their respective offices and shall have such other
authority and perform such other duties as may from time to time be assigned
to them 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 they report.
Section 11. Treasurer. The Treasurer shall, if required by
the Board of Directors, the Chairman of the Board of Directors, the President
or any other officer to whom the Treasurer reports, give a bond for the
faithful discharge of duties, in such sum and with such sureties as may be so
required. The Treasurer shall have custody of, and be responsible for, all
funds and securities of the Corporation; receive and give receipts for money
due and payable to the Corporation from any source whatsoever; deposit all
such money in the name of the Corporation in such banks, trust companies, or
other depositories as shall be selected in accordance with the provisions of
Section 5 of Article VI of these By-Laws; against proper vouchers, cause such
funds to be disbursed by check or draft on the authorized depositories of the
Corporation signed in such manner as shall be determined in accordance with
the provisions of Section 4 of Article VI of these By-Laws and
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be responsible for the accuracy of the amounts of all funds so disbursed;
regularly enter or cause to be entered in books to be kept by the Treasurer or
under the Treasurer's direction, full and adequate accounts of all money
received and paid by the Treasurer for the account of the Corporation; have
the right to require, from time to time, reports or statements giving such
information as the Treasurer may determine to be necessary or desirable with
respect to any and all financial transactions of the Corporation from the
officers and agents transacting the same; render to the Board of Directors,
any duly authorized committee of directors, the Chairman of the Board of
Directors, the President or any officer to whom the Treasurer reports,
whenever they or any of them, respectively, shall require the Treasurer so to
do, an account of the financial condition of the Corporation and of all
transactions of the Treasurer; exhibit at all reasonable times the books of
accounts and other records provided for herein to any of the directors of the
Corporation; and, in general, have all authority incident to the office of
Treasurer 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 Treasurer reports, and may sign with the
Chairman of the Board of Directors, the President or any Vice President,
certificates for stock of the Corporation.
Section 12. 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
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President or any other officer to whom the Controller reports.
Section 13. Secretary. The Secretary shall act as Secretary
of all meetings of the stockholders and of the Board of Directors of the
Corporation; shall keep the minutes thereof in the proper book or books to be
provided for that purpose; shall see that all notices required to be given by
the Corporation in connection with meetings of stockholders and of the Board
of Directors are duly given; may, with the Chairman of the Board of Directors,
the President or any Vice President, sign certificates for stock of the
Corporation; shall be the custodian of the seal of the Corporation and shall
affix the seal or cause it or a facsimile thereof to be affixed to all
certificates for stock of the Corporation and to all documents or instruments
requiring the same, the execution of which on behalf of the Corporation is
duly authorized in accordance with the provisions of these By-Laws; shall have
charge of the stock records and also of the other books, records and papers of
the Corporation relating to its organization and acts as a corporation, and
shall see that the reports, statements and other documents related thereto
required by law are properly kept and filed; and shall, in general, have all
authority incident to the office of Secretary 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 Secretary
reports.
Section 14. Duties of Assistant Treasurers, Assistant
Secretaries and Other Subordinate Officers. The Assistant Treasurers shall,
respectively, if required by the Board of Directors, the Chairman of the Board
of Directors, the President or any other officer to whom they report, give
bonds for the faithful discharge of their duties in such sums and with such
sureties as may be so required. Assistant Treasurers and Assistant Secretaries
may, with the Chairman of the Board of Directors, the President or any Vice
President, sign certificates for stock of the Corporation. Subordinate
officers shall have all authority incident to their respective offices and
such other authority and perform such other duties as shall be assigned to
them by the Board of Directors, any duly authorized committee of directors,
the Chairman of the
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Board of Directors, the President or the officers to whom they report.
Section 15. Appointed Officers. The Chairman of the Board of
Directors and the President may appoint or cause to be appointed, in
accordance with the policies and procedures established by them, such
Presidents, Vice Presidents and other officers of the Divisions, Groups and
Staffs of the Corporation (each an "Appointed Officer") as each of them shall
determine to be necessary or desirable in furtherance of the business and
affairs of such Divisions, Groups and Staffs, may designate such Vice
Presidents as Senior Executive Vice Presidents, Executive Vice Presidents or
Senior Vice Presidents, and may use such other descriptive words as each of
them may determine to designate the seniority or areas of special competence
or responsibility of the Appointed Officers appointed in accordance with this
Section 15. Appointed Officers appointed in accordance with this Section 15
shall not be deemed to be officers as elsewhere referred to in this Article V
or in Article X hereof but as between themselves and the Corporation shall
have such authority and perform such duties in the management and operations
of the Divisions, Groups and Staffs of the Corporation of which they are
appointed officers as the officer appointing them and the persons to whom they
report may from time to time determine. Such Appointed Officers shall have the
authority as between themselves and third parties to bind the Corporation
solely to the extent of their apparent authority based upon their titles and
solely in relation to the business affairs of the Divisions, Groups and Staffs
of which they are appointed officers.
ARTICLE VI
CONTRACTS, VOTING OF STOCK HELD,
CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. Execution of Contracts. Except as otherwise
required by these By-Laws, the Board of Directors or any duly authorized
committee of directors may authorize any officer other than or in addition to
the officers authorized by Article V of these By-Laws, including Appointed
Officers, and any employee or agent or agents, in the name and on behalf of
the Corporation, to enter into and execute any deed, mortgage, bond,
guarantee, contract
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or other instrument, and any such authority may be general or may be confined
to specific instances or otherwise limited.
Section 2. Loans and Loan Guarantees. Any officer, employee
or agent of the Corporation thereunder authorized by the Board of Directors or
by any duly authorized committee of directors may effect in the name and on
behalf of the Corporation, loans or advances from, or guarantees of loans or
advances to, any bank, trust company or other institution or any firm,
corporation or individual, and for such loans and advances or guarantees may
make, execute and deliver promissory notes, bonds or other certificates or
evidences of indebtedness or guarantees of the Corporation, and may pledge or
hypothecate or transfer any securities or other property of the Corporation as
security for any such loans, advances or guarantees. Such authority conferred
by the Board of Directors or any duly authorized committee of directors may be
general or may be confined to specific instances or otherwise limited.
Section 3. Voting of Stock Held. The Chairman of the Board
of Directors and the President and, unless otherwise provided by resolution of
the Board of Directors or directed by the Chairman of the Board of Directors
or the President, the Secretary may from time to time personally or by an
attorney or attorneys or agent or agents of the Corporation, in the name and
on behalf of the Corporation, cast the votes which the Corporation may be
entitled to cast as a stockholder or otherwise in any other corporation, any
of the stock or securities of which may be held by the Corporation, at
meetings of the holders of the stock or other securities of such other
corporations, or consent in writing to any action by any such other
corporation, and may instruct any person or persons so appointed as to the
manner of casting such votes or giving such consent, and may execute or cause
to be executed on behalf of the Corporation and under its corporate seal, or
otherwise, such written proxies, consents, waivers or other instruments as the
Secretary may deem necessary or proper in the premises; or may attend any
meeting of the holders of stock or other securities of any such other
corporation and thereat vote or exercise any or all other powers of the
Corporation as the holder of such stock or other securities of such other
corporation.
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Section 4. Checks, Drafts, etc. All checks, drafts and other
orders for payment of money out of the funds of the Corporation and all notes
and other evidences of indebtedness of the Corporation shall be signed on
behalf of the Corporation by the Treasurer or an Assistant Treasurer or by any
other officer, employee or agent of the Corporation to whom such power may
from time to time be delegated by the Board of Directors or any duly
authorized committee of directors or by any officer, employee or agent of the
Corporation to whom the power of delegation may from time to time be granted
by the Board of Directors or any duly authorized committee of directors.
Section 5. Deposits. The funds of the Corporation not
otherwise employed shall be deposited from time to time to the order of the
Corporation in such banks, trust companies or other depositories as the Board
of Directors or any duly authorized committee of directors may from time to
time select, or as may be selected by any officer, employee or agent of the
Corporation to whom such power may from time to time be delegated by these
By-Laws, the Board of Directors or any duly authorized committee of directors.
ARTICLE VII
STOCK AND DIVIDENDS
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 one of the Vice Presidents 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, 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
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
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of stock, provided that, except as otherwise required by Section 202 of the
DGCL, 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 signatures on the
certificate may be a facsimile. In case an 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, unless otherwise ordered by the Board of
Directors, 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 or such
other proof satisfactory to the Board of Directors 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 and registrars with respect to the certificate alleged
to have been lost, stolen or destroyed or the issuance of such new
certificate.
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Section 4. Transfers. Except as otherwise prescribed by law
or the Certificate of Incorporation, stock of the Corporation shall be
transferable in the manner prescribed 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 such person's duly authorized attorney appointed by a power
of attorney duly executed and filed with the Secretary of the Corporation or a
transfer agent of the Corporation, and upon surrender of the certificate or
certificates for such stock properly endorsed for transfer and payment of all
necessary transfer taxes; provided, however, that such surrender and
endorsement or payment of taxes shall not be required in any case in which the
officers of the Corporation shall determine to waive such requirement. Every
certificate exchanged, returned or surrendered to the Corporation shall be
marked "Cancelled," with the date of cancellation, by the Secretary or an
Assistant Secretary of the Corporation or the transfer agent thereof. No
transfer of stock shall be valid as against the Corporation, its stockholders
or creditors for any purpose until it shall have been entered in the stock
records of the Corporation by an entry showing from and to whom transferred.
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 DGCL 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 DGCL,
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 DGCL, a restriction, even
though permitted by Section 202 of the DGCL, 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
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adoption of the restriction unless the holders of the securities are parties
to an agreement or voted in favor of the restriction.
Section 6. Transfer and Registry Agents. The Corporation may
from time to time maintain one or more transfer offices or agencies and
registry offices or agencies at such place or places as may be determined from
time to time by the Board of Directors.
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 required by law.
Section 8. 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 Corporation's 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 purchasing any of the shares of capital stock, warrants, rights, options,
bonds, debentures, notes, scrip or other securities or evidences of
indebtedness of the Corporation, 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.
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ARTICLE VIII
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
such person's 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 mail. Written
notice may also be given personally or by courier service, facsimile
transmission, telegram, telex or cable.
Section 2. Waivers of Notice. (a) 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 to notice.
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.
(b) 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 unless so required by law, the Certificate of Incorporation or these
By-Laws.
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ARTICLE IX
BOOKS
Section 1. Books. The Corporation shall keep in accordance
with applicable law correct and adequate books and records of account and
minutes of proceedings of the stockholders, the Board of Directors and any
committees of the Board of Directors. The Corporation shall keep in accordance
with applicable law at the office designated in the Certificate of
Incorporation or at the office of the transfer agent or registrar of the
Corporation, a record containing the names and addresses of all stockholders,
the number and class of shares held by each and the dates when they
respectively became the owners of record thereof.
Section 2. Form of Books. Any books maintained by the
Corporation, including its stock ledger, books of account and minute books,
may be kept on, or be in the form of, electronic data storage, computer discs,
punch cards, magnetic tape, photographs, microphotographs or any other
information storage device, provided that the records so kept can be converted
into clearly legible written form within a reasonable time. The Corporation
shall so convert any records so kept upon the request of any person entitled
to inspect the same.
ARTICLE X
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 X, 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 such person 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'
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fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person 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 such person's 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 equivalent, shall not, of itself, create a
presumption that such person did not act in good faith and in a manner which
such person 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 such person's 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 X, 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 such person 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 such person in
connection with the defense or settlement of such action or suit if such
person acted in good faith and in a manner such person 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.
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Section 3. Authorization of Indemnification. Any
indemnification under this Article X (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 such person has met the applicable standard of conduct
set forth in Section 1 or Section 2, and in each case Section 11, of this
Article X, as the case may be. Such determination shall be made (i) by a
majority vote of the directors who were 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, such person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by such person 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 X, a person shall be deemed to
have acted in good faith and in a manner such person 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 such person's conduct was unlawful, if such person's action is based
on the records or books of account of the Corporation or another enterprise,
or on information supplied to such person 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
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<PAGE>
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 X, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 3 of this Article X,
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 X. 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 such person has met the applicable standards of conduct set forth in
Sections 1 or 2, and in each case Section 11, of this Article X, as the case
may be. Neither a contrary determination in the specific case under Section 3
of this Article X 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 any civil,
criminal, administrative or investigative 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 such person is not entitled to be indemnified by the Corporation as
authorized in this Article X.
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<PAGE>
Section 7. Nonexclusivity of Indemnification and Advancement
of Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article X shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may
be entitled under any by-law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in such
person's 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 X shall be made to
the fullest extent permitted by law. The provisions of this Article X shall
not be deemed to preclude the indemnification of any person who is not
specified in Sections 1 or 2 of this Article X but whom the Corporation has
the power or obligation to indemnify under the provisions of the DGCL, 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 such person and incurred by such person in any such capacity, or
arising out of such person's status as such, whether or not the Corporation
would have the power or the obligation to indemnify such person against such
liability under the provisions of this Article X.
Section 9. Certain Definitions. For purposes of this Article
X, 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
29
<PAGE>
other entity or enterprise, shall stand in the same position under the
provisions of this Article X with respect to the resulting or surviving
corporation as such person would have with respect to such constituent
corporation if its separate existence had continued. For purposes of this
Article X, 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 such person 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 X. For purposes of this
Article X, the term "officers" shall not include "Appointed Officers" as
defined in Section 15 of Article V.
Section 10. Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article X 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 X 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 Appointed Officers, 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 Appointed Officers, employees and agents of the
Corporation similar to those conferred in
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<PAGE>
this Article X to directors and officers of the Corporation.
ARTICLE XI
AMENDMENT OF BY-LAWS
Section 1. Amendment 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
directors then in office.
Section 2. Entire Board of Directors. As used in this
Article XI 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.
ARTICLE XII
GENERAL PROVISIONS
Section 1. Seal. The Board of Directors shall approve a
corporate seal which shall be in the form of a circle and shall bear the name
of the Corporation, the year of its incorporation and the word "Delaware." The
Seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
Section 2. Fiscal Year. The fiscal year of the Corporation
shall be determined and may be changed by resolution of the Board of Directors,
and unless and until otherwise so determined, shall be the calendar year.
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<PAGE>
EXHIBIT 10.3
Richard L. DiMeola
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. $275,000 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.
<TABLE>
<CAPTION>
Percentage of Percentage of
Cigar EBITDA Base Salary
------------- -------------
<S> <C>
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
</TABLE>
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
<PAGE>
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 1, 1996, between
Consolidated Cigar Corporation, a Delaware corporation (the "Company") and
Richard L. DiMeola (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 Exec- utive'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 ser-
vices 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 $275,000, 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.
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:
<TABLE>
<CAPTION>
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -------------
<S> <C>
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
</TABLE>
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 $1,000,000 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.
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 Company customarily may
require of its officers provided, howev-
3
<PAGE>
er, 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 Exec-
utive 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 Totally
Disabled, the Company shall have no obligation
4
<PAGE>
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 seeking other employment provided, however, that the
Execu-
5
<PAGE>
tive 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 provid-
ed 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 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,
6
<PAGE>
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 process-
es, 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:
Richard L. DiMeola
17798 Litten Drive
Boca Raton, FL 33498
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
10
<PAGE>
or oral, relating to the 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, modi-
fied, 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.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
CONSOLIDATED CIGAR CORPORATION
By: /s/ Theo W. Folz
-----------------------------
Theo W. Folz
Chief Executive Officer
/s/ Richard L. DiMeola
-----------------------------
Richard L. DiMeola
11
<PAGE>
EXHIBIT 10.5
James L. Colucci
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. $217,500 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.
<TABLE>
<CAPTION>
Percentage of Percentage of
Cigar EBITDA Base Salary
------------- -------------
<S> <C>
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
</TABLE>
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
<PAGE>
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 1, 1996, between
Consolidated Cigar Corporation, a Delaware corporation (the "Company") and
James L. Colucci (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 Senior Vice President -
Sales and Marketing 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 Bene-
fits.
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 ser-
vices 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 $217,500, 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:
<TABLE>
<CAPTION>
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -------------
<S> <C>
85% 50%
90 75
95 90
100 100
105 110
110 125
115 150
</TABLE>
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 $1,000,000 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.
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 Company customarily may
require of its officers provided, howev-
3
<PAGE>
er, 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 Exec-
utive 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 Totally
Disabled, the Company shall have no obligation
4
<PAGE>
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 seeking other employment provided, however, that the
Execu-
5
<PAGE>
tive 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 provid-
ed 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 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,
6
<PAGE>
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 process-
es, 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:
James L. Colucci
10374 Stonebridge Boulevard
Boca Raton, FL 33498
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
10
<PAGE>
or oral, relating to the 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, modi-
fied, 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: /s/ Theo W. Folz
------------------------------
Theo W. Folz
Chief Executive Officer
/s/ James L. Colucci
------------------------------
James L. Colucci
<PAGE>
EXHIBIT 10.6
George F. Gershel, Jr.
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. $247,500 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.
<TABLE>
<CAPTION>
Percentage of Percentage of
Cigar EBITDA Base Salary
------------- ------------
<S> <C>
85% 35%
90 50%
95 65
100 75
105 85
110 100
115 120
</TABLE>
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,
<PAGE>
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 1, 1996, between
Consolidated Cigar Corporation, a Delaware corporation (the "Company") and
George F. Gershel, Jr. (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 Senior Vice President -
Tobacco 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 Bene-
fits.
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 ser-
vices 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 $247,500, 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
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<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:
<TABLE>
<CAPTION>
Percentage of Percentage of
EBITDA in Business Plan Base Salary
----------------------- -------------
<S> <C>
85% 35%
90 50
95 65
100 75
105 85
110 100
115 120
</TABLE>
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 $1,000,000 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.
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 Company customarily may
require of its officers provided, howev-
3
<PAGE>
er, 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 Exec-
utive 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 Totally
Disabled, the Company shall have no obligation
4
<PAGE>
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 seeking other employment provided, however, that the
Execu-
5
<PAGE>
tive 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 provid-
ed 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 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,
6
<PAGE>
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 process-
es, 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:
George F. Gershel, Jr.
6496 Via Rosa
Boca Raton, FL 33433
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
10
<PAGE>
or oral, relating to the 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, modi-
fied, 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: /s/ Theo W. Folz
------------------------------
Theo W. Folz
Chief Executive Officer
/s/ George F. Gershel, Jr.
------------------------------
George F. Gershel, Jr.
12
<PAGE>
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. ) and related Prospectus of Consolidated Cigar Holdings
Inc. for the registration of 5,000,000 shares of its Class A common stock.
Ernst & Young LLP
New York, New York
January 30, 1997
<PAGE>
EXHIBIT 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 30th day of January, 1997.
/s/ Ronald O. Perelman
----------------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 30th day of January, 1997.
/s/ Howard Gittis
------------------------------
HOWARD GITTIS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 29th day of January, 1997.
/s/ Theo W. Folz
--------------------------------
THEO W. FOLZ
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 29th day of January, 1997.
/s/ Robert Sargent Shriver III
------------------------------
ROBERT SARGENT SHRIVER III
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 30th day of January, 1997.
/s/ Donald G. Drapkin
---------------------------------
DONALD G. DRAPKIN
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 29th day of January, 1997.
/s/ Gary R. Ellis
------------------------------
GARY R. ELLIS
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 29th day of January, 1997.
/s/ James M. Parnofiello
--------------------------------
JAMES M. PARNOFIELLO
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Barry F. Schwartz, Glenn P. Dickes and Joram
C. Salig or any of them, each acting alone, his true and lawful
attorney-in-fact and agent, with full power of substitution, for him and in
his name, place and stead, in any and all capacities, in connection with the
Consolidated Cigar Holdings Inc. registration statement on Form S-1 (the
"Registration Statement") under the Act including, without limiting the
generality of the foregoing, to sign the Registration Statement in the name
and on behalf of the undersigned as a director or officer of the Corporation,
and any amendments or supplements to the Registration Statement, including any
and all stickers and post-effective amendments to the Registration Statement,
with the Securities and Exchange Commission and any applicable securities
exchange or securities self-regulatory body, granting unto said
attorneys-in-fact and agents, each acting alone, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully as to all intents and purposes as he might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, each acting alone, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 30th day of January, 1997.
/s/ Lee A. Iacocca
--------------------------------
LEE A. IACOCCA
