<PAGE>
Consolidated Cigar Holdings Inc.
5500 North Andrews Avenue
Suite 700
Fort Lauderdale, Florida 33309-2369
March 30, 1998
To Our Stockholders:
You are cordially invited to attend the 1998 Annual Meeting of
Stockholders of Consolidated Cigar Holdings Inc. to be held at The Westin
Hotel, 400 Corporate Drive, Fort Lauderdale, Florida 33334-3642, on Tuesday,
May 12, 1998, at 1:00 p.m. local time.
The business of the meeting will be to elect directors and ratify the
selection of independent auditors for 1998. Information on each of these
matters can be found in the accompanying Proxy Statement.
While stockholders may exercise their right to vote their shares in
person, we recognize that many stockholders may not be able to attend the
Annual Meeting. Accordingly, we have enclosed a proxy which will enable you to
vote your shares on the issues to be considered at the Annual Meeting even if
you are unable to attend. If you desire to vote in accordance with management's
recommendations, you need only sign, date and return the proxy in the enclosed
postage-paid envelope to record your vote. Otherwise, please mark the proxy to
indicate your vote; date and sign the proxy; and return it in the enclosed
postage-paid envelope as soon as conveniently possible.
Sincerely,
/s/ Theo w. Folz
-------------------------
Theo W. Folz
Chief Executive Officer
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC.
5900 NORTH ANDREWS AVENUE
SUITE 700
FORT LAUDERDALE, FLORIDA 33309-2369
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
Consolidated Cigar Holdings Inc.:
Notice is hereby given that the Annual Meeting of Stockholders of
Consolidated Cigar Holdings Inc., a Delaware corporation (the "Company"), will
be held on the 12th day of May, 1998, at 1:00 p.m., local time, at The Westin
Hotel, 400 Corporate Drive, Fort Lauderdale, Florida 33334-3642, for the
following purposes:
1. To re-elect six members of the Company's Board of Directors
to serve until the Company's next Annual Meeting and until
such directors' successors are duly elected and shall have
qualified.
2. To ratify the selection of Ernst & Young LLP as the Company's
independent auditors for 1998.
3. To transact such other business as may properly come before
the Annual Meeting or at any adjournments or postponements
thereof.
A Proxy Statement describing the matters to be considered at the
Annual Meeting is attached to this notice. Only stockholders of record at the
close of business on March 24, 1998 (the "Record Date") are entitled to notice
of, and to vote at, the Annual Meeting and at any adjournments thereof. A list
of stockholders entitled to vote at the Annual Meeting will be located at the
offices of the Company at 5900 North Andrews Avenue, Suite 700, Fort
Lauderdale, Florida 33309-2369, at least ten days prior to the Annual Meeting
and will also be available for inspection at the Annual Meeting.
<PAGE>
To ensure that your vote will be counted, please complete, date and
sign the enclosed proxy card and return it promptly in the enclosed
postage-paid envelope, whether or not you plan to attend the Annual Meeting.
Since proxies may be revoked at any time, any stockholder attending the Annual
Meeting may vote in person even if that stockholder has returned a proxy.
By Order of the Board of Directors
CONSOLIDATED CIGAR HOLDINGS INC.
March 30, 1998
PLEASE COMPLETE, SIGN AND DATE THE ACCOMPANYING
PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE.
THIS WILL ENSURE THAT YOUR SHARES ARE VOTED
IN ACCORDANCE WITH YOUR WISHES.
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC.
------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 12, 1998
------------------------------------
This Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors (the "Board of Directors") of
Consolidated Cigar Holdings Inc., a Delaware corporation ( the "Company"), of
proxies to be voted at the 1998 Annual Meeting of Stockholders to be held on
the 12th day of May, 1998, at 1:00 p.m., local time, at The Westin Hotel, 400
Corporate Drive, Fort Lauderdale, Florida 33334-3642, and at any adjournments
or postponements thereof (the "Annual Meeting"). This Proxy Statement and the
enclosed proxy are first being sent to stockholders on or about March 30, 1998.
At the Annual Meeting, the Company's stockholders will be asked (1) to
re-elect the following persons as Directors of the Company until the Company's
next Annual Meeting and until such Directors' successors are duly elected and
shall have qualified: Ronald O. Perelman, Philip E. Beekman, Michael Fuchs,
Howard Gittis, Theo W. Folz and Robert Sargent Shriver III; (2) to ratify the
selection of Ernst & Young LLP as the Company's independent auditors for 1998;
and (3) to transact such other business as may properly come before the Annual
Meeting or at any adjournments or postponements thereof.
The principal executive offices of the Company are located at 5900
North Andrews Avenue, Suite 700, Fort Lauderdale, Florida 33309-2369 and the
telephone
number is 954-772-9000.
SOLICITATION AND VOTING OF PROXIES; REVOCATION
All proxies duly executed and received by the Company will be voted on
all matters presented at the Annual Meeting in accordance with the instructions
given therein by the person executing such proxy or, in the absence of such
instructions, will be voted FOR the election to the Board of Directors of the
six nominees for Director identified in this Proxy Statement and the
ratification of Ernst & Young LLP as the Company's auditors. The submission of
a signed proxy will not affect a stockholder's right to attend, or vote in
person at, the Annual Meeting. Any stockholder may revoke his or her proxy at
any time before it is voted by written notice to such effect received by the
Company at 5900 North Andrews Avenue, Suite
<PAGE>
700, Fort Lauderdale, Florida 33309-2369, Attention: Secretary, by delivery of
a subsequently dated proxy or by attending the Annual Meeting and voting in
person (although attendance at the Annual Meeting will not in and of itself
constitute a revocation of a proxy).
The accompanying form of proxy is being solicited on behalf of the
Board of Directors. The solicitation of proxies may be made by mail and may
also be made by personal interview, telephone and facsimile transmission, and
by directors, officers and regular employees of the Company without special
compensation therefor. The Company will bear the costs incurred in connection
with the solicitation of proxies and expects to reimburse banks, brokers and
other persons for their reasonable out-of-pocket expenses in handling proxy
materials for beneficial owners.
RECORD DATE; OUTSTANDING SHARES; VOTING AT THE ANNUAL MEETING
Only holders of record of the Company's Class A common stock, par
value $0.01 per share (the "Class A Common Stock"), and holders of record of
the Company's 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"),
at the close of business on March 24, 1998 (the "Record Date") were entitled to
notice of and to vote at the Annual Meeting. On that date, there were issued
and outstanding 30,575,101 shares of Common Stock comprised of 10,975,101
shares of Class A Common Stock (excluding treasury shares) and 19,600,000
shares of Class B Common Stock. 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. All of the shares of Class B Common Stock
are owned by Mafco Consolidated Group Inc. ("Mafco Consolidated Group"), a
corporation which is indirectly wholly owned, through Mafco Holdings Inc.
("Mafco Holdings"), by Ronald O. Perelman. Mafco Consolidated Group
beneficially owns shares of Class B Common Stock representing approximately 95%
of the combined voting power of the outstanding shares of Common Stock. Mafco
Consolidated Group has informed the Company that it will vote FOR the election
of the nominees to the Board of Directors identified herein and vote FOR the
ratification of the selection of Ernst & Young LLP as the Company's independent
auditors for 1998. Accordingly, the affirmative vote of Mafco Consolidated
Group is sufficient, without the concurring vote of any other stockholder of
the Company, to approve and adopt each of the proposals to be considered at the
Annual Meeting.
2
<PAGE>
PROPOSAL 1 - ELECTION OF DIRECTORS
All of the Company's Directors will be elected at the Annual Meeting
to serve until the next succeeding Annual Meeting of stockholders and until
their successors are duly elected and shall have qualified. All of the nominees
are currently members of the Board of Directors and the proxies solicited
hereby will be voted FOR their election. All of the nominees, if elected, are
expected to serve until the next succeeding Annual Meeting. Directors of the
Company will be elected by a plurality vote of the outstanding shares of Common
Stock present in person or represented by proxy at the Annual Meeting. Under
applicable Delaware law, in tabulating the votes, abstentions from voting on
the election of Directors (including broker non- votes) will be disregarded and
have no effect on the outcome of the vote.
The Board of Directors has been informed that all persons listed below
are willing to serve as Directors, but if any of them should decline or be
unable to act as a Director, the individuals named in the proxies will vote for
the election of such other person or persons as they, in their discretion, may
choose. The Board of Directors has no reason to believe that any such nominees
will be unable or unwilling to serve.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE
ELECTION OF EACH OF THE NOMINEES LISTED HEREIN FOR DIRECTOR.
NOMINEES FOR ELECTION AS DIRECTORS
The name, age (as of March 24, 1998), principal occupation for the
last five years, selected biographical information and period of service as a
Director of the Company of each of the nominees for Director are set forth
hereafter.
RONALD O. PERELMAN (55) has been Director of the Company and Chairman
of the Executive Committee since its formation in 1993 and was Chairman of the
Board until 1997. 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"), diversified holding companies, and various affiliates since 1980.
Mr. Perelman also is Chairman of the Executive Committee of the Boards of
Directors of M & F Worldwide Corp. ("M & F Worldwide") and Revlon, Inc. and is
Chairman of the Board of Meridian Sports Incorporated ("Meridian Sports"). Mr.
Perelman is also a Director of the following corporations which file reports
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"):
3
<PAGE>
California Federal Bank, a Federal Savings Bank ("California Federal"), First
Nationwide Holdings Inc. ("First Nationwide"), First Nationwide (Parent)
Holdings Inc. ("First Nationwide Parent"), Meridian Sports, REV Holdings Inc.,
Revlon, Inc. and Revlon Consumer Products Corporation ("Revlon Products"). (On
December 27, 1996, Marvel Entertainment Group, Inc. ("Marvel"), Marvel Holdings
Inc., Marvel (Parent) Holdings Inc., of which Mr. Perelman was then a director,
and Marvel III Holdings Inc. of which Mr. Perelman is a director, and several
subsidiaries of Marvel filed voluntary petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code.)
HOWARD GITTIS (64) has been a Director of the Company since its
formation in 1993. Mr. Gittis has been Vice Chairman, Chief Administrative
Officer and a Director of MacAndrews & Forbes, a diversified holding company,
and various affiliates since 1985. Mr. Gittis is a Director of the following
corporations which file reports pursuant to the Exchange Act: California
Federal, First Nationwide, First Nationwide Parent, M & F Worldwide, Revlon,
Inc., REV Holdings Inc., Revlon Products, Revlon Worldwide, Jones Apparel
Group, Inc., Loral Space & Communications Ltd. and Rutherford-Moran Oil
Corporation.
THEO W. FOLZ (54) has been Chairman of the Board of Directors of the
Company since 1997 and President, Chief Executive Officer and a Director since
June 1996. Mr. Folz has been President and Chief Executive Officer of
Consolidated Cigar Corporation ("Consolidated Cigar") since 1984. Mr. Folz has
been a Director, President and Chief Executive Officer of M & F Worldwide since
1996 and Chairman of the Board since 1997, and Vice Chairman, Director and
Chief Executive Officer of Pneumo Abex Corporation, successor by merger to
Mafco Worldwide Corporation, since January 1995.
PHILIP E. BEEKMAN (66) has been President of Owl Hollow Enterprises
for more than the past five years. Prior to that Mr. Beekman was Chairman of
the Board and Chief Executive Officer of Hook-SupeRx, Inc. Mr. Beekman also is
a director of Kendle International Inc., The General Chemical Group Inc., BT
Office Products International Inc. and Linens N Things Inc.
MICHAEL FUCHS (52) has been a Director of the Company since 1997. Mr.
Fuchs was Chairman of the Board and Chief Executive Officer of Home Box Office
from 1984 until 1995, and Chairman of the Board of Home Box Office and
Chairman of the Board and Chief Executive Officer of Warner Music Group from
May 1995 until November 1995. Mr. Fuchs also is a director of IMAX Corp. and
Auto-By-Tel Corporation.
4
<PAGE>
ROBERT SARGENT SHRIVER III (43) has been a Director of the Company
since January 1997. Mr. Shriver is President of RSS Inc. and was President of
Special Olympic Productions, Inc. for more than five years prior thereto. Mr.
Shriver also is a Director of MK Gold Company, which files reports pursuant to
the Exchange Act.
BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has an Executive Committee, an Audit Committee
and a Compensation Committee.
The Executive Committee consists of Messrs. Perelman, Gittis and Folz.
The Executive Committee may exercise all the powers and authority of the Board
of Directors, except as otherwise provided under the Delaware General
Corporation Law. The Audit Committee, consisting of Messrs. Beekman and Fuchs,
makes recommendations to the Board of Directors regarding the engagement of the
Company's independent auditors, reviews the plan, scope and results of the
audit, reviews with the auditors and management the Company's policies and
procedures with respect to internal accounting and financial controls and
reviews the changes in accounting policy and the scope of the non-audit
services which may be performed by the Company's independent auditors. The
Compensation Committee, consisting of Messrs. Gittis and Shriver, makes
recommendations to the Board of Directors regarding compensation, benefits and
incentive arrangements for officers and other key managerial employees of the
Company. The Compensation Committee may consider and recommend awards of
options to purchase shares of Common Stock pursuant to the Consolidated Cigar
Holdings Inc. 1996 Stock Plan (the "Stock Plan").
During 1997, the Board of Directors held four meetings and acted two
times by unanimous written consent. During 1997, the Audit Committee met four
times, the Executive Committee acted one time by unanimous written consent and
did not hold a meeting and the Compensation Committee acted one time by
unanimous written consent and held one meeting.
COMPENSATION OF DIRECTORS
Directors who are not currently receiving compensation as officers or
employees of the Company or any of its affiliates are paid an annual $25,000
retainer fee, payable in monthly installments, plus reasonable out-of-pocket
expenses and a fee of $1,000 for each meeting of the Board of Directors or any
committee thereof they attend.
5
<PAGE>
EXECUTIVE OFFICERS
The following table sets forth as of the date hereof the executive
officers of the Company and executive officers of its operating subsidiary,
Consolidated Cigar.
NAME POSITION
- - ---- --------
Theo W. Folz Chairman, President and Chief Executive Officer
Barry F. Schwartz Executive Vice President and General Counsel
Gary R. Ellis Senior Vice President, Chief Financial Officer and
Treasurer of the Company and Consolidated Cigar
James M. Parnofiello Vice President and Controller of the Company and
Consolidated Cigar
Richard L. DiMeola Executive Vice President and Chief Operating Officer
of Consolidated Cigar
James L. Colucci Senior Vice President-Sales and Marketing of Consoli-
dated Cigar
George F. Gershel, Jr. Senior Vice President-Tobacco of Consolidated Cigar
Denis F. McQuillen Senior Vice President-Manufacturing of Consolidated
Cigar
The biographical information about Mr. Folz is above, see "Nominees
for Election as Directors."
Barry F. Schwartz (48) has been Executive Vice President and General
Counsel of the Company since 1996. He has been Executive Vice President and
General Counsel of MacAndrews & Forbes, a diversified holding company, and
various affiliates since 1993. Mr. Schwartz was Senior Vice President of
MacAndrews & Forbes from 1989 to 1993. (On December 27, 1996, Marvel Holdings
Inc. and Marvel (Parent) Holdings Inc. of which Mr. Schwartz was then an
executive officer and Marvel III Holdings Inc. of which Mr. Schwartz is an
executive officer, filed voluntary petitions for reorganization under Chapter
11 of the United States Bankruptcy Code.)
Gary R. Ellis (44) has been Senior Vice President, Chief Financial
Officer and Treasurer of the Company since 1996 and Senior Vice President,
Chief Financial Officer, Secretary and Treasurer of Consolidated Cigar since
November 1988. 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.
6
<PAGE>
James M. Parnofiello (49) 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.
Richard L. DiMeola (63) 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.
James L. Colucci (51) 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).
George F. Gershel, Jr. (68) has been Senior Vice President-Tobacco of
Consolidated Cigar since June 1977. Mr. Gershel joined Consolidated Cigar in
1961.
Denis F. McQuillen (52) has been Senior Vice President-Manufacturing
of Consolidated Cigar since December 1985. Mr. McQuillen joined Consolidated
Cigar in 1981.
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, 1997 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 $100,000 (collectively, the "Named Executive Officers").
7
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-
TERM
COMPEN-
SATION
ANNUAL COMPENSATION AWARDS
- - ---------------------------------------------------------------------------------------------------------------
NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL
COMPEN- OPTIONS/ OTHER
NAME AND SATION SARS (B) COMPEN-
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($)(A) (#) SATION ($)(C)
- - ------------------ ---- ---------- --------- ------ --- -------------
<S> <C> <C> <C> <C> <C> <C>
Theo W. Folz 1997 840,000 1,155,000 56,466 625,000 3,200
Chief Executive Officer 1996 770,000 1,155,000 51,243 250,000 3,000
and President 1995 700,000 700,000 0 0 3,000
Richard L. DiMeola 1997 300,000 412,500 0 0 3,200
Executive Vice President 1996 275,000 412,500 0 55,000 3,000
and Chief Operating Of- 1995 260,000 260,000 0 0 3,000
ficer
George F. Gershel, Jr. 1997 270,000 297,000 0 0 3,200
Senior Vice President- 1996 247,500 297,000 0 50,000 3,000
Tobacco 1995 230,000 170,000 0 0 3,000
Gary R. Ellis 1997 237,500 326,250 0 0 3,200
Senior Vice President, 1996 217,500 326,250 0 50,000 3,000
Chief Financial Officer, 1995 200,000 200,000 0 0 3,000
Secretary and Treasurer
James L. Colucci 1997 237,500 326,250 0 0 3,200
Senior Vice President of 1996 217,500 326,250 0 50,000 3,000
Sales and Marketing 1995 200,000 200,000 0 0 3,000
</TABLE>
- - --------------
(a) Represents perquisites and other personal benefits, of which in 1997
and 1996 $32,437 and $39,046, respectively was related to the personal
use of a company automobile and in 1997 $19,997 was related to
personal use of a company aircraft.
(b) The options 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.
(c) Represents the Company's contributions to the employee's account under
Consolidated Cigar's 401(k) plan.
8
<PAGE>
STOCK OPTION TRANSACTIONS IN 1997
During 1997, the following grants were made under the 1996 Stock
Option Plan to the Named Executive Officer.
OPTIONS/SAR GRANTS IN 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-----------------------------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS EMPLOYEES IN (PER EXPIRATION GRANT DATE
GRANTED FISCAL YEAR SHARE)(a) DATE PRESENT VALUE(b)
------------ ------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Theo W. Folz..................... 625,000 100% $23.68 2007 $7,631,250
</TABLE>
- - ----------------------
(a) Represents a weighted average exercise price. The options 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.
(b) The present value of the options are based on the Black-Scholes option
pricing model using the following assumptions: (i) stock price volatility
of 52%, (ii) a risk-free rate of 5.63%, (iii) a dividend yield of 0%,
(iv) an exercise price equal to the fair market value of the Common Stock
on the date of grant, (v) an expected life of 5 years and (vi) no
discounts for forfeiture or nontransferability.
9
<PAGE>
The following table shows, for 1997, the number of stock options
exercised and the 1997 year-end value of the options held by the Named
Executive Officers:
AGGREGATED OPTION/SAR EXERCISES IN 1997 AND
YEAR-END 1997 OPTION/SAR VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
NUMBER OF FY-END FY-END*
SHARES ACQUIRED VALUE EXERCISABLE(E)/ EXERCISABLE(E)/
NAME ON EXERCISE REALIZED UNEXERCISABLE(U) UNEXERCISABLE(U)
- - --------------------------------- ------------------ ------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Theo W. Folz...................... 0 $0 83,333(E) $ 380,832(E)
791,667(U) 3,192,918(U)
Richard L. DiMeola................ 0 0 18,333(E) 83,783(E)
36,667(U) 167,567(U)
Gary R. Ellis..................... 0 0 16,667(E) 76,168(E)
33,333(U) 152,332(U)
James L. Colucci.................. 0 0 16,667(E) 76,168(E)
33,333(U) 152,332(U)
George F. Gershel, Jr............. 0 0 16,667(E) 76,168(E)
33,333(U) 152,332(U)
</TABLE>
- - -------------
* Based on the closing price of Class A Common Stock on the NYSE on December
31, 1997 of $279/16 per share.
10
<PAGE>
COMPENSATION COMMITTEE
REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the
"Compensation Committee") is comprised of Messrs. Gittis and Shriver, neither
of whom are officers or employees of the Company. The Compensation Committee's
duties include determination of the Company's compensation and benefit policies
and practices for executive officers and key managerial employees. In
accordance with rules established by the Securities and Exchange Commission
(the "SEC"), the Company is required to provide certain data and information in
regard to the compensation provided to the Company's Chief Executive Officer
and the four other most highly compensated executive officers. The Compensation
Committee has prepared the following report for inclusion in this Proxy
Statement.
Compensation Policies. The Company's current compensation arrangements
for senior executives are affected by the Company's history as a private
company until the Company became a subsidiary of Mafco Consolidated Group Inc.
in 1995 and the Company's 1996 initial public offering, after which the
Compensation Committee was established. The overall compensation program for
officers historically emphasized a strong base salary position in relation to
competitive practice and competitive annual bonus opportunity dependent upon
the financial performance of the Company. The Company did not offer long-term
incentive opportunities as an executive compensation element until 1996 when
the first stock option awards were made.
The overall objectives of the Company's compensation program are to
attract and retain the best possible executive talent, to motivate these
executives to achieve the goals inherent in the Company's business strategy, to
maximize the link between executive and stockholder interests through a stock
option plan and to recognize individual contributions as well as overall
business results. To achieve these objectives, the Company has developed an
overall compensation strategy and specific compensation plans that tie a
substantial portion of an executive's compensation to performance.
The key elements of the Company's compensation program consist of
fixed compensation in the form of base salary, and variable compensation in the
forms of annual incentive compensation and stock option awards. An executive
officer's annual base salary represents the fixed component of such executive
officer's total compensation, and variable compensation is intended to comprise
a substantial portion of an executive's total annual compensation. The
Compensation Committee's
11
<PAGE>
policies with respect to each of these elements, including the bases for the
compensation awarded to Mr. Folz, the Company's Chief Executive Officer, are
discussed below. In addition, while the elements of compensation described
below are considered separately, the Compensation Committee takes into account
the full compensation package afforded by the Company to the individual,
including pension benefits, insurance and other benefits, as well as the
programs described below.
Base Salaries. Base salaries for executive officers are determined
based upon the Compensation Committee's evaluation of the responsibilities of
the position held and the experience of the individual, and by reference to
historical levels of salary paid by the Company and its predecessors.
Salary adjustments are based on a periodic evaluation of the
performance of the Company and each executive officer, as well as financial
results of the business. The Compensation Committee takes into account the
effect of corporate transactions that have been consummated during the relevant
year and, where appropriate, also considers non-financial performance measures.
These include increases in market share, manufacturing efficiency gains,
improvements in product quality and improvements in relations with customers,
suppliers and employees.
Annual Incentive Compensation Awards. The variable compensation
payable annually to executive officers (including the Chief Executive Officer)
generally consists principally of annual incentive compensation awards. Annual
incentive compensation is payable pursuant to contractual provisions with
certain executives which provide eligibility to receive bonuses under the
Consolidated Cigar Performance Bonus Plan determined in accordance with a
formula relating to achievement of Company performance goals. The Consolidated
Cigar Performance Bonus Plan is described elsewhere in this Proxy Statement.
Such performance goals, are based upon the Company's earnings before interest,
taxes, depreciation and amortization (EBITDA). The annual incentive
compensation earned by the executives with respect to 1997 was determined in
accordance with such provisions.
Other Incentive Compensation Awards. The other principal component of
executives' compensation is stock options, which are intended as a tool to
attract, provide incentive to and retain those executives who make the greatest
contribution to the business, and who can have the greatest effect on the
long-term profitability of the Company. The exercise price of stock options is
set at a price equal to the market price of the Common Stock at the time of the
grant. The options therefore do not have any value to the executive unless the
market price of the Common Stock rises. The Compensation Committee believes
that these stock options more closely
12
<PAGE>
align the executives' interests with those of its stockholders, and focus
management on building profitability and long-term stockholder value. In 1997,
stock options were granted to the Company's Chief Executive Officer.
Chief Executive Officer Compensation. Mr. Folz serves as Chief
Executive Officer of the Company and has served as Chief Executive Officer of
the Company's operating subsidiary Consolidated Cigar for the past 14 years.
Mr. Folz also serves as the Chief Executive Officer of the Company's affiliate,
M & F Worldwide. Until August 1, 1996, Mr. Folz served the Company and Mafco
Consolidated Group Inc. pursuant to an employment agreement with Mafco
Consolidated Group Inc. (the "MCG Employment Agreement"). The MCG Employment
Agreement 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 Corporation, 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. The Compensation Committee believes that
the allocation of the MCG Employment Agreement to the Company is appropriate in
light of the experience and expertise Mr. Folz brings to the position and the
portion of the time that Mr. Folz dedicates to his position with the Company,
and considering compensation levels of Chief Executive Officers of comparable
companies (including, but not limited to, companies comprising the peer group
selected for the performance graph, as well as other companies of similar size
with which the Compensation Committee believes the Company competes for
executive talent).
Deductibility of Compensation. The Compensation Committee attempts to
ensure full deductibility of compensation in light of the limitation on the
deductibility of certain compensation in excess of one million dollars under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code").
The Consolidated Cigar Performance Bonus Plan and the 1996 Stock Option Plan,
described elsewhere in this Proxy Statement, are designed so as to cause stock
options and bonuses granted thereunder to be exempt from the limitations
contained in such Section 162(m).
The Compensation Committee
of the Board of Directors
Howard Gittis, Chairman
Robert Sargent Shriver III
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company and Consolidated Cigar did not have a Compensation
Committee prior to the Company's initial pubic offering of the Class A Common
Stock (the "IPO"), completed on August 21, 1996. The Compensation Committee of
the Company is presently comprised of Messrs. Gittis and Shriver, neither of
whom is an officer or employee of the Company or its subsidiaries.
EMPLOYMENT ARRANGEMENTS
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. Until August 1,
1996, Mr. Folz served the Company and Consolidated Cigar pursuant to the MCG
Employment Agreement. As of August 1, 1996, Consolidated Cigar 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,
entered into a new employment agreement with Mr. Folz memorializing such
assumption and expiring on December 31, 1999. The employment agreement provides
for an initial base salary of $770,000 per year. In addition, Mr. Folz is
eligible to receive annual performance bonus payments, subject to an annual
maximum of $2 million, based on achievement by Consolidated Cigar of certain
EBITDA targets, which bonus payments shall be made pursuant to the Consolidated
Cigar Performance Bonus Plan, as set forth in his employment agreement. See
"--Consolidated Cigar Performance Bonus Plan." 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, Mr. Folz is entitled to terminate the employment
agreement; in that event, base salary, performance bonuses and benefits are to
be paid 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 Mr. Folz receives during this
period. The Company may terminate the agreement, among other things, in the
event of gross neglect or willful misconduct or breach by Mr. Folz of any
material provision of the agreement.
14
<PAGE>
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, subject to approval by
stockholders, for annual performance bonus payments, subject to an annual
maximum of $1 million, based on achievement by Consolidated Cigar of certain
EBITDA targets, which bonus payments shall be made pursuant to the Consolidated
Cigar Performance Bonus Plan, as set forth in the employment agreements.
CONSOLIDATED CIGAR PERFORMANCE BONUS PLAN
Consolidated Cigar has entered into employment agreements with certain
employees, including Messrs. Folz, DiMeola, Ellis, Colucci and Gershel, each of
which provides, among other things, for payment of performance bonuses (the
"Consolidated Cigar Performance Bonus Plan"). The Consolidated Cigar
Performance Bonus Plan has been approved by the Company's stockholders.
Compensation payable under the Consolidated Cigar Performance Bonus Plan is
intended to qualify as "performance based compensation" under Section 162(m) of
the Code. Under the Consolidated Cigar Performance Bonus Plan, the participants
are eligible to receive annual performance bonus cash awards based on
achievement of EBITDA targets established by the Compensation Committee and set
forth in their respective employment agreements with respect to each calendar
year. The payments under the Consolidated Cigar Performance Bonus Plan to any
one individual during any
15
<PAGE>
calendar year may not exceed $2 million for the Chief Executive Officer and $1
million for each of the other participants.
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. Effective September 30,
1997, Consolidated Cigar's pension assets and liabilities were spun-off to a
new Consolidated Cigar plan. The effect of the assumption of the net accrued
pension liability was recorded as a reduction of capital of $300,000. The
merger and spin-off of the Plan did not change the level of pension benefits
provided to Consolidated Cigar employees. Plan benefits are a factor of service
(up to a maximum of 33 years) with Consolidated Cigar and "Average Final
Compensation" (average monthly compensation during the 60 consecutive months in
which compensation was highest in the ten years prior to termination of
employment). Compensation includes total wages, overtime, bonuses and 401(k)
salary deferrals, and excludes fringe benefits and employer contributions to
other deferred compensation plans. Benefits in the Plan are reduced by (i) any
annuity purchased under the Gulf Western Consumer Products Salaried 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 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:
16
<PAGE>
<TABLE>
<CAPTION>
YEARS OF SERVICE
----------------------------------------------------------------------------------------
REMUNERATION 5 10 15 20 25 35
------------ ------------ ------------- ------------ ------------- ------------
<S> <C> <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 1997 was $125,000
or $10,400 per month, based on a maximum annual compensation of $160,000. The
maximum annual remuneration considered for purposes of the BRP was $500,000 in
1997.
As of December 31, 1997, the credited years of service under the Plan
were 14 years for Mr. Folz, 13 years for Mr. DiMeola, nine years for Mr. Ellis,
21 years for Mr. Colucci and 37 years for Mr. Gershel.
COMMON STOCK PERFORMANCE
The Company's Common Stock commenced trading on the New York Stock
Exchange (the "NYSE") on August 16, 1996. The graph set forth below presents a
comparison of cumulative stockholder return through December 31, 1997, assuming
reinvestment of dividends, by an investor who invested $100 on August 16, 1996
in each of (i) the Class A Common Stock (ii) the Russell 2000 Index and (iii) a
self determined peer group.
17
<PAGE>
COMPARISON OF CUMULATIVE TOTAL RETURN AMONG
COMPANY COMMON STOCK, THE RUSSELL 2000 INDEX AND
A SELF DETERMINED PEER GROUP
<TABLE>
<CAPTION>
August 16, 1996 December 31, 1996 December 31, 1997
--------------- ----------------- -----------------
<S> <C> <C> <C>
Consolidated Cigar Holdings Inc. 100 110 126
Russell 2000 Index 100 110 135
Peer Group 100 93 92
</TABLE>
- - ------------------------------
(a) Includes Caribbean Cigar Company, General Cigar Holdings Inc. and
Swisher International Group Inc.
18
<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the SEC and the NYSE. Officers, directors
and greater than ten percent owners are required to furnish the Company with
copies of all Forms 3, 4 and 5 they file.
Based solely on the Company's review of the copies of such forms it
has received and written representations from certain reporting persons that
they were not required to file Forms 5 for a specified fiscal year, except as
otherwise set forth herein, the Company believes that all its officers,
Directors and greater than ten percent beneficial owners complied with all
filing requirements applicable to them with respect to transactions during
1997. In March 1997, Mafco Consolidated offered and sold 5,000,000 shares of
Class A Common Stock in a public offering registered under the Securities Act
of 1933. In connection with such offering, Mr. Perelman, as beneficial owner of
Mafco Consolidated reported such sale on a Form 5 in February 1998.
PROPOSAL 2 - RATIFICATION OF SELECTION OF AUDITORS
The Audit Committee and the Board of Directors has appointed Ernst &
Young LLP as the Company's independent auditors for the fiscal year ending
December 31, 1998. Although stockholder action on this matter is not required,
this appointment is being recommended to the stockholders for ratification.
Pursuant to applicable Delaware law, the ratification of the selection of Ernst
& Young LLP requires the affirmative vote of the holders of a majority of the
votes cast at the Annual Meeting, in person or by proxy, and entitled to vote.
Abstentions and broker non-votes will be counted and will have the same effect
as a vote against the proposal.
Ernst & Young LLP representatives will be present at the Annual
Meeting and will have an opportunity to make a statement if they desire to do
so and will be available to respond to appropriate questions.
THE COMPANY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE RATIFICATION OF
THE SELECTION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR
1998.
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth as of March 24, 1998, the total number
of shares of Common Stock beneficially owned, and the percent so owned, by each
Director of the Company, by each person known to the Company to be the
beneficial owner of more than 5% of the outstanding Common Stock, by the Named
Executive Officers and by all directors and officers (including a former
executive officer) as a group. The number of shares owned are those
"beneficially owned," as determined under the rules of the SEC, and such
information is not necessarily indicative of beneficial ownership for any other
purpose. Under such rules, beneficial ownership includes any shares as to which
a person has sole or shared voting power or investment power and any shares of
Common Stock which the person has the right to acquire within 60 days through
the exercise of any option, warrant or right, through conversion of any
security, or pursuant to the automatic termination of power of attorney or
revocation of trust, discretionary account or similar arrangement.
20
<PAGE>
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
-------------------------- -------------------------
NUMBER NUMBER PERCENT
OF SHARES OF SHARES OF TOTAL
NAME AND ADDRESS BENEFICIALLY PERCENT BENEFICIALLY PERCENT VOTING
OF BENEFICIAL OWNER OWNED(1) OF CLASS OWNED OF CLASS POWER
- - --------------------------------- ------------ ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Ronald O. Perelman(2)............... 19,600,000 63.3% 19,600,000 100% 94.7%
35 East 62nd Street
New York, New York 10021
Franklin Resources, Inc............. 1,127,345 9.9%(3) -- -- *
777 Mariners Island Blvd.
San Matco, California 94404
Warburg Pincus Asset Manage- 1,129,300 9.9%(3) -- -- *
ment, Inc...........................
466 Lexington Avenue
New York, New York 10017
FMR Corp............................ 841,700 7.4%(3) -- -- *
82 Devonshire Street
Boston, Massachusetts 02109
Morgan Stanley, Dean Witter Dis- 723,300 6.4%(3) -- -- *
cover & Co..........................
1585 Broadway
New York, New York 10036
Philip E. Beekman................... 1,000 * __ __ *
Howard Gittis....................... 5,000 * -- -- *
Theo W. Folz........................ 341,666 * -- -- *
Michael Fuchs....................... 0 * -- -- *
Robert Sargent Shriver III.......... 15,000 * -- -- *
Barry F. Schwartz................... 3,000 * -- -- *
Gary R. Ellis....................... 20,666 * -- -- *
Richard L. DiMeola.................. 28,333 * -- -- *
James L. Colucci.................... 19,666 * -- -- *
George F. Gershel, Jr............... 17,666 * -- -- *
All Directors and executive offi- 20,084,508 64.9% 19,600,000 100% 94.7%
cers as a group (13 persons)........
</TABLE>
- - ------------------
* Less than 1%.
(Footnotes on next page)
21
<PAGE>
(1) Shares of Class A Common Stock issuable upon conversion of the Class B
Common Stock owned by Mafco Consolidated Group are deemed to be
outstanding for purposes of computing the percentage ownership of Class
A Common Stock of Mr. Perelman through Mafco Consolidated Group, but are
not deemed to be outstanding for the purposes of computing the
percentage ownership of Class A Common Stock of any other person shown
in the table.
(2) Represents shares of Class A Common Stock issuable upon the conversion
of the Class B Common Stock indirectly owned through Mafco Holdings.
Mafco Holdings is wholly owned by Mr. Perelman. All of the shares of
common stock owned by Mafco Holdings are and shares of intermediate
holding companies are, or may from time to time be, pledged to secure
obligations.
(3) Reflects the percentage of shares of Class A Common Stock beneficially
owned by such person. In each case, such person beneficially owns less
than 3% of the outstanding Common Stock and less than 1% of the combined
voting power of the outstanding Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
RELATIONSHIP WITH MAFCO HOLDINGS
As a result of Mafco Holdings' stock ownership, the Company's Board of
Directors is, and is expected to continue to be, comprised entirely of
designees of Mafco Holdings, which 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 Holdings is 100% wholly-owned by Ronald O. Perelman. Mafco
Holdings is a diversified holding company with interests in several industries.
Through its 83% ownership of Revlon, Inc., Mafco Holdings is engaged in the
cosmetics and skin care, fragrance and personal care products business. Mafco
Holdings also owns 65% of Meridian Sports, a manufacturer and marketer of
specialized ski-boats. Through its 64% ownership of the Company, Mafco Holdings
is engaged in the manufacture and distribution of cigars and pipe tobacco.
Through its 36% ownership of M & F Worldwide (assuming conversion of certain
preferred stock), Mafco Holdings is in the business of processing licorice and
other flavors. On December 18, 1997, Mafco Holdings entered into an agreement
pursuant to which Mafco Holdings will acquire a controlling interest in
Panavision Inc., a manufacturer and supplier of film camera systems to the
motion picture and
22
<PAGE>
television industries. Mafco Holdings is also in the financial services
business through its 80% ownership interest in California Federal. On February
4, 1998, Mafco Holdings entered into an agreement with Golden State Bancorp
Inc. pursuant to which California Federal and Golden State Bancorp Inc. will
merge. The resulting corporation will retain the name California Federal.
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. Such
options were granted pursuant to the Stock Plan at an exercise price equal to
$23.00 per share.
The options do not vest until 2001.
TAX SHARING AGREEMENT
The Company and Consolidated Cigar 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") until March 26, 1997. As a
result of such affiliation, the Company and Consolidated Cigar 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 had 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, 1995 and 1996 were approximately $0.4 million and
$9.8 million, respectively and through March 26, 1997 was $4.4 million.
23
<PAGE>
The Company completed a secondary offering of Class A Common Stock on
March 26, 1997, and as a result thereof, the Company is no longer 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 net
operating losses for the period prior to the acquisition of Consolidated Cigar
by Mafco Consolidated Group on March 3, 1993 ("Pre-Acquisition"), which,
pursuant to the Tax Sharing Agreements, were not available to the Company to
offset taxable income generated in the period after the acquisition of
Consolidated Cigar by Mafco Consolidated Group ("Post-Acquisition"). The
Pre-Acquisition net operating losses that were previously restricted, pursuant
to the Tax Sharing Agreements, are 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
would 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. A portion
of these losses may be allocated to the Company pursuant to the Treasury
Regulation Section 1.1502-79 which deals with consolidated returns. This tax
attribute would 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 a promissory note in an
original principal amount of $70 million (the "Promissory Note") to Mafco
Consolidated Group as a dividend. 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.
24
<PAGE>
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, a
subsidiary of M & F Worldwide Corp. During the years ended December 31, 1995,
1996 and 1997, the Company purchased approximately $269,000, $211,000 and
$239,000 of licorice extract from Pneumo Abex. During 1997 the Company sold
$152,000 of raw materials to Mafco Worldwide. The Company believes that the
licorice extract purchased from Pneumo Abex and the raw materials sold thereto
were 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 $874,000,
$958,000 and $843,000 for the years ended December 31, 1995, 1996 and 1997,
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;
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 development or transaction then pending or in progress or in other
material adverse consequences to the Company. In addition, the
25
<PAGE>
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.
ADDITIONAL INFORMATION
The Company will make available a copy of its Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and any Quarterly Reports on Form
10-Q filed thereafter, without charge, upon written request to the Secretary,
Consolidated Cigar Holdings Inc., 5900 North Andrews Avenue, Suite 700, Fort
Lauderdale, Florida 33309-2369. Each such request must set forth a good faith
representation that, as of the Record Date, March 24, 1998, the person making
the request was a beneficial owner of Common Stock entitled to vote.
In order to ensure timely delivery of such documents prior to the Annual
Meeting, any request should be received by the Company promptly.
STOCKHOLDER PROPOSALS
Under the rules and regulations of the SEC as currently in effect, any
holder of at least $1,000 in market value of Common Stock who has held such
securities for at least one year and who desires to have a proposal presented
in the Company's proxy material for use in connection with the Annual Meeting
of stockholders to be held in 1999 must transmit that proposal (along with his
or her name, address, the number of shares of Common Stock that he or she holds
of record or beneficially, the dates upon which the securities were acquired
and documentary support for a claim of beneficial ownership) in writing as set
forth below. Proposals of stockholders intended to be presented at the next
annual meeting must be received by the Secretary, Consolidated Cigar Holdings
Inc., 5900 North Andrews Avenue, Suite 700, Fort Lauderdale, Florida
33309-2369, not later than December 1, 1998.
26
<PAGE>
OTHER BUSINESS
The Company knows of no other matters which may come before the annual
meeting. However, if any such matters properly come before the meeting, the
individuals named in the proxies will vote on such matters in accordance with
their best judgment.
March 30, 1998
BY ORDER OF THE BOARD OF DIRECTORS
CONSOLIDATED CIGAR HOLDINGS INC
