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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4) OF THE
SECURITIES EXCHANGE ACT OF 1934
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CONSOLIDATED CIGAR HOLDINGS INC.
(NAME OF SUBJECT COMPANY)
CONSOLIDATED CIGAR HOLDINGS INC.
(NAME OF PERSON(S) FILING STATEMENT)
CLASS A COMMON STOCK, PAR VALUE $.01 PER SHARE
CLASS B COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
20902E 106
(CUSIP NUMBER OF CLASS OF SECURITIES)
BARRY F. SCHWARTZ, ESQ.
CONSOLIDATED CIGAR HOLDINGS INC.
35 EAST 62ND STREET
NEW YORK, NEW YORK 10021
(212) 572-5170
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED TO RECEIVE
NOTICE AND COMMUNICATIONS ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
FRANKLIN M. GITTES, ESQ. AND ALAN C. MYERS, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
919 THIRD AVENUE
NEW YORK, NEW YORK 10022-3897
(212) 735-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Consolidated Cigar Holdings Inc., a
Delaware corporation (the "Company"), and the address of the principal
executive offices of the Company is 5900 North Andrews Avenue, 10th floor,
Fort Lauderdale, Florida, 33309. The title of the classes of equity securities
to which this statement relates is the Class A common stock, par value $.01
per share (the "Class A Shares"), of the Company and the Class B common stock,
par value $.01 per share (the "Class B Shares"), of the Company (together, the
"Company Common Stock" or the "Shares").
ITEM 2. TENDER OFFER OF THE PURCHASER.
This statement relates to the tender offer by Dorsay Acquisition Corp., a
Delaware corporation (the "Purchaser") and a wholly owned subsidiary of
Societe Nationale d'Exploitation Industrielle des Tabacs et Allumettes, a
corporation organized under the laws of France ("Parent"), disclosed in a
Tender Offer Statement on Schedule 14D-1, dated December 22, 1998 (the
"Schedule 14D-1"), to purchase any and all of the issued and outstanding
Shares, at a price of $17.85 per Share, net to the seller in cash (the "Offer
Price"), upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated December 22, 1998 (the "Offer to Purchase"), and the
related Letter of Transmittal (which, together with the Offer to Purchase, as
amended or supplemented from time to time, constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of December 16, 1998 (the "Merger Agreement"), by and among Parent, the
Purchaser and the Company. See Item 3(b) below for a description of the Merger
Agreement, a copy of which is filed as Exhibit 1 hereto and is incorporated
herein by reference.
The Merger Agreement provides, among other things, that after the
consummation of the Offer and the satisfaction or waiver of the conditions set
forth in the Merger Agreement, the Purchaser will be merged with and into the
Company (the "Merger") pursuant to the Delaware General Corporation Law (the
"DGCL"). As a result of the Merger, the separate corporate existence of the
Purchaser will cease and the Company will continue as the surviving
corporation and a wholly owned subsidiary of Parent (the "Surviving
Corporation"), and will continue to be governed by the laws of the State of
Delaware. At the effective time of the Merger (the "Effective Time"), each
Share then outstanding (other than Shares held in the Company's treasury or
held by Parent, the Purchaser, any other wholly owned subsidiary of Parent or
the Company or by dissenting stockholders) will be converted into the right to
receive the Offer Price (the "Merger Consideration").
As set forth in the Schedule 14D-1, the principal executive offices of
Parent and the Purchaser are located at 53, quai d'Orsay, 75347 Paris Cedex
07, France and the telephone number is 33.1.45.56.62.17.
ITEM 3. IDENTITY AND BACKGROUND.
(a) Name and Address of the Company. The name and address of the Company,
which is the person filing this statement, are set forth in Item 1 above.
(b) Material Contracts, etc. Except as described herein or in Schedule I
attached hereto, which is incorporated herein by reference, to the knowledge
of the Company, there are no material contracts, agreements, arrangements or
understandings and no actual or potential conflicts of interest between the
Company or its affiliates and (i) the Company's executive officers, directors
or affiliates or (ii) Parent or the Purchaser or their respective executive
officers, directors or affiliates.
Information with respect to certain contracts, agreements, arrangements or
understandings between the Company and certain of its directors, executive
officers and affiliates is set forth on pages 14 through 17 and 22 through 26
of the Company's Proxy Statement, dated March 30, 1998 (the "1998 Proxy
Statement"), relating to the Company's 1998 Annual Meeting of Stockholders. A
copy of the relevant portions of the 1998 Proxy Statement are attached hereto
as Exhibit 2 and are incorporated herein by reference.
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ARRANGEMENTS WITH PARENT, THE PURCHASER OR THEIR AFFILIATES
Confidentiality Agreement
The following is a summary of certain material provisions of the
Confidentiality Agreement (the "Confidentiality Agreement"), dated as of
October 20, 1998, between the Company and Parent. This summary does not
purport to be complete and is qualified in its entirety by reference to the
complete text of the Confidentiality Agreement, a copy of which is filed as
Exhibit 3 hereto and is incorporated herein by reference. Capitalized terms
not otherwise defined below have the meanings ascribed to them in the
Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Parent has agreed to keep confidential all
nonpublic, confidential or proprietary information furnished to it by the
Company, subject to certain exceptions (the "Confidential Information"), and
to use the Confidential Information solely for the purpose of evaluating a
possible transaction involving the Company and Parent. Parent has agreed in
the Confidentiality Agreement that for a period of two years from the date of
the Confidentiality Agreement, without the prior written consent of the
Company, it would not solicit for employment any of the current employees of
the Company or its affiliates so long as they were employed by the Company or
such affiliate.
The Merger Agreement
The following is a summary of certain material provisions of the Merger
Agreement. This summary does not purport to be complete and is qualified in
its entirety by reference to the complete text of the Merger Agreement, a copy
of which is filed as Exhibit 1 hereto and is incorporated herein by reference.
Capitalized terms not otherwise defined below have the meanings ascribed to
them in the Merger Agreement.
The Offer. The Merger Agreement provides for the commencement of the Offer
as promptly as reasonably practicable, but in no event later than five
business days after the initial public announcement on the date of the Merger
Agreement or the following day of Purchaser's intention to commence the Offer.
Subject to the terms and conditions of the Offer (including, without
limitation, there being validly tendered and not withdrawn prior to the
expiration of the Offer at least 19,600,000 Class B Shares (the "Minimum
Condition")), Purchaser will accept for payment and pay for, as soon as it is
legally permitted to do so under applicable law, all Shares validly tendered
and not withdrawn. The obligation of Purchaser to accept for payment and pay
for Shares validly tendered on or prior to the expiration of the Offer and not
withdrawn is subject to the satisfaction of the Minimum Condition and certain
other conditions that are described under the heading "Certain Conditions of
the Offer" below. Purchaser and Parent have agreed that Purchaser will not
decrease the Offer Price or decrease the number of Shares sought, amend the
conditions to the Offer or impose conditions to the Offer in addition to those
set forth under the heading "Certain Conditions of the Offer" below without
the prior consent of the Company.
Purchaser may, and the Company may require Purchaser to, extend the Offer up
to 40 days in the aggregate, in increments of up to ten business days each, if
any condition to the Offer has not been satisfied or waived. In addition,
Purchaser may, without the consent of the Company, (A) extend the Offer for up
to an additional 40 days, in one or more periods of not more than 10 business
days, if any condition to the Offer is not satisfied or waived, (B) extend the
Offer on one occasion for up to 10 business days if, on the Expiration Date,
the Shares validly tendered pursuant to the Offer and not withdrawn are
sufficient to satisfy the Minimum Condition but equal less than 90% of the
outstanding Shares (regardless of whether all the conditions to the Offer have
been satisfied so long as Purchaser irrevocably waives the satisfaction of any
of the conditions to the Offer (other than the non-occurrence of any statute,
rule or regulation, judgment, order or injunction making illegal or
prohibiting the consummation of the Offer)), and (C) extend the Offer or
increase the Offer Price to the extent required by law. Purchaser will only be
required to extend the Offer, up to 40 days in the aggregate, in one or more
periods of not more than 10 business days, if (i) each condition is reasonably
capable of being satisfied and (ii) the
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Company is in material compliance with all of its covenants under the Merger
Agreement after Purchaser has given the Company five business days prior
written notice of any such non-compliance.
Certain Conditions of the Offer. Purchaser will not be required to accept
for payment or, subject to applicable rules and regulations of the Commission,
pay for any Shares tendered pursuant to the Offer, and may terminate or amend
the Offer and may postpone the acceptance for payment for Shares tendered, if,
at the Expiration Date, (i) the Minimum Condition has not been satisfied, (ii)
any applicable waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act") has not expired or been terminated
prior to the expiration of the Offer (the "HSR Condition") or (iii) any of the
following conditions exists: (a) there shall be any statute, rule, regulation,
judgment, order or injunction promulgated, entered, enforced, enacted, issued
or applicable to the Offer or the Merger by any domestic or foreign federal or
state governmental regulatory or administrative agency or authority or court
or legislative body or commission which (l) prohibits, or imposes any material
limitations on, Parent's or Purchaser's ownership or operation of all or a
material portion of the Company's businesses or assets, (2) prohibits, or
makes illegal the acceptance for payment, payment for or purchase of Shares or
the consummation of the Offer or the Merger, (3) results in a material delay
in or restricts the ability of Purchaser, or renders Purchaser unable, to
accept for payment, pay for or purchase some or all of the Shares, or (4)
imposes material limitations on the ability of Purchaser or Parent effectively
to exercise full rights of ownership of the Shares, including, without
limitation, the right to vote the Shares purchased by it on all matters
properly presented to the Company's stockholders, provided that Parent shall
have used all reasonable efforts to cause any such judgment, order or
injunction to be vacated or lifted; (b) there shall be any action or
proceeding pending or instituted by any domestic or foreign federal or state
governmental regulatory or administrative agency or authority which (1) seeks
to prohibit, or impose any material limitation on, Parent's or Purchaser's
ownership or operation of all or a material portion of the Company's
businesses or assets, (2) seeks to prohibit or make illegal the acceptance for
payment, payment for or purchase of Shares or the consummation of the Offer or
the Merger, (3) is reasonably likely to result in a material delay in or seeks
to restrict the ability of Purchaser, or render Purchaser unable, to accept
for payment, pay for or purchase some or all of the Shares or (4) seeks to
impose material limitations on the ability of Purchaser or Parent effectively
to exercise full rights of ownership of the Shares, including, without
limitation, the right to vote the Shares purchased by it on all matters
properly presented to the Company's stockholders; provided that Parent shall
have used all reasonable efforts to cause any such action or proceeding to be
dismissed; (c) the representations and warranties of the Company set forth in
the Merger Agreement shall not be true and correct in any respect,
disregarding for this purpose any standard of materiality contained in any
such representation or warranty, as of the date of consummation of the Offer
as though made on or as of such date, or the Company shall have breached or
failed in any material respect to perform or comply with any material
obligation, agreement or covenant required by the Merger Agreement to be
performed or complied with by it (including without limitation if the Company
shall have entered into any definitive agreement or any agreement in principle
with any person with respect to an Acquisition Proposal or similar business
combination with the Company), except, in the case of the failure of any
representation or warranty, (i) for changes specifically permitted by the
Merger Agreement and (ii) (A) those representations and warranties that
address matters only as of a particular date which are true and correct as of
such date or (B) where the failure of such representations and warranties to
be true and correct, do not, individually or in the aggregate, have a material
adverse effect on the Company and its subsidiaries, taken as a whole; (d) it
shall have been publicly disclosed that any person, entity or "group" (as
defined in Section 13(d)(3) of the Exchange Act), shall have acquired and has
beneficial ownership (determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) of more than 15% of any class or series of capital stock of the
Company (including the Shares), through the acquisition of stock, the
formation of a group or otherwise, or shall have been granted an option, right
or warrant, conditional or otherwise, to acquire beneficial ownership of more
than 10% of any class or series of capital stock of the Company (including the
Shares), other than any person or group existing on the date hereof which
beneficially owns more than 9% of any class or series of capital stock of the
Company; (e) (1) any general suspension of trading in securities on any
national securities exchange or in the over-the-counter market, (2) the
declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States or France (whether or not mandatory), or (3) any
limitation (whether or not mandatory) by a United States or French
governmental authority or agency on the extension of credit by banks
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or other financial institutions; (f) the Board shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer, the Merger
Agreement, or the Merger, or recommended another proposal or offer, or shall
have resolved to do any of the foregoing; or (g) the Merger Agreement shall
have been terminated in accordance with its terms; which, in the reasonable
judgment of Parent or Purchaser, in any such case, and regardless of the
circumstances giving rise to any such condition, makes it inadvisable to
proceed with the Offer or with such acceptance for payment or payments.
Board Representation; Directors. The Merger Agreement provides that,
promptly upon the purchase of and payment for Shares by Parent or any of its
subsidiaries which represent at least a majority of the outstanding shares of
Company Common Stock (on a fully diluted basis), Parent will be entitled to
designate such number of directors, rounded up to the next whole number, on
the Board as is equal to the product of the total number of directors on such
Board (giving effect to the directors designated by Parent pursuant to this
sentence) multiplied by the percentage that the aggregate number of Shares
beneficially owned by Purchaser, Parent and any of their affiliates bears to
the total number of shares of Company Common Stock then outstanding. The
Company will, upon request of Purchaser, use all reasonable efforts promptly
either to increase the size of the Board (which, pursuant to the Company's
Certificate of Incorporation, has no maximum number of directors) or, at
Purchaser's election, secure the resignations of such number of its incumbent
directors as is necessary to enable Parent's designees to be so elected to the
Board, and will cause Parent's designees to be so elected. Notwithstanding the
foregoing, until the Effective Time, the Company will retain as members of its
Board at least two directors who are directors of the Company on the date of
the Merger Agreement; provided, that subsequent to the purchase of and payment
for Shares pursuant to the Offer, Parent will always have its designees
represent at least a majority of the entire Board. In the Merger Agreement,
the Company has agreed to take all actions necessary to cause Purchaser's
designees to be elected as directors of the Company.
From and after the time, if any, that Parent's designees constitute a
majority of the Board, any amendment of the Merger Agreement, any termination
of the Merger Agreement by the Company, any extension of time for performance
of any of the obligations of Parent or Purchaser thereunder, any waiver of any
condition or any of the Company's rights thereunder or other action by the
Company thereunder may be effected only by the unanimous vote of the entire
Board.
The Merger. Following completion of the Offer, upon the terms and subject to
the conditions of the Merger Agreement and in accordance with Delaware law,
Purchaser will be merged with and into the Company. As a consequence of the
Merger, the separate corporate existence of Purchaser will cease and the
Company will continue as the successor or surviving corporation and will be a
wholly owned subsidiary of Parent. Hereinafter, the date on which the Closing
of the Merger will take place is referred to as the "Closing Date". The Merger
will become effective at such time as a duly prepared certificate of merger is
filed with the Secretary of State of the State of Delaware in accordance with
Delaware Law.
The Merger Agreement provides that the directors of Purchaser immediately
prior to the Effective Time will be the initial directors of the Surviving
Corporation and that the officers of the Company immediately prior to the
Effective Time will be the initial officers of the Surviving Corporation. The
Merger Agreement also provides that, at the Effective Time, the Certificate of
Incorporation and the By-Laws of Purchaser will be the Certificate of
Incorporation and the By-Laws of the Surviving Corporation, provided that such
Certificate of Incorporation will be amended to change the name of the
corporation to Consolidated Cigar Holdings Inc.
Conversion of Securities. Pursuant to the Merger Agreement, at the Effective
Time, each share of common stock, par value $0.01 per share, of Purchaser
issued and outstanding immediately prior to the Effective Time will be
converted into and exchanged for one share of common stock, par value $0.01
per share, of the Surviving Corporation. In addition, the Shares outstanding,
immediately prior to the Effective Time (other than the Dissenting Shares and
Shares to be cancelled as described in the last sentence of this paragraph),
will, by reason of the Merger and without any action by the holders thereof,
be converted into the right to receive the Offer Price (the "Merger
Consideration"), without interest. All such Shares, when so converted, will no
longer be
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outstanding and will automatically be canceled and retired and will cease to
exist, and each certificate previously evidencing such Shares will thereafter
represent only the right to receive the Merger Consideration. Each Share which
is held in the treasury of the Company immediately prior to the Effective Time
and any Share owned by a subsidiary of the Company, Parent, Purchaser or any
wholly owned subsidiary of Parent will, by virtue of the Merger, cease to be
outstanding and will be canceled and retired without payment of any
consideration therefor.
Notwithstanding the above, any Dissenting Shares will not be converted into
the right to receive, or be exchangeable for, the Merger Consideration, but
instead holders of Dissenting Shares will be entitled only to the rights
granted by the provisions of Section 262 of Delaware Law, which entitles
dissenting stockholders to receive a judicial determination of the fair value
of their shares and to receive payment of such fair value in cash, together
with a fair rate of interest, if any. Such judicially determined fair value
could be more or less than the Merger Consideration.
Parent and the Company have agreed to take all actions necessary to provide
that, effective as of the Effective Time, (i) each outstanding employee stock
option to purchase Shares (an "Option") granted under the Company's 1996 Stock
Option Plan (the "Stock Plan"), whether or not then exercisable or vested,
will be cancelled and (ii) in consideration of such cancellation, the Company
(or, at Parent's option, Purchaser) will pay to such holders of Options an
amount in respect thereof equal to the product of (A) the excess, if any, of
the Offer Price over the exercise price of each such Option and (B) the number
of Shares subject thereto (such payment, if any, to be net of applicable
withholding taxes). As of the Effective Time, the Stock Plan will terminate.
The Company will take all action necessary to ensure that, after the Effective
Time, no person will have any right under the Stock Plan or any other plan,
program or arrangement with respect to equity securities of the Company or any
direct or indirect subsidiary of the Company.
Stockholders' Approval. Pursuant to the Merger Agreement, if required by
applicable law, the Company will (i) duly call, give notice of, convene and
hold a special meeting of its stockholders (the "Special Meeting") as soon as
practicable following the acceptance for payment and purchase of Shares by
Purchaser pursuant to the Offer for the purposes of considering and taking
action upon the Merger Agreement; (ii) prepare in accordance with applicable
law and mail to its stockholders a proxy statement relating to the Special
Meeting (the "Proxy Statement"); (iii) use its reasonable efforts to obtain
the necessary stockholder approval of the Merger and Merger Agreement; and
(iv) subject to the fiduciary obligations of the Board, include in the Proxy
Statement the recommendation of the Board that stockholders of the Company
vote in favor of the approval of the Merger and the adoption of the Merger
Agreement. However, if Parent, Purchaser or another subsidiary of Parent
acquires more than 90% of the outstanding Shares pursuant to the Offer or
otherwise, each of the parties will cause the Merger to become effective as
soon as practicable after such acquisition, without a meeting of stockholders
of the Company, in accordance with the "short-form" merger provisions of
Section 253 of Delaware Law.
Representations and Warranties. The Merger Agreement contains various
customary representations and warranties of the parties thereto, including
representations and warranties by the Company with respect to organization;
capitalization; authorization relative to the Merger Agreement; validity of
the Merger Agreement; consents and approvals; Commission reports and financial
statements; undisclosed liabilities; absence of certain changes; employee
benefit matters; litigation; compliance with applicable laws; taxes; real
property; environmental matters; intellectual property; inventory; labor
matters; restrictions on business activities; year 2000 compliance; brokers
and other matters.
Conduct of Business Pending the Merger. Under the Merger Agreement, the
Company has agreed that during the period from the date of the Merger
Agreement and continuing until the election of Purchaser's designees
representing at least a majority of the members of the Board, unless Parent
otherwise agrees in writing and unless otherwise expressly permitted under the
Merger Agreement, the business of the Company and its subsidiaries will be
conducted only in the ordinary and usual course of business consistent with
past practices and:
(a) the Company will not, directly or indirectly, (i) sell, transfer or
pledge or agree to sell, transfer or pledge any Company Common Stock or any
other securities of the Company or capital stock or any other
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securities of any of its subsidiaries beneficially owned by it; (ii) amend
its Certificate of Incorporation or By-laws or similar organizational
documents of any of its subsidiaries; or (iii) split, combine or reclassify
the outstanding Company Common Stock or any outstanding capital stock of
any of the subsidiaries of the Company;
(b) neither the Company nor any of its subsidiaries will: (i) declare,
set aside or pay any dividend or other distribution with respect to its
capital stock; (ii) issue, sell, pledge, dispose of or encumber any
additional shares of, or securities convertible into or exchangeable for,
or options, warrants or rights of any kind to acquire, any shares of
capital stock of the Company or its subsidiaries (other than shares of
Company Common Stock reserved for issuances pursuant to the exercise of
Options outstanding on the date of the Merger Agreement); (iii) transfer,
lease, license, sell, mortgage, pledge, dispose of or encumber any right to
any trademark, service mark or trade name owned by it or over which it has
any right whatsoever; (iv) transfer, lease, license, sell, mortgage,
pledge, dispose of or encumber any other material assets other than in the
ordinary and usual course of business; (v) incur or modify any material
indebtedness or other material liability, except that the Company may
borrow money for use in the ordinary and usual course of business if
neither the Company nor any of its subsidiaries makes any borrowing or
incurs any indebtedness or other liability that would cause the Company's
consolidated net debt (including the indebtedness currently outstanding
under a promissory note issued by the Company to Mafco Consolidated Group
Inc. ("Mafco Consolidated")) to exceed $205 million; (vi) make any capital
expenditures in excess of $2 million in the aggregate; or (vii) redeem,
purchase or otherwise acquire any of its capital stock;
(c) neither the Company nor any of its subsidiaries will modify, amend or
terminate any of its material agreements or waive, release or assign any
material right or claims;
(d) neither the Company nor any of its subsidiaries will permit any
material insurance policy naming it as a beneficiary or a loss payable
payee to be terminated without notice to Parent;
(e) neither the Company nor any of its subsidiaries will: (i) assume,
guarantee or otherwise become responsible for the obligations of any other
person, except in the ordinary course of business; (ii) make any loans,
advances or capital contributions to, or investments in, or acquisitions
of, any other person (other than subsidiaries of the Company), other than
in the ordinary course of business; or (iii) enter into any commitment or
transaction with respect to any of the foregoing;
(f) neither the Company nor any of its subsidiaries will change any of
the accounting methods used by it unless required by United States
Generally Accepted Accounting Principles ("GAAP") or applicable law;
(g) neither the Company nor any of its subsidiaries will adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
recapitalization or other reorganization of the Company or any of its
subsidiaries (other than the Merger);
(h) neither the Company nor any of its subsidiaries will take, or agree
to take, any action that would make any representation or warranty of the
Company contained in the Merger Agreement inaccurate in any material
respect;
(i) except as described under "The Merger Agreement--Conversion of
Securities" above, the Company will not amend or change the period of
exercisability of Options granted under the Stock Plan or authorize cash
payments in exchange for any Options;
(j) except for year-end bonuses and salary increases made in the ordinary
course of business, which in the case of year-end bonuses may not exceed
$2.2 million in the aggregate, neither the Company nor any subsidiary will
increase the compensation payable or to become payable to its officers or
directors;
(k) neither the Company nor any of its subsidiaries will grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director or officer of the Company or any subsidiary or
establish, adopt, enter into or terminate or amend any employee benefit
plan; and
(l) neither the Company nor any of its subsidiaries will authorize or
enter into an agreement to do any of the foregoing.
Repayment of Borrowings Under Credit Agreement. At the consummation of the
Offer, Parent has agreed to cause the Company to repay all outstanding
borrowings under the Credit Agreement, dated March 2, 1998,
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between Consolidated Cigar Corporation and Chase Manhattan Bank, as
administrative agent, as amended by Amendment No. 1 thereto, dated as of April
27, 1998 (the "Credit Agreement") (through Parent's cash on hand, existing
credit arrangements or otherwise), such that no event of default will exist as
a result of the consummation of the transactions contemplated in the Merger
Agreement.
Employee Benefits. Parent and Purchaser have agreed to continue the
employment of all persons who, immediately prior to the Effective Time, were
employees of the Company or its subsidiaries ("Retained Employees"). Parent
and Purchaser have agreed that, effective as of the Effective Time and for a
one-year period following the Effective Time, the Surviving Corporation and
its subsidiaries and successors will provide the Retained Employees with
employee plans and programs which are, in the aggregate, substantially
comparable to those provided to them immediately prior to the date of the
Merger Agreement (other than with regard to the 1996 Plan). However, Parent
and Purchaser are not required to continue the employment of any Retained
Employee for any particular period of time after the Effective Time, and,
subject to the terms of the Merger Agreement, Parent and Purchaser have the
right to amend, modify, suspend or terminate any employee plan or program in
accordance with the terms of such employee plan or program and applicable law.
Parent and Purchaser have agreed to honor, and cause the Surviving
Corporation to honor, without modification, all employment and severance
agreements and arrangements, as amended through the date of the Merger
Agreement, with respect to employees and former employees of the Company.
No Solicitation. The Company and its subsidiaries have agreed not to, and to
use their best efforts to cause their respective officers, directors,
employees and investment bankers, attorneys or other agents retained by or
acting on behalf of the Company or any of its subsidiaries not to, (i)
initiate, solicit or encourage any inquiries or the making of any proposal
that constitutes or is reasonably likely to lead to any Acquisition Proposal
(as defined below), (ii) engage in negotiations or discussions with, or
furnish any information or data to, any third party relating to an Acquisition
Proposal or (iii) enter into any agreement with respect to any Acquisition
Proposal or approve any Acquisition Proposal. The Company is also required to
promptly request each person that has executed a confidentiality agreement in
connection with its consideration of an Acquisition Proposal to return all
non-public information furnished to such person by or on behalf of the Company
or any of its subsidiaries.
However, the Company and the Board (i) may participate in discussions or
negotiations (including, as a part thereof, making any counterproposal) with
or furnish information to any third party making an unsolicited Acquisition
Proposal (a "Potential Acquiror") if the Board determines in good faith, based
upon advice of its outside legal counsel, that the failure to participate in
such discussions or negotiations or to furnish such information would be
inconsistent with its fiduciary duties under applicable law, and (ii) will be
permitted to take and disclose to the Company's stockholders a position with
respect to any tender or exchange offer by a third party, or amend or withdraw
such position, pursuant to Rules 14d-9 and 14e-2 under the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
Any non-public information furnished to a Potential Acquiror will be
pursuant to a confidentiality agreement substantially similar to the
confidentiality provisions of the Confidentiality Agreement. In the event that
the Company determines to provide any information as described above, or
receives any Acquisition Proposal, it will promptly inform Parent in writing
as to the fact that information is to be provided and will furnish to Parent
the identity of the recipient of such information or the Potential Acquiror
and the terms of such Acquisition Proposal, except to the extent that the
Board determines in good faith, based upon advice of its outside legal
counsel, that any such action described in this sentence would be inconsistent
with its fiduciary duties under applicable law. The Company has agreed to keep
Parent reasonably informed of the status of any such Acquisition Proposal
except to the extent that the Board determines in good faith, based upon
advice of its outside legal counsel, that any such action would be
inconsistent with the Board's fiduciary duties under applicable law.
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The Board may not (i) withdraw or modify or propose to withdraw or modify,
in any manner adverse to Parent, its approval or recommendation of the Merger
Agreement, the Offer or the Merger or (ii) approve or recommend, or propose to
approve or recommend, any Acquisition Proposal; provided that the Board may
withdraw or modify or propose to withdraw or modify its recommendation of the
Merger Agreement, the Offer or the Merger or recommend or propose to recommend
an Acquisition Proposal if, in each case, the Board determines in good faith,
after receiving advice from its financial advisor, that such Acquisition
Proposal is a Superior Proposal (as defined below) and determines in good
faith, based upon advice of its outside legal counsel, that it would be
inconsistent not to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law. The Board may not authorize the
Company to enter into any agreement with respect to an Acquisition Proposal
(even if it is a Superior Proposal).
"Acquisition Proposal" means any offer or proposal, whether in writing or
otherwise, made by a third party to acquire beneficial ownership of all or a
material portion of the assets of, or any material equity interest in, the
Company or its material subsidiaries pursuant to a merger, consolidation or
other business combination, recapitalization, reorganization, sale of assets,
tender offer or exchange offer or similar transaction involving the Company or
its material subsidiaries (other than the transactions contemplated by the
Merger Agreement). The term "Superior Proposal" means any proposal to acquire
directly or indirectly, for consideration consisting of cash or securities,
more than a majority of the Shares then outstanding or all or substantially
all the assets of the Company, and otherwise on terms which the Board
determines in good faith to be more favorable to the Company and its
stockholders than the Offer and the Merger (based on advice of the Company's
financial advisor that the value of the consideration provided for in such
proposal is superior to the value of the consideration provided for in the
Offer and the Merger), for which financing, to the extent required, is then
committed.
Directors' and Officers' Insurance and Indemnification. Parent has agreed,
from and after the consummation of the Offer, to cause the Surviving
Corporation to indemnify, defend and hold harmless any person who is now, or
has been at any time prior to the date of the Merger Agreement, or who becomes
prior to the Effective Time, an officer, director, employee or agent (the
"Indemnified Party") of the Company or any of its subsidiaries against all
losses, claims, damages, liabilities, costs and expenses, judgments, fines,
losses and amounts paid in settlement in connection with any actual or
threatened action, suit, claim, proceeding or investigation (each a "Claim")
to the extent that any such Claim is based on, or arises out of, (i) the fact
that such person is or was a director, officer, employee or agent of the
Company or any of its subsidiaries or is or was serving at the request of the
Company or any of its subsidiaries as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise
or (ii) the Merger Agreement, or any of the transactions contemplated thereby,
in each case to the extent that any such Claim pertains to any matter or fact
arising or existing prior to or at the Effective Time, regardless of whether
such Claim is asserted or claimed prior to, at or after the Effective Time, to
the fullest extent permitted under Delaware Law or the Company's Certificate
of Incorporation, By-laws or indemnification agreements in effect at the date
of the Merger Agreement, including provisions relating to advancement of
expenses incurred in the defense of any action or suit. In the event any
Indemnified Party becomes involved in any capacity in any Claim, then from and
after consummation of the Offer, Parent has agreed to cause the Company to
periodically advance to such Indemnified Party its legal and other expenses,
subject to the provision by such Indemnified Party of an undertaking to
reimburse the amounts so advanced in the event of a final non-appealable
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled thereto.
Pursuant to the Merger Agreement, all rights to indemnification and all
limitations of liability existing in favor of the Indemnified Party as
provided under Delaware Law or the Company's Certificate of Incorporation, By-
laws or indemnification agreements in effect at the date of the Merger
Agreement will survive the Merger and will continue in full force and effect
for a period of six years from the Effective Time. However, in the event any
Claim is asserted within such six year period, all rights to indemnification
in respect of any such Claim will continue until disposition of such Claim. In
addition, any determination required to be made with respect to whether an
Indemnified Party's conduct complies with the standards set forth under
Delaware Law, the Company's Certificate of Incorporation or By-laws or such
agreements, as the case may be, will be made by independent legal counsel
selected by the Indemnified Party and reasonably acceptable to Parent.
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In the event Parent or Purchaser or any of their successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, in each such case, proper provision will be made so that the
successors and assigns of Parent and Purchaser assume the obligations
described above.
In addition, Purchaser has agreed to, at the Effective Time, deliver
insurance policies (the "Run-Off Policies") covering any person who is covered
under the Company's existing officers' and directors' liability insurance
policy. Such Run-Off Policies will cover, for a period of not less than six
years, claims for liability brought against such directors and officers after
the Effective Time but alleging acts or omissions occurring before the
Effective Time. The Run-Off Policies will be written in amounts and with terms
and conditions no less favorable than the insurance policies covering such
directors and officers as of the date of the Merger Agreement. However,
Purchaser is not required to obtain such insurance to the extent that the
premium for the Run-Off Policies exceeds 300% of the annual premium paid by
the Company and its subsidiaries for its officers' and directors' as of the
date of the Merger Agreement. If the premiums for the Run-Off Policies exceed
such amount, Purchaser will only be obligated to obtain Run-Off Policies with
the greatest coverage for a cost not exceeding such amount. The Company and
its subsidiaries have represented to Parent and Purchaser that the annual
premium paid for its officers' and directors' liability policies as of the
date of the Merger Agreement does not exceed $175,000.
Fees and Expenses. All costs and expenses incurred in connection with the
Merger Agreement and the transactions contemplated thereby will be paid by the
party incurring such expenses. The Company has agreed that all fees and
expenses that have been or will be incurred by it in connection with the
Merger Agreement and the transactions contemplated thereby (including a $3
million fee plus reasonable expenses payable to the Company's Financial
Advisor) will not, in the aggregate, exceed $5 million.
Mafco Note. The Merger Agreement provides that promptly upon the earlier to
occur of the consummation of the Offer or the purchase of Shares pursuant to
the Tender and Voting Agreement, the Company will pay the promissory note
dated August 21, 1996 made by the Company to Mafco Consolidated at its
outstanding face value, and Purchaser will, to the extent the Company does not
have funds available to pay such note at such time, provide the Company with
such funds.
Conditions to the Merger. The respective obligations of each party to effect
the Merger are subject to the satisfaction on or prior to the Closing Date of
each of the following conditions:
(a) Stockholder Approval. The Merger Agreement shall have been approved
and adopted by the requisite vote of the holders of Company Common Stock,
if required by applicable law and the Company's Certificate of
Incorporation, in order to consummate the Merger;
(b) HSR Act. Any waiting period applicable to the Offer under the HSR Act
shall have expired or been terminated.
(c) Statutes; Consents. No statute, rule, order, decree or regulation
shall have been enacted or promulgated by any foreign or domestic
governmental entity or authority of competent jurisdiction which prohibits
the consummation of the Merger and all foreign or domestic governmental
consents, orders and approvals required for the consummation of the Merger
and the transactions contemplated thereby shall have been obtained and
shall be in effect at the Effective Time;
(d) Injunctions. There shall be no order or injunction of a foreign or
United States federal or state court or other governmental authority of
competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger; and
(e) Purchase of Shares in Offer. Parent, Purchaser or their affiliates
shall have purchased Shares pursuant to the Offer or the Tender and Voting
Agreement, except that Parent and Purchaser will not be entitled to rely on
this condition if Purchaser has failed to purchase Shares pursuant to the
Offer in breach of its obligations under the Merger Agreement.
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Termination. The Merger Agreement may be terminated at any time prior to the
Effective Time, whether before or after stockholder approval:
(a) By the mutual consent of the Board of Directors of Parent and the
Board;
(b) By the consent of the Board or the Board of Directors of Parent:
(i) if any governmental entity issues a final and non-appealable
order, decree or ruling or takes any other action, in each case
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by the Merger Agreement; provided that the
party seeking to terminate the Merger Agreement has used all reasonable
efforts to challenge such order, decree or ruling;
(ii) if the Offer expires without any Shares being purchased therein
and the period in the Tender and Voting Agreement during which the
option granted therein is exercisable expires without such option
having been exercised (however, the right to terminate the Merger
Agreement is not available to any party whose failure to fulfill any
obligation under the Merger Agreement has been the cause of, or
resulted in, the failure of Purchaser to purchase Shares in the Offer);
or
(iii) if the Effective Time does not occur by August 31, 1999 (unless
the Effective Time has not occurred because of a material breach of the
Merger Agreement by the party seeking to terminate the Merger
Agreement).
(c) By the Board of Directors of Parent: if, prior to the purchase of
Shares pursuant to the Offer, the Board withdraws, or modifies or changes
in a manner adverse to Parent or Purchaser, its approval or recommendation
of the Offer, the Merger Agreement or the Merger or recommends a Superior
Proposal or resolves to do either of the foregoing.
In the event of the termination of the Merger Agreement as provided above,
the Merger Agreement will become null and void, and there will be no liability
on the part of Parent or the Company, except nothing in the Merger Agreement
will relieve any party of liability for fraud or for breach of the Merger
Agreement (other than a breach arising solely out of the inaccuracy of a
representation or warranty made by the Company that was accurate when made on
the date thereof and which inaccuracy was not intentional on the part of the
Company).
Tender and Voting Agreement
The following is a summary of certain material provisions of the Tender and
Voting Agreement (the "Tender and Voting Agreement"), dated as of December 16,
1998, by and among Parent, the Purchaser and Mafco Consolidated. This summary
does not purport to be complete and is qualified in its entirety by reference
to the complete text of the Tender and Voting Agreement, a copy of which is
filed as Exhibit 4 hereto and is incorporated herein by reference. Capitalized
terms not otherwise defined below have the meanings ascribed to them in the
Tender and Voting Agreement.
Pursuant to the Tender and Voting Agreement and in order to induce Parent
and Purchaser to enter into the Merger Agreement, Mafco Consolidated, which
beneficially owns 19,600,000 Class B Shares, has agreed to tender all its
Shares pursuant to the Offer and not to withdraw any Shares tendered in the
Offer.
Mafco Consolidated has further agreed to vote all Shares held of record or
beneficially owned by it (i) in favor of the Merger and the Merger Agreement
and (ii) against any action or agreement that would impede, interfere with or
prevent the Offer or the Merger. Mafco Consolidated also has granted Parent
and certain officers of Parent an irrevocable proxy to vote its Shares in
favor of the transactions contemplated by the Merger Agreement and against any
Acquisition Proposal.
In addition, Mafco Consolidated has granted to Purchaser an irrevocable
option (the "Stock Option") to purchase Mafco Consolidated's Shares at a price
per Share equal to the Offer Price. Purchaser may exercise the Stock Option,
in whole but not in part, in the event that the Offer is terminated without
Purchaser purchasing Shares thereunder and such failure to purchase is not in
contravention of Purchaser's or Parent's obligations under the Merger
Agreement or the Offer. In any such case, the Stock Option will remain
exercisable until 60
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days after the date of such event (the "60 Day Period"), provided that the
waiting period under the HSR Act has expired or been waived and there is not
in effect any preliminary injunction or other order issued by any governmental
authority prohibiting the exercise of the Stock Option.
However, if the HSR Act waiting period has not expired or been waived or any
such injunction or order is in effect, in each case on the expiration date of
the 60 Day Period, the 60 Day Period will be extended until five business days
after the later of the date of expiration or waiver of the HSR Act waiting
period and the date of removal or lifting of such injunction or order, but in
no event will the Stock Option be exercisable after July 23, 1999. Purchaser
will not be entitled to purchase the Shares pursuant to the Stock Option if
Purchaser fails to purchase Shares pursuant to the Offer in breach of its
obligations under the Merger Agreement. Upon the purchase of Mafco
Consolidated's Shares pursuant to the Stock Option, Purchaser will, unless the
Company has breached its obligation not to authorize the Company to enter into
any agreement with respect to an Acquisition Proposal, subject to applicable
law, offer to purchase any and all remaining Shares of Company Common Stock at
the Offer Price, by way of merger or otherwise.
In addition, in the event that, after the consummation of the Offer, the
Company or any of its subsidiaries suffers any loss, arising out of a third-
party claim or otherwise, that Parent in good faith notifies Mafco
Consolidated would be covered by any insurance policy maintained by or for the
benefit of Mafco Consolidated or any of its affiliates (an "Insured Claim"),
Mafco Consolidated will present and cooperate by all reasonable means in the
pursuit of claims for payment under such policy in respect of such loss, but
will not be required to sue or otherwise litigate with its insurers (in which
case, Mafco Consolidated will assign to Parent all such rights to sue under
the policies as are assignable under applicable law), and pay to the Company
the proceeds of such claim under such policy as reimbursement in respect of
the amount of such loss. Until the Effective Time, Mafco Consolidated and the
Company have agreed to take all reasonable steps necessary to ensure the
continuation of all such insurance policies in order to permit the Company to
recover under such policies. Mafco Consolidated is not obligated to present
any claim under any such insurance policy with respect to any Insured Claim
unless (i) such Insured Claim is based upon bodily injury, property damage,
wrongful or other acts or another condition or event that arose or occurred
prior to the consummation of the Offer and (ii) the Company or the relevant
affiliate of the Company cooperates fully at its expense with Mafco
Consolidated's insurers in the investigation of such Insured Claim and (in the
case of any Insured Claim arising out of a third-party claim) the defense
thereof.
The amount of proceeds of any such insurance claim to be paid over to the
Company is limited to the amount actually received by Mafco Consolidated from
its insurers with respect to such claim (net of any self-insured retention
amount, deductible amount or other amount that Mafco Consolidated is required
to reimburse its insurers under its contractual agreements with them or to pay
prior to the insurer paying any funds, in each case with respect to such
claim, its defense or investigation), minus the aggregate amount of all
reasonable out-of-pocket expenses incurred by Mafco Consolidated in presenting
such claim (to the extent not paid or reimbursed by its insurers). Mafco
Consolidated is not responsible for any such sums which would be payable under
insurance policies not paid as a result of insurer bankruptcy, insurer schemes
or arrangements, insurer reorganizations, insurer liquidations, acts of
governmental authorities and take overs of the administration of any insurer
or other or like situations. Mafco Consolidated is not required to advance any
funds for investigations, defense or payment of any judgment or settlement of
any claim. In the event Mafco Consolidated is forced to advance any such funds
because of the failure of Parent or Purchaser to make prompt payment of such
sums, Parent will immediately pay Mafco Consolidated such funds.
Mafco Consolidated has also agreed, in its capacity as a stockholder of the
Company, that it and its subsidiaries will not, and Mafco Consolidated will
cause its officers, directors, partners, employees, representatives and
agents, including, but not limited to, investment bankers, attorneys and
accountants, not to, directly or indirectly, initiate, encourage, solicit any
inquiry or the making of any proposal that is or is reasonably likely to lead
to an Acquisition Proposal or engage in negotiations or discussions with, or
furnish any information or data to, any third party relating to an Acquisition
Proposal. Finally, Mafco Consolidated will immediately inform Parent of the
terms of any proposal, discussion, negotiation or inquiry (and will disclose
any written materials received by it in connection with such proposal,
discussion, negotiation or inquiry) and the identity of the party making such
proposal or inquiry.
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Indemnification Agreement
The following is a summary of certain material provisions of the Indemnity
Agreement (the "Indemnification Agreement"), dated as of December 16, 1998, by
and among Parent, the Purchaser, the Company, Mafco Consolidated and Mafco
Holdings Inc. ("Mafco Holdings"). This summary does not purport to be complete
and is qualified in its entirety by reference to the complete text of the
Indemnification Agreement, a copy of which is filed as Exhibit 5 hereto and is
incorporated herein by reference. Capitalized terms not otherwise defined
below have the meanings ascribed to them in the Indemnification Agreement.
In connection with the execution of the Merger Agreement, Mafco Holdings and
Mafco Consolidated entered into the Indemnification Agreement with Purchaser,
Parent and the Company, pursuant to which Mafco Consolidated and Mafco
Holdings agreed to jointly and severally indemnify, save harmless and defend
Parent, Purchaser and the Company and each of their stockholders, affiliates,
directors, officers, agents and representatives from and against any and all
losses, liabilities, fines, judgments, claims, damages, penalties,
obligations, payments, actions or causes of action, liens, costs and expenses
(including reasonable attorney's fees) incurred by any of them by reason of,
or arising out of, (a) any liability for income and franchise taxes arising
out of the inclusion of the Company and any subsidiaries in any consolidated
federal income tax return, or any consolidated, combined or unitary state or
local tax return, of Mafco Holdings or Mafco Consolidated, except for any such
liability as is directly attributable to the operations of the Company and any
subsidiaries, and (b) any liability or obligation of an entity, whether or not
incorporated, which is or was part of a controlled group or under common
control with the Company or otherwise treated as a "single employer" with the
Company within the meaning of Section 414(b), (c), (m) or (o) of the Internal
Revenue Code of 1986, as amended (the "Code") or under Section 4001 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (other
than the Company or any subsidiary of the Company), with respect to employee
benefit plans; established, maintained, sponsored or contributed to by such
entity, including, but not limited to (i) liabilities for complete and partial
withdrawals under any "multiemployer plan" (as defined in Section 3(37) of
ERISA) pursuant to Sections 4203 or 4205 of ERISA, respectively; (ii)
liabilities to the Pension Benefit Guaranty Corporation (including, without
limitation, liabilities for premiums and terminations); (iii) liabilities
under Section 4980B of the Code or Part 6 of Subtitle B of Title I of ERISA;
and (iv) liabilities arising under Section 412 of the Code or Section
302(a)(2) of ERISA.
If there is an audit, examination or administrative or judicial proceeding
(a "Tax Proceeding") relating to any liability for taxes as to which the
Company and any subsidiaries were included in a consolidated federal income
tax return or a consolidated, combined or unitary state or local tax return of
Mafco Holdings or Mafco Consolidated, Mafco Holdings and Mafco Consolidated
will control the audit or other proceedings; provided, however, the Company
will be entitled to participate in that portion of the Tax Proceeding, if any,
relating solely to items for which the Company is liable ("Company Items"). In
the event that either Mafco Holdings or Mafco Consolidated believes that a
position in the Tax Proceeding that the Company proposes to take with respect
to a Company Item is unreasonable, the parties will in good faith attempt to
negotiate a prompt settlement of the disagreement, and if the parties are
unable to negotiate a resolution of the disagreement within 15 days, the
dispute will be submitted to the New York office of a firm of independent
accountants of nationally recognized standing reasonably satisfactory to Mafco
Consolidated and the Company (or, if Mafco Consolidated and the Company do not
agree on such a firm, then a firm chosen by the Arbitration and Mediation
Committee of the New York Society of Certified Public Accountants) (the "Tax
Dispute Accountants") for a determination as to whether the position is
unreasonable, and, if so, what is a reasonable position. The decision of the
Tax Dispute Accountants will be conclusive and binding on the parties, and the
fees and expenses of the Tax Dispute Accountants in resolving the dispute will
be borne equally by Mafco Holdings and Mafco Consolidated on the one hand and
the Company on the other.
ARRANGEMENTS WITH EXECUTIVE OFFICERS, DIRECTORS OR AFFILIATES OF THE COMPANY
Employment Agreements
On December 1, 1998 Consolidated Cigar Corporation ("Consolidated Cigar"),
the Company's wholly owned operating subsidiary, entered into an agreement (a
"Retention Agreement"), a form of which is attached
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as Exhibit 6 hereto and incorporated herein by reference, with each of Gary R.
Ellis, James L. Colucci, George F. Gershel, Jr., and Denis F. McQuillen. Each
Retention Agreement provides that, if, on or before June 30, 1999 a change in
control (as defined in each Retention Agreement) occurs, a cash payment shall
be made to each individual of $550,000 upon the earlier to occur of (A) such
individual's termination other than for (i) neglect of duties, (ii) conviction
of a felony, (iii) conviction of a lesser crime or offense involving the
property of Consolidated Cigar or any of its subsidiaries or affiliates (iv)
willful misconduct in connection with neglect of duties, (v) breach of the
Consolidated Cigar's code of conduct or (vi) other conduct which would be
prejudicial to the best interests of Consolidated Cigar and (B) the second
anniversary of the change in control provided such individual is still in the
employ of Consolidated Cigar. A change in control (as defined in each
Retention Agreement) will occur upon the completion of the Offer.
On November 1, 1998 Consolidated Cigar amended employment agreements with
Theo W. Folz, Gary R. Ellis, James L. Colucci, George F. Gershel, Jr. and
Denis F. McQuillen by extending the term of each agreement, which was, in each
case, to expire on December 31, 1999, until December 31, 2001. A form of this
amendment is attached as Exhibit 7 hereto and incorporated herein by
reference.
Option Plans
Reference is made to the Stock Plan, which is attached hereto as Exhibit 8
and incorporated herein by reference. Under the Stock Plan, Options have been
granted to selected employees, consultants and directors of the Company.
Options generally vest with respect to one third of the Shares subject thereto
on each of the first three anniversaries of the date of grant. Pursuant to the
Merger Agreement, each Option, whether or not then exercisable or vested,
shall be cancelled as of the date of the Merger and each Option holder shall
be entitled, in consideration of such cancellation, to receive the product of
(A) the excess of the Merger Consideration over the exercise price of the
Option and (B) the number of Shares subject thereto. Since the exercise prices
in respect of all Options granted under Stock Plan are in excess of the Merger
Consideration, no payments will be made to Option holders in consideration of
the cancellation of the Options.
Certain Provisions of the Merger Agreement
Certain other contracts, agreements, arrangements and understandings between
the Company and certain of its directors, executive officers and affiliates
are described above under the caption "The Merger Agreement--Directors' and
Officers' Insurance and Indemnification."
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation of the Board of Directors
The Board of Directors has unanimously approved the Offer, the Merger and
the Merger Agreement and has determined that the terms of each are fair to,
and in the best interests of, the Company and its stockholders and recommends
that the Company's stockholders accept the Offer and tender their Shares in
the Offer. This recommendation is based in part upon an opinion the Board of
Directors received from Chase Securities Inc. ("Chase"), the Company's
independent financial advisor, that, as of the date of such opinion, the
consideration to be received by the holders of the Class A Shares (other than
Parent and its affiliates) in the Offer and the Merger, taken together, is
fair, from a financial point of view, to such stockholders (the "Chase
Fairness Opinion"). The full text of the Chase Fairness Opinion, which sets
forth the factors considered and the assumptions made by Chase, is attached
hereto as Annex A and filed as Exhibit 9 hereto. Stockholders are urged to
read the Chase Fairness Opinion in its entirety.
A letter to the Company's stockholders communicating the Board of Directors'
recommendation and a press release announcing the execution of the Merger
Agreement are filed as Exhibits 10 and 11, respectively, and are incorporated
herein by reference.
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(b) Background; Reasons for the Board of Directors' Recommendation
(b)(1) Background
Beginning in September of 1998, the Company's management, in periodic
consultation with the Company's directors, began to explore various possible
strategic alternatives to improve stockholder value.
On October 7, 1998, senior officers of the Company met to discuss an
unsolicited letter sent by a potential acquiror (the "Other Party") expressing
interest in exploring an acquisition of the Company.
In mid-October, Parent, through its financial advisor Credit Suisse First
Boston ("CSFB"), orally indicated an interest in exploring the possibility of
Parent acquiring the Company in a transaction pursuant to which the Company's
stockholders would receive between $15 and $18 per Share in cash. Parent
noted, however, that its indication of interest was subject to Parent
conducting a due diligence review of the Company's business and operations.
In separate meetings during late October, 1998, senior officers of the
Company met with senior officers of Parent and the Other Party and their
respective financial advisors, in order for each of the Other Party and Parent
to conduct preliminary due diligence on the Company. At the meetings, the
Company provided each of the Other Party and Parent with certain materials
describing the Company, its operations and projected results of operations,
and each of the Other Party and Parent executed a confidentiality agreement
with the Company.
On November 5, 1998, the Company issued a press release stating that it had
hired Chase, as financial advisor, to consider strategic opportunities, to
enhance stockholder value, including a merger, recapitalization or the
possible sale of the Company.
From November 5 through November 20, the Company received expressions of
interest from 12 potential acquirors, including Parent and the Other Party.
Senior officers of the Company, Mafco Consolidated and Chase had various
discussions and meetings with these parties in order to assess the level of
interest of each such party in pursuing a transaction. As a result of this
process, one additional potential acquiror entered into a confidentiality
agreement with the Company.
Throughout the remainder of November, the Other Party and Parent continued
their due diligence reviews of the Company and on separate occasions visited
the Company's offices in Ft. Lauderdale, Florida, and various factory
locations.
Beginning in mid-November, 1998, the Company and Mafco Consolidated
commenced negotiations with each of Parent and the Other Party, in each case,
with respect to the terms of a merger agreement and a related tender and
voting agreement pursuant to which Mafco Consolidated would, among other
things, agree to tender all of the Shares owned by it into a tender offer and
to vote its Shares in favor of the relevant merger.
On December 2, 1998, the Other Party, through its financial advisor,
submitted a preliminary, non-binding proposal to acquire the Company in a
merger transaction (providing, as its first step, a cash tender offer)
pursuant to which the Company's stockholders would receive $15.25 per Share in
cash. The Other Party's proposal was subject to numerous conditions,
including, among others, the completion of due diligence. On several occasions
thereafter, the Company's financial advisor advised the Other Party's senior
management and financial advisor that the Other Party's proposal was
inadequate in a number of significant respects, including price, and that the
Other Party should make its best and final proposal.
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On December 9, 1998, Parent's board of directors met to consider an
acquisition of the Company. As a result of that meeting, Parent indicated an
interest in acquiring the Company in a merger transaction (also providing, as
its first step, a cash tender offer) at a price of $17.00 per Share in cash,
but could not submit a proposal until after consulting with its workers'
council.
On December 10, 1998, the Other Party submitted a revised written proposal
pursuant to which the Company's stockholders would receive $15.75 per Share in
cash. Later that afternoon, the Board of Directors held a special meeting to
analyze and review, with the advice and assistance of the Company's financial
and legal advisors, certain strategic, financial and legal considerations
concerning a possible transaction with each of Parent and the Other Party, the
terms of each party's most recent indication of interest, the potential impact
on the Company's employees of a transaction with either party, and the terms
and conditions of the most recent draft of the Merger Agreement submitted by
each party. The Company's management and its legal advisors also reported to
the Board of Directors on the status of the negotiations with both parties. No
decision was reached by the Board of Directors at the meeting; rather, it was
the consensus of the directors that the Company should continue to hold
discussions with both Parent and the Other Party and report back to the Board
of Directors once management was prepared to make a recommendation.
On December 11, 1998, representatives of the Company met with
representatives of the Other Party. At that meeting, the Other Party indicated
that, subject to, among other things, the satisfactory resolution of certain
issues relating to the terms and conditions of a merger agreement, it would be
willing to propose purchasing all of the Shares at a price of $17.00 per Share
in cash.
On December 12, 1998, representatives of the Company and the Company's legal
and financial advisors met with representatives of the Other Party and the
Other Party's legal and financial advisors to continue negotiating the terms
and conditions of a merger agreement and a tender and voting agreement.
During the morning of December 12, 1998, Parent informed the Company that it
intended to submit a bid on Wednesday, December 16, 1998, pursuant to which it
would propose to acquire the Company at a purchase price of $17.75 per Share
in cash. Parent indicated that its ability to submit such a proposal was
contingent upon confirmatory due diligence, which Parent anticipated
completing prior to December 16, 1998, and completion of the negotiation of
the definitive form of a merger agreement and related agreements. In addition,
as indicated above, Parent would not be in a position to submit a proposal
until after completion of a meeting with its workers' council scheduled for
December 16, 1998.
At a December 13, 1998 meeting, the Company's legal and financial advisors
brought the Board of Directors up-to-date as to the status of the possible
transactions with Parent and the Other Party. In light of Parent's indication
of its willingness to bid of $17.75 per Share, the Board of Directors rejected
the Other Party's bid of $17.00 per Share. It was the consensus of the
directors that, prior to December 16, 1998, the Company's management and legal
and financial advisors should continue to negotiate with Parent, determine
whether the Other Party was prepared to improve its proposal and report back
to the Board of Directors.
During the afternoon of December 13, 1998, the Other Party withdrew its bid
to acquire the Company for $17.00 per Share, but, on December 15, 1998, sent a
letter in which it stated that it intended to submit a revised offer to
acquire the Company prior to the next special meeting of the Company's Board
of Directors.
On the morning of December 16, 1998, the Other Party, through its financial
advisor, submitted a written bid to acquire the Company for $17.75 per share.
The Board of Directors of the Company held a special meeting the morning of
December 16, 1998, at which it reviewed the proposals from Parent and the
Other Party, each offering $17.75 per Share in cash. The Company's management
discussed certain factors that it believed favored Parent's offer, including,
a perceived risk of incremental delay relating to the antitrust review
associated with a transaction with the Other Party,
16
<PAGE>
Parent's intention to employ substantially all of the Company's employees, and
Parent's intention not to terminate any of the Company's operations. The
Company's senior management believed that a transaction with the Other Party
would result in a reduction of employees and the contraction of certain of the
Company's operations. The Board of Directors conditionally approved a
transaction with Parent, but indicated that if a revised proposal were
received promptly from either party, it would consider it. Shortly thereafter,
the Other Party and Parent each increased its offer price to $17.85 per Share.
Whereupon, the Board of Directors definitively approved the acceptance of
Parent's offer and the documents relating thereto.
Later on the morning of December 16, 1998, the Company and Parent executed
and delivered the Merger Agreement; Parent, Purchaser and Mafco Consolidated
executed and delivered the Tender and Voting Agreement, and Parent, Purchaser,
the Company, Mafco Holdings and Mafco Consolidated executed and delivered the
Indemnification Agreement. Immediately thereafter, the Company and Parent
issued a press release announcing the execution of the Merger Agreement and
the transactions contemplated thereby, a copy of which is filed as Exhibit 11
hereto and is incorporated herein by reference.
(2) Reasons for the Transaction; Factors Considered by the Board. In
approving the Merger Agreement and the transactions contemplated thereby, and
recommending that stockholders tender their Shares pursuant to the Offer, the
Board of Directors considered a number of factors including:
(1) the financial and other terms of the Offer, the Merger Agreement and
the related transaction agreements;
(2) the presentation of Chase and the Chase Fairness Opinion that, as of
the date of such opinion, the consideration to be received by the holders
of the Class A Shares (other than Parent and its affiliates) in the Offer
and the Merger, taken together, is fair, from a financial point of view, to
such stockholders;
(3) that the $17.85 per share Offer Price represents (a) a premium of
approximately 12.4% over the closing price of the Shares ($15.875) on the
New York Stock Exchange on December 15, 1998, the last full trading day
prior to the execution of the Merger Agreement (b) a premium of
approximately 43.7% over the average price of the Shares ($12.42) over the
previous twenty trading days before December 16, 1998, and (c) a premium of
approximately 69.7% over the average price of the Shares ($10.52) over the
previous three calendar months before December 16, 1998.
(4) The fact that on November 5, 1998 the Company issued a press release
stating that it had hired Chase, as its financial adviser, to consider
strategic opportunities to enhance stockholder value, including a merger,
recapitalization or the possible sale of the Company and that since such
time Chase or senior management of the Company had engaged in discussions
with a substantial number of parties interested in a possible transaction
involving all or part of the Company. Such discussions did not result in a
higher offer for the Company than the Offer and based on such discussions
and the views of members of senior management of the Company, the Board
believed that it was unlikely that any party would propose an acquisition
or strategic business combination that would be more favorable to the
Company and its stockholders than the Offer and the Merger.
(5) the absence of a financing condition to the Offer and the perceived
ability of Parent, vis-a-vis other potential acquirors, to seek and obtain
the regulatory approvals required to consummate the Offer, the Merger and
the transactions contemplated by the Merger Agreement in a timely fashion;
(6) the decision of the Company's majority stockholder to enter into the
Tender Agreement with Parent and the Purchaser;
(7) the views expressed by management and the Board's financial advisors
and the Board's conclusion, that there was a limited likelihood of an offer
arising that was more favorable to the Company and its stockholders;
(8) the structuring of the transaction with Parent as a tender offer to
be followed by a merger would (a) enable stockholders to receive their cash
consideration sooner than they would pursuant to a one-step merger and (b)
reduce the likelihood of a disruption in the operations of the business;
and
17
<PAGE>
(9) The familiarity of the Board with the Company's business, operations,
financial condition and prospects and the competitive environment for
tobacco companies generally.
The foregoing discussion of the information and factors considered and given
weight by the Board of Directors is not intended to be exhaustive. In view of
the variety of factors considered in connection with its evaluation and
approval of the Merger Agreement and the transactions contemplated thereby,
the Board of Directors did not find it practicable to, and did not, quantify
or otherwise assign relative weights to the specific factors considered in
reaching its determination. In addition, individual members of the Board of
Directors may have given different weights to different factors.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to the terms of an engagement letter, dated as of November 5, 1998
(the "Chase Engagement Letter"), the Company has engaged Chase to act as its
exclusive financial advisor for a period of 12 months in connection with the
sale, merger, consolidation or any other business combination involving all or
a substantial amount of the business, securities or assets of the Company (a
"Company Sale") and certain other transactions. As part of its role as
exclusive financial advisor, Chase has delivered to the Board of Directors the
Chase Fairness Opinion.
Pursuant to the terms of the Chase Engagement Letter, the Company has
committed to pay Chase a fee of $1.25 million in connection with execution of
the Merger Agreement. The Company has further agreed to pay Chase an
additional $1.75 million upon consummation of the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Except for the transactions contemplated by the Tender Agreement, no
transactions in the Shares have been effected during the past 60 days by the
Company or, to the best of the Company's knowledge, by any executive officer,
director, affiliate or subsidiary of the Company.
(b) To the best knowledge of the Company, all of its executive officers,
directors, affiliates and subsidiaries currently intend to tender pursuant to
the Offer all Shares held of record or beneficially owned by them (other than
Shares issuable upon exercise of stock options and Shares, if any, which if
tendered could cause such persons to incur liability under the provisions of
Section 16(b) of the Exchange Act).
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer which relates to or would result
in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale
or transfer of a material amount of assets by the Company or any subsidiary of
the Company; (iii) a tender offer for or other acquisition of securities by or
of the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described in Item 3(b) and Item 4 above (the provisions of
which are hereby incorporated by reference), there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred
to in paragraph (a) of this Item 7.
18
<PAGE>
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Agreement and Plan of Merger, dated as of December 16, 1998, by and
among Parent, the Purchaser and the Company.
Exhibit 2 Relevant Portions of the Company's Proxy Statement on Schedule 14A,
March 30, 1998.
Exhibit 3 Confidentiality Agreement, dated as of October 20, 1998, by and
between Parent and the Company.
Exhibit 4 Tender and Voting Agreement, dated as of December 16, 1998, by and
among Mafco Consolidated, Parent and the Purchaser.
Exhibit 5 Indemnification Agreement, dated as of December 16, 1998, by and
among Parent, the Purchaser, the Company, Mafco Consolidated and
Mafco Holdings.
Exhibit 6 Form of Retention Agreement dated December 1, 1998 with Consolidated
Cigar Holdings Inc. executive officers.
Exhibit 7 Form of Amendment dated November 1, 1998 to Employment Agreements
with Theo W. Folz, Gary R. Ellis, James L. Colucci, Denis F.
McQuillen and George F. Gershel.
Exhibit 8 1996 Stock Plan filed as Exhibit 10.14 to the Company's 1998 Form
10-K filed with the Securities Exchange Commission on March 27, 1998
and incorporated herein by reference.
Exhibit 9 Opinion of Chase Securities, Inc. dated December 16, 1998.*
Exhibit 10 Letter to Stockholders of the Company, dated December 22, 1998.*
Exhibit 11 Joint Press Release issues by Parent and the Company, dated
December 16, 1998.
- --------
* Included in copies of Schedule 14D-9 mailed to Stockholders.
<PAGE>
SIGNATURE
AFTER REASONABLE INQUIRY AND TO THE BEST OF MY KNOWLEDGE AND BELIEF, I
CERTIFY THAT THE INFORMATION SET FORTH IN THIS STATEMENT IS TRUE, COMPLETE AND
CORRECT.
CONSOLIDATED CIGAR HOLDINGS INC.
/s/ Theo W. Folz
By___________________________________
THEO W. FOLZ
Chairman, President and
Chief Executive Officer
Dated: December 22, 1998
20
<PAGE>
SCHEDULE I
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14F-1 THEREUNDER
GENERAL
This Information Statement is being mailed on or about December 22, 1998 as
part of the Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9") of Consolidated Cigar Holdings Inc., a Delaware corporation
(the "Company"), to the holders of record of shares of Class A common stock,
par value $.01 per share, of the Company and the Class B common stock, par
value $.01 per share, of the Company (together, the "Company Common Stock" or
the "Shares"). You are receiving this Information Statement in connection with
the possible election of persons designated by Parent (as defined below) to a
majority of the seats on the Board of Directors of the Company (the "Board" or
"Board of Directors").
On December 16, the Company, Societe Nationale d'Exploitation Industrielle
des Tabacs et Allumettes, a corporation organized under the laws of France
("Parent"), and Dorsay Acquisition Corp., a Delaware corporation and a wholly
owned subsidiary of Parent (the "Purchaser"), entered into an Agreement and
Plan of Merger (the "Merger Agreement") pursuant to which (i) the Purchaser
will commence a tender offer (the "Offer") for all outstanding Shares at a
price of $17.85 per Share, net to the seller in cash and (ii) the Purchaser
will be merged with and into the Company (the "Merger"). As a result of the
Offer and the Merger, the Company will become a wholly owned subsidiary of
Parent.
The Merger Agreement provides that, promptly after the purchase of at least
a majority of the outstanding Shares pursuant to the Offer, Parent shall be
entitled to designate directors (the "Parent Designees") on the Board of
Directors as will give Parent representation proportionate to its ownership
interest. The Merger Agreement requires the Company to take such action as
Parent may request to cause the Parent Designees to be elected to the Board of
Directors under the circumstances described therein. This Information
Statement is required by Section 14(f) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), and Rule 14f-1 thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meaning set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning Parent
and the Purchaser has been furnished to the Company by Parent and the Company
assumes no responsibility for the accuracy or completeness of such
information.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the purchase of and payment by Parent for Shares pursuant
to the Offer which represent at least a majority of the outstanding Shares (on
a fully diluted basis), Parent will be entitled to designate such number of
directors, rounded up to the next whole number, on the Board of Directors as
is equal to the product of the total number of directors on the Board of
Directors (determined after giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage that the aggregate number of
Shares beneficially owned by Purchaser, Parent and any of their affiliates
bears to the total number of Shares then outstanding. The Company will
promptly, upon the request of Purchaser, use all reasonable efforts to cause
the Parent Designees to be so elected, including, if necessary, increasing the
size of the Board of Directors or seeking the resignations of one or more
existing directors. Notwithstanding the foregoing, until the Effective Time of
the Merger, the Board of Directors will have at least two directors who are
directors on the date of execution of the Merger Agreement.
I-1
<PAGE>
The following table sets forth the name, age, present principal occupation
or employment and five-year employment history for each of the persons who
Parent intends to designate as directors of the Company. The business address
of each such person is 53, quai d'Orsay, 75116 Paris, France:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME AND PRINCIPAL BUSINESS ADDRESS AGE MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- ----------------------------------- --- ---------------------------------------------------------------------
<S> <C> <C>
Jean-Dominique Comolli.. 50 Chairman and Chief Executive Officer of Parent since 1993.
Eric Albrand............ 40 Senior Executive Vice President-Finance of Parent since December
1997 and Chief Financial Officer of Parent since 1995. Prior to 1995,
Mr. Albrand held the following positions with Parent: Deputy
Financial Director in 1994, and Director of Strategic Planning
and Audit from 1991 until 1993.
Charles Lebeau.......... 44 Executive Vice President-International Development and Cigars
of Parent since February 1998. From 1995 until February 1998,
Mr. Lebeau was Executive Vice President-International Development.
From 1989 until 1995, Mr. Lebeau was Director of Marketing and
International Sales.
</TABLE>
Parent has informed the Company that each of the individuals listed above
has consented to act as a director, if so designated. If necessary, Parent may
choose additional or other Parent Designees, subject to the requirements of
Rule 14f-1.
Based solely on the information set forth in the Offer to Purchase, none of
the Parent Designees (i) is currently a director of, or holds any position
with, the Company, (ii) has a familial relationship with any directors or
executive officers of the Company, or (iii) to the best knowledge of Parent,
beneficially owns any securities (or any rights to acquire such securities) of
the Company. The Company has been advised by Parent that, to the best of
Parent's knowledge, none of the Parent Designees has been involved in any
transactions with the Company or any of its directors, officers, or affiliates
which are required to be disclosed pursuant to the rules and regulations of
the Securities and Exchange Commission (the "SEC"), except as may be disclosed
herein or in the Schedule 14D-9.
DIRECTORS OF THE COMPANY
Certain information concerning the current directors and executive officers
of the Company and its wholly owned operating subsidiary, Consolidated Cigar
Corporation ("Consolidated Cigar"), as of December 18, 1998 is set forth
below.
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY
---- -------------------------
<C> <S>
Ronald O. Perelman.......... Director
Theo W. Folz................ Chairman, President and Chief Executive Officer
of the Company, President and Chief Executive
Officer of Consolidated Cigar
Howard Gittis............... Director
Philip E. Beekman........... Director
Michael Fuchs............... Director
Robert Sargent Shriver III.. Director
Barry F. Schwartz........... Executive Vice President and General Counsel of
the Company
Gary R. Ellis............... Senior Vice President, Chief Financial Officer
and Treasurer of the Company and Consolidated
Cigar
James L. Colucci............ Senior Vice President-Sales and Marketing of
Consolidated Cigar
George F. Gershel, Jr....... Senior Vice President-Tobacco of Consolidated
Cigar
Denis F. McQuillen.......... Senior Vice President-Manufacturing of
Consolidated Cigar
</TABLE>
I-2
<PAGE>
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 Inc. ("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"), Panavision Inc. ("Panavision"), Revlon Consumer Products
Corporation ("Revlon Products") 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"): Golden State
Bancorp Inc. ("Golden State"), Golden State Holdings Inc. ("Golden State
Holdings"), M&F Worldwide, Meridian Sports, Panavision, REV Holdings Inc.
("REV Holdings"), Revlon Products and Revlon, Inc. (On December 27, 1996,
Marvel Entertainment Group, Inc. ("Marvel"), Marvel Holdings Inc. ("Marvel
Holdings"), Marvel (Parent) Holdings Inc. ("Marvel Parent"), and Marvel III
Holdings Inc. ("Marvel III"), of which Mr. Perelman was a director on such
date, and several subsidiaries of Marvel filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code).
THEO W. FOLZ (55) 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 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.
HOWARD GITTIS (63) 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 and various of its affiliates since 1985. Mr.
Gittis is also a Director of the following corporations which file reports
pursuant to the Exchange Act: Golden State, Golden State Holdings, M & F
Worldwide, Panavision, Revlon, Inc., REV Holdings, Revlon Products, Jones
Apparel Group, Inc., Loral Space & Communications Ltd., Sunbeam Corporation
and Rutherford-Moran Oil Corporation.
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. and
Linens N Things Inc.
MICHAEL FUCHS (51) 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.
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.
Executive Officers of the Company
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, 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.)
I-3
<PAGE>
GARY R. ELLIS (45) 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.
JAMES L. COLUCCI (52) 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 (53) has been Senior Vice President-Manufacturing of
Consolidated Cigar since December 1985. Mr. McQuillen joined Consolidated
Cigar in 1981.
THE 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.
COMPENSATION OF EXECUTIVE OFFICERS
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 $100,000 (collectively, the "Named Executive Officers").
I-4
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
NUMBER OF
ANNUAL COMPENSATION SECURITIES
------------------------- OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND COMPENSATION OPTIONS/SARS COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) (A) (B) (#) ($) (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
and 1996 770,000 1,155,000 51,243 250,000 3,000
President 1995 700,000 700,000 0 0 3,000
Richard L. DiMeola (D).. 1997 300,000 412,500 0 0 3,200
Executive Vice
President and 1996 275,000 412,500 0 55,000 3,000
Chief Operating Officer 1995 260,000 260,000 0 0 3,000
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.
(D) Mr. DiMeola retired on March 31, 1998.
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 GRANT DATE
OPTIONS EMPLOYEES IN (PER SHARE) EXPIRATION PRESENTVALUE
GRANTED FISCAL YEAR (A) DATE (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.
I-5
<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 (a)
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
NUMBER OF OPTIONS AT OPTIONS AT
SHARES FY-END FY-END*
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 (b).. 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 $27 9/16 per share.
(a) Since the exercise prices in respect of all Options granted under the
Stock Plan are in excess of the Merger Consideration, no payments will be
made to Option holders in consideration of the cancellation of the
Options.
(b) Mr. DiMeola retired on March 31, 1998.
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 prepared the following report for inclusion in the 1998 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. ("Mafco
Consolidated") 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.
I-6
<PAGE>
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 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 Schedule 14D-9.
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 Company 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 Company Common Stock rises. The
Compensation Committee believes that these stock options more closely 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 pursuant to an employment agreement with Mafco Consolidated (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,
Consolidated Cigar has assumed the obligations of Mafco Consolidated 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
I-7
<PAGE>
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).
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 CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
AGREEMENTS
Mafco Consolidated 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 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.
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-
I-8
<PAGE>
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.
On November 1, 1998 Consolidated Cigar amended employment agreements with
Theo W. Folz, Gary R. Ellis, James L. Colucci, Denis F. McQuillen and George
F. Gershel, Jr. by extending the term of each agreement, which was, in each
case, to expire on December 31, 1999, until December 31, 2001.
On December 1, 1998 Consolidated Cigar entered into an agreement (a
"Retention Agreement") with each of Gary R. Ellis, James L. Colucci, George F.
Gershel, Jr., and Denis F. McQuillen. Each Retention Agreement provides that,
if, on or before June 30, 1999 a change in control (as defined in each
Retention Agreement) occurs, a cash payment shall be made to each individual
of $550,000 upon the earlier to occur of (A) such individual's termination
other than for (i) neglect of duties, (ii) conviction of a felony, (iii)
conviction of a lesser crime or offence involving the property of Consolidated
Cigar or any of its subsidiaries or affiliates (iv) willful misconduct in
connection with neglect of duties, (v) breach of the Consolidated Cigar's code
of conduct and (vi) other conduct which would be prejudicial to the best
interests of Consolidated Cigar and (B) the second anniversary of the change
in control provided such individual is still in the employ of Consolidated
Cigar. A change in control (as defined in each Retention Agreement) will occur
upon the completion of the Offer.
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 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. 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.
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<PAGE>
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:
<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 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 was 14
years for Mr. Folz, 13 years for Mr. DiMeola (who retired on March 31, 1998),
nine years for Mr. Ellis, 21 years for Mr. Colucci and 37 years for Mr.
Gershel.
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<PAGE>
STOCK OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS
The following table sets forth as of December 18, 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 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.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK CLASS B COMMON STOCK
--------------------- ---------------------
NUMBER NUMBER PERCENT
OF SHARES OF SHARES OF TOTAL
NAME AND ADDRESS OF BENEFICIALLY PERCENT BENEFICIALLY PERCENT VOTING
BENEFICIAL OWNER OWNED (1) OF CLASS OWNED OF CLASS POWER
- ------------------- ------------ -------- ------------ -------- --------
<S> <C> <C> <C> <C> <C>
Ronald O. Perelman (2).. 19,600,000 64.5% 19,600,000 100% 95.1%
35 East 62nd Street
New York, NY 10021
Franklin Resources, 1,127,345 10.5%(3) -- -- *
Inc. ..................
777 Mariners Island
Boulevard
San Mateo, CA 94404
Warburg Pincus Asset 1,129,300 10.5%(3) -- -- *
Management, Inc. ......
466 Lexington Avenue
New York, NY 10017
FMR Corp................ 841,700 7.8%(3) -- -- *
82 Devonshire Street
Boston, Massachusetts
02109
Morgan Stanley, Dean 723,300 6.7%(3) -- -- *
Witter Discover & Co ..
1585 Broadway
New York, NY 10036
Philip E. Beekman....... 2,000 * -- -- *
Howard Gittis........... 5,000 * -- -- *
Theo W. Folz............ 524,999 4.9% -- -- *
Michael Fuchs........... 0 * -- -- *
Robert Sargent Shriver 26,500 * -- -- *
III....................
Barry F. Schwartz....... 3,000 * -- -- *
Gary R. Ellis........... 42,333 * -- -- *
James L. Colucci........ 43,833 * -- -- *
George F. Gershel, 37,333 * -- -- *
Jr. ...................
All Directors and
executive officers as a
group
(11 persons)........... 20,327,031 66.9% 19,600,000 100% 95.1%
</TABLE>
- --------
* Less than 1%.
(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
I-11
<PAGE>
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 comprised entirely of designees of Mafco Holdings.
Mafco Holdings, a diversified holding company with interests in several
industries, is 100% wholly-owned by Ronald O. Perelman. Through its 65.8%
ownership of the Company, Mafco Holdings is engaged in the manufacture and
distribution of cigars and pipe tobacco. 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 83% of Meridian
Sports (assuming conversion of certain preferred stock), a manufacturer and
marketer of specialized ski-boats, and 71% of Panavision, a supplier of film
camera systems to the motion picture and television industries. Through its
39% ownership of M & F Worldwide (assuming conversion of certain preferred
stock), Mafco Holdings is in the business of processing licorice and other
flavors. Mafco Holdings is also in the financial services business through its
34.7% ownership of Golden State. 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. 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 were, 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 were 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 and a tax sharing
agreement between Mafco Consolidated and Mafco Holdings (collectively, the
"Tax Sharing Agreements"), the Company had been required to pay to Mafco
Consolidated 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.
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 has begun,
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<PAGE>
instead, to 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 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 ("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 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 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. Pursuant to the Merger Agreement,
promptly upon the earlier of consummation of the Offer or purchase of Shares
pursuant to the Tender and Voting Agreement, dated as of December 16, 1998, by
and among Parent, the Purchaser and Mafco Consolidated, the Company has agreed
to pay the Promissory Note at its outstanding face value and Purchaser has
agreed, to the extent the Company does not have funds available to pay such
note at such time, to provide the Company with such funds.
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 M & F Worldwide Corp. During 1997 the
Company sold $152,000 of raw materials to Mafco Worldwide. The Company
believes that the licorice extract purchased from M & F Worldwide Corp. 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
entered into the Registration Rights Agreement pursuant to which Mafco
Consolidated and certain transferees of Class B Common Stock held by Mafco
Consolidated (the "Holders") have the right to require the Company to register
(a "Demand
I-13
<PAGE>
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 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 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.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
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.
I-14
<PAGE>
EXHIBIT INDEX
Exhibit 1 Agreement and Plan of Merger, dated as of December 16, 1998, by and
among Parent, the Purchaser and the Company.
Exhibit 2 Relevant Portions of the Company's Proxy Statement on Schedule 14A,
March 30, 1998.
Exhibit 3 Confidentiality Agreement, dated as of October 20, 1998, by and
between Parent and the Company.
Exhibit 4 Tender and Voting Agreement, dated as of December 16, 1998, by and
among Mafco Consolidated, Parent and the Purchaser.
Exhibit 5 Indemnification Agreement, dated as of December 16, 1998, by and
among Parent, the Purchaser, the Company, Mafco Consolidated and
Mafco Holdings.
Exhibit 6 Form of Retention Agreement dated December 1, 1998 with Consolidated
Cigar Holdings Inc. executive officers.
Exhibit 7 Form of Amendment dated November 1, 1998 to Employment Agreements
with Theo W. Folz, Gary R. Ellis, James L. Colucci, Denis F.
McQuillen and George F. Gershel.
Exhibit 8 1996 Stock Plan filed as Exhibit 10.14 to the Company's 1998 Form
10-K filed with the Securities Exchange Commission on March 27, 1998
and incorporated herein by reference.
Exhibit 9 Opinion of Chase Securities, Inc. dated December 16, 1998.*
Exhibit 10 Letter to Stockholders of the Company, dated December 22, 1998.*
Exhibit 11 Joint Press Release issues by Parent and the Company, dated
December 16, 1998.
- --------
* Included in copies of Schedule 14D-9 mailed to Stockholders.
<PAGE>
Exhibit (1)
AGREEMENT AND PLAN OF MERGER
by and among
SOCIETE NATIONALE D'EXPLOITATION
INDUSTRIELLE DES TABACS ET ALLUMETTES
DORSAY ACQUISITION CORP.
and
CONSOLIDATED CIGAR HOLDINGS INC.
December 16, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER, dated as of December 16, 1998, by and
among SOCIETE NATIONALE D'EXPLOITATION INDUSTRIELLE DES TABACS ET ALLUMETTES, a
corporation organized under the laws of France ("Parent"), DORSAY ACQUISITION
CORP. , a Delaware corporation and a wholly owned subsidiary of Parent(the
"Purchaser"), and Consolidated Cigar Holdings Inc., a Delaware corporation (the
"Company").
WHEREAS, Parent and the Purchaser have proposed acquiring all of the
outstanding Class A common stock, par value $.01 per share, of the Company (the
"Class A Common Stock")and all of the outstanding Class B common stock, par
value $.01 per share, of the Company (the "Class B Common Stock," together with
the Class A Common Stock, the "Shares" or "Company Common Stock") at a price of
$17.85 per Share in cash;
WHEREAS, the Company, Parent and Purchaser desire to make certain
representations, warranties, covenants and agreements in connection with the
Offer and the Merger;
WHEREAS, as a condition and inducement to Parent's and Purchaser's
entering into this Agreement and incurring the obligations set forth herein,
Mafco Consolidated Group Inc. ("Mafco"), concurrently herewith, is entering into
a Tender and Voting Agreement (the "Tender Agreement"), dated as of the date
hereof, with Parent and Purchaser, pursuant to which, among other things, Mafco
is agreeing to tender its Shares in the Offer and vote such Shares, all upon the
terms and subject to the conditions set forth in the Tender and Voting
Agreement;
WHEREAS, the Boards of Directors of Parent, the Purchaser and the
Company have approved, and deem it advisable and in the best interests of their
respective stockholders to consummate, the acquisition of the Company by Parent
and Purchaser upon the terms and subject to the conditions set forth herein; and
<PAGE>
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein, the
parties hereto agree as follows:
ARTICLE I
THE OFFER AND MERGER
Section 1.1 The Offer. (a) Provided this Agreement shall not have
---------
been terminated in accordance with Section 7.1, as promptly as practicable (but
in no event later than five business days after the public announcement of the
execution hereof), the Purchaser shall, and Parent shall cause Purchaser to,
commence (within the meaning of Rule 14d-2 under the Securities Exchange Act of
1934, as amended (the "Exchange Act")) an offer (the "Offer") to purchase for
cash any and all shares of the issued and outstanding Company Common Stock at a
price of $17.85 per Share, net to the seller in cash (such price, or such higher
price per Share as may be paid in the Offer, being referred to herein as the
"Offer Price"), subject to the conditions set forth in Annex A hereto. The
Company shall not tender Shares held by it or by any of its subsidiaries
pursuant to the Offer. The Purchaser shall, on the terms and subject to the
prior satisfaction or waiver of the conditions of the Offer, accept for payment
and pay for Shares tendered as soon as it is legally permitted to do so under
applicable law. The obligations of the Purchaser to consummate the Offer and to
accept for payment and to pay for any Shares validly tendered on or prior to the
expiration of the Offer and not withdrawn shall be subject only to the
conditions set forth in Annex A hereto.
(b) The Offer shall be made by means of an offer to purchase (the
"Offer to Purchase") containing the terms set forth in this Agreement and the
conditions set forth in Annex A hereto. The Purchaser shall not decrease the
Offer Price or decrease the number of Shares sought, amend the conditions to the
Offer set forth in Annex A or impose conditions to the Offer in addition to
those set forth in Annex A, without the prior written
2
<PAGE>
consent of the Company (such consent to be authorized by the Board of Directors
of the Company or a duly authorized committee thereof). Notwithstanding the
foregoing, the Purchaser shall be entitled to and shall, and Parent agrees to
cause the Purchaser to, extend the Offer at any time up to 40 days in the
aggregate, in one or more periods of not more than 10 business days, if at the
initial expiration date of the Offer, or any extension thereof, any condition to
the Offer is not satisfied or waived; provided however, that the Purchaser shall
not be required to extend the Offer as provided in this sentence unless (i) each
such condition is reasonably capable of being satisfied and (ii) the Company is
in material compliance with all of its covenants under this Agreement after the
Purchaser shall have given the Company five business days prior written notice
of any such non-compliance. In addition, without limiting the foregoing, the
Purchaser may, without the consent of the Company, (A) extend the Offer for up
to an additional 40 days, in one or more periods of not more than 10 business
days, if any condition to the Offer is not satisfied or waived and (B) if, on
the expiration date of the Offer, the Shares validly tendered and not withdrawn
pursuant to the Offer are sufficient to satisfy the Minimum Condition (as
defined in Annex A hereto) but equal less than 90% of the outstanding Shares,
extend the Offer on one occasion for up to 10 business days notwithstanding that
all the conditions to the Offer have been satisfied so long as Purchaser
irrevocably waives the satisfaction of any of the conditions to the Offer (other
than in the case of paragraph (a) of Annex A hereto the occurrence of any
statute, rule, regulation, judgment, order or preliminary or permanent
injunction making illegal or prohibiting the consummation of the Offer) that
subsequently may not be satisfied during any such extension of the Offer. In
addition, the Offer Price may be increased and the Offer may be extended to the
extent required by law in connection with such increase in each case without the
consent of the Company.
(c) As soon as practicable on the date the Offer is commenced, Parent
and the Purchaser shall file with the United States Securities and Exchange
Commission (the "SEC") a Tender Offer Statement on
3
<PAGE>
Schedule 14D-1 with respect to the Offer (together with all amendments and
supplements thereto and including the exhibits thereto, the "Schedule 14D-1").
The Schedule 14D-1 shall include, as exhibits, the Offer to Purchase and a form
of letter of transmittal and summary advertisement (collectively, together with
any amendments and supplements thereto, the "Offer Documents"). The Offer
Documents shall comply in all material respects with the provisions of
applicable federal securities laws and, on the date filed with the SEC and on
the date first published, sent or given to the Company's stockholders, shall not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, except that no representation is made by Parent or the Purchaser
with respect to information supplied by the Company for inclusion in the Offer
Documents. Each of Parent and the Purchaser shall further take all steps
necessary to cause the Offer Documents to be filed with the SEC and to be
disseminated to holders of Shares, in each case as and to the extent required by
applicable federal securities laws. Each of Parent and the Purchaser, on the one
hand, and the Company, on the other hand, shall promptly correct any information
provided by it for use in the Offer Documents if and to the extent that it shall
have become false and misleading in any material respect and the Purchaser
further shall take all steps necessary to cause the Offer Documents as so
corrected to be filed with the SEC and to be disseminated to holders of Shares,
in each case as and to the extent required by applicable federal securities
laws. The Company and its counsel shall be given an opportunity to review and
comment upon the Schedule 14D-1 (and shall provide any comments thereon as soon
as practicable) prior to the filing thereof with the SEC. In addition, Parent
and the Purchaser shall provide the Company and its counsel in writing with any
comments that Parent, Purchaser or their counsel may receive from the SEC or its
staff with respect to the Offer Documents promptly after receipt of such
comments and with copies of any written responses and telephonic notification of
any verbal responses by Parent, Purchaser or their counsel.
4
<PAGE>
(d) Parent shall provide or cause to be provided to Purchaser all of
the funds necessary to purchase any shares of Company Common Stock that
Purchaser becomes obligated to purchase pursuant to the Offer.
Section 1.2 Company Actions.
---------------
(a) The Company hereby approves of and consents to the Offer and
represents that its Board of Directors, at a meeting duly called and held, has
(i) approved this Agreement (including all terms and conditions set forth
herein) and the transactions contemplated hereby, including the Offer and the
Merger (as defined in Section 1.4) (collectively, the "Transactions"),
determining that the Merger is advisable and that the terms of the Offer and the
Merger are fair to, and in the best interests of, the Company's stockholders and
recommending that the Company's stockholders accept the Offer and approve the
Merger and this Agreement and (ii) resolved to recommend that the stockholders
of the Company accept the Offer, tender their Shares thereunder to the Purchaser
and approve and adopt this Agreement and the Merger; provided, that such
-------- ----
recommendation may be withdrawn, modified or amended if, in the opinion of the
Board of Directors, after consultation with independent legal counsel, such
recommendation would be inconsistent with its fiduciary duties to the Company's
stockholders under applicable law. The Company represents that Section 203 of
the Delaware General Corporation Law (the "DGCL") is inapplicable to the
transactions contemplated by this Agreement. The Company hereby consents to the
inclusion in the Offer Documents of the recommendation of its Board of Directors
described in clause (ii) of the immediately preceding sentence.
(b) Concurrently with the commencement of the Offer, the Company
shall file with the SEC a Solicitation/Recommendation Statement on Schedule 14D-
9 (together with all amendments and supplements thereto and including the
exhibits thereto, the "Schedule 14D-9") which shall, subject to the fiduciary
duties of the Company's directors under applicable law, as determined
5
<PAGE>
by the Board of Directors after consultation with independent legal counsel, and
to the provisions of this Agreement, contain the recommendation referred to in
clause (ii) of Section 1.2(a) hereof. The Schedule 14D-9 shall comply in all
material respects with the provisions of applicable federal securities laws and,
on the date filed with the SEC and on the date first published, sent or given to
the Company's stockholders, shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, except that no representation is
made by the Company with respect to information supplied by Parent or the
Purchaser for inclusion in the Schedule 14D-9. The Company further shall take
all steps necessary to cause the Schedule 14D-9 to be filed with the SEC and to
be disseminated to holders of Shares, in each case as and to the extent required
by applicable federal securities laws. Each of the Company, on the one hand, and
Parent and the Purchaser, on the other hand, shall promptly correct any
information provided by it for use in the Schedule 14D-9 if and to the extent
that it shall have become false and misleading in any material respect and the
Company further shall take all steps necessary to cause the Schedule 14D-9 as so
corrected to be filed with the SEC and to be disseminated to holders of the
Shares, in each case as and to the extent required by applicable federal
securities laws. Parent, the Purchaser and their counsel shall be given an
opportunity to review and comment upon the Schedule 14D-9 (and shall provide any
comments thereon as soon as practicable) prior to the filing thereof with the
SEC. In addition, the Company shall provide Parent, the Purchaser and their
counsel in writing with any comments the Company or its counsel may receive from
the SEC or its staff with respect to the Schedule 14D-9 promptly after receipt
of such comments and with copies of any written responses and telephonic
notification of any verbal responses by the Company or its counsel.
(c) Parent shall provide or cause to be provided to Purchaser all of
the funds necessary to purchase any shares of Company Common Stock that
6
<PAGE>
Purchaser becomes obligated to purchase pursuant to the Offer. Notwithstanding
anything to the contrary contained herein, if the members of the Board of
Directors of the Company determine in the exercise of their fiduciary duties to
withdraw, modify or amend the recommendation referred to in clause (ii) of
Section 1.2(a) hereof, such withdrawal, modification or amendment shall not
constitute a breach of this Agreement.
(d) In connection with the Offer, the Company shall promptly furnish
or cause to be furnished to the Purchaser mailing labels, security position
listings and any available listing or computer file containing the names and
addresses of the record holders of the Shares as of a recent date, and shall
furnish the Purchaser with such information and assistance as the Purchaser or
its agents may reasonably request in communicating the Offer to the stockholders
of the Company. Except for such steps as are necessary to disseminate the Offer
Documents and subject to the requirements of applicable law, Parent and the
Purchaser shall hold in confidence the information contained in any of such
labels and lists and the additional information referred to in the preceding
sentence, shall use such information only in connection with the Offer and
Merger, and, if this Agreement is terminated, shall upon request of the Company
deliver or cause to be delivered to the Company all copies of such information
then in its possession or the possession of its agents or representatives.
Section 1.3 Directors.
---------
(a) Promptly upon the purchase of and payment for Shares by Parent or
any of its subsidiaries which represent at least a majority of the outstanding
shares of Company Common Stock (on a fully diluted basis), Parent shall be
entitled to designate such number of directors, rounded up to the next whole
number, on the Board of Directors of the Company as is equal to the product of
the total number of directors on such Board (giving effect to the directors
designated by Parent pursuant to this sentence) multiplied by the percentage
that the aggregate number of Shares beneficially owned by
7
<PAGE>
the Purchaser, Parent and any of their affiliates bears to the total number of
shares of Company Common Stock then outstanding. The Company shall, upon request
of the Purchaser, use all reasonable efforts promptly either to increase the
size of its Board of Directors (which, pursuant to the Company's Restated
Certificate of Incorporation, as amended (the "Certificate of Incorporation"),
has no maximum number of directors) or, at the Purchaser's election, secure the
resignations of such number of its incumbent directors as is necessary to enable
Parent's designees to be so elected to the Company's Board, and shall cause
Parent's designees to be so elected. Notwithstanding the foregoing, until the
Effective Time (as defined in Section 1.5 hereof), the Company shall retain as
members of its Board of Directors at least two directors who are directors of
the Company on the date hereof; provided, that subsequent to the purchase of and
-------- ----
payment for Shares pursuant to the Offer, Parent shall always have its designees
represent at least a majority of the entire Board of Directors. The Company's
obligations under this Section 1.3(a) shall be subject to Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder. Parent or the Purchaser
shall supply the Company any information with respect to either of them and
their nominees, officers, directors and affiliates required by Section 14(f) and
Rule 14f-1. Upon receipt of such information from Parent or the Purchaser, the
Company shall include in the Schedule 14D-9 (as an annex or otherwise) the
information required by Section 14(f) and Rule 14f-1 as is necessary to enable
Parent's designees to be elected to the Company's Board of Directors.
(b) From and after the time, if any, that Parent's designees
constitute a majority of the Company's Board of Directors, any amendment of this
Agreement, any termination of this Agreement by the Company, any extension of
time for performance of any of the obligations of Parent or the Purchaser
hereunder, any waiver of any condition or any of the Company's rights hereunder
or other action by the Company hereunder may be effected only by unanimous vote
of the entire Board of Directors of the Company.
8
<PAGE>
Section 1.4 The Merger. Subject to the terms and conditions of this
----------
Agreement and the provisions of the DGCL, at the Effective Time, the Company and
the Purchaser shall consummate a merger (the "Merger") pursuant to which (a) the
Purchaser shall be merged with and into the Company and the separate corporate
existence of the Purchaser shall thereupon cease, (b) the Company shall be the
successor or surviving corporation in the Merger (the "Surviving Corporation")
under the name "Consolidated Cigar Holdings Inc." and shall continue to be
governed by the laws of the State of Delaware, and (c) the separate corporate
existence of the Company with all its rights, privileges, immunities, powers and
franchises shall continue unaffected by the Merger. Pursuant to the Merger, (x)
the Certificate of Incorporation of the Purchaser, as in effect immediately
prior to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Certificate of Incorporation, and (y) the By-laws of the Purchaser, as in effect
immediately prior to the Effective Time, shall be the By-laws of the Surviving
Corporation until thereafter amended as provided by law, the Certificate of
Incorporation and such By-laws; provided, that Section 1 of the Certificate of
--------
Incorporation of the Surviving Corporation shall be amended to read in its
entirety as follows: "The name of the Corporation is Consolidated Cigar
Holdings Inc." The Merger shall have the effects set forth in the DGCL.
Section 1.5 Effective Time. Parent, the Purchaser and the Company
--------------
shall cause an appropriate Certificate of Merger (the "Certificate of Merger")
to be executed and filed on the date of the Closing (as defined in Section 1.6)
(or on such other date as Parent and the Company may agree) with the Department
of State of the State of Delaware (the "Department of State") as provided in the
DGCL. The Merger shall become effective on the date on which the Certificate of
Merger has been duly filed with the Department of State or such time as is
agreed upon by the parties and specified in the Certificate of Merger, and such
time is hereinafter referred to as the "Effective Time."
9
<PAGE>
Section 1.6 Closing. The closing of the Merger (the "Closing") shall
-------
take place at 10:00 a.m., on a date to be specified by the parties, which shall
be as soon as practicable, but in no event later than the third business day,
after satisfaction or waiver of all of the conditions set forth in Article VI
hereof (the "Closing Date"), at the New York offices of Proskauer Rose LLP,
unless another date or place is agreed to in writing by the parties hereto.
Section 1.7 Directors and Officers of the Surviving Corporation. The
---------------------------------------------------
directors of the Purchaser and the officers of the Company immediately prior to
the Effective Time shall, from and after the Effective Time, be the directors
and officers, respectively, of the Surviving Corporation until their successors
shall have been duly elected or appointed or qualified or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Certificate of Incorporation and By-laws.
Section 1.8 Stockholders' Meeting.
---------------------
(a) If required by applicable law in order to consummate the Merger,
the Company, acting through its Board of Directors, shall, in accordance with
applicable law:
(i) duly call, give notice of, convene and hold a special
meeting of its stockholders (the "Special Meeting") as soon as practicable
following the acceptance for payment and purchase of Shares by the
Purchaser pursuant to the Offer for the purpose of considering and taking
action upon this Agreement;
(ii) prepare and file with the SEC a preliminary proxy or
information statement relating to the Merger and this Agreement and use its
reasonable efforts (x) to obtain and furnish the information required to be
included by the SEC in the Proxy Statement (as hereinafter defined) and,
after consultation with Parent, to respond promptly to any comments made by
the SEC with respect to the
10
<PAGE>
preliminary proxy or information statement and cause a definitive proxy
or information statement (the "Proxy Statement") to be mailed to its
stockholders and (y) to obtain the necessary approvals of the Merger and
this Agreement by its stockholders; and
(iii) subject to the fiduciary obligations of the Board under
applicable law as advised by independent counsel, include in the Proxy
Statement the recommendation of the Board that stockholders of the Company
vote in favor of the approval of the Merger and the adoption of this
Agreement.
(b) Parent shall provide the Company with the information concerning
Parent and Purchaser required to be included in the Proxy Statement. Parent
shall vote, or cause to be voted, all of the Shares then owned by it, the
Purchaser or any of its other subsidiaries and affiliates in favor of the
approval of the Merger and the approval and adoption of this Agreement.
Section 1.9 Merger Without Meeting of Stockholders. Notwithstanding
--------------------------------------
Section 1.8 hereof, in the event that Parent, the Purchaser or any other
Subsidiary of Parent, shall acquire at least 90 percent of the outstanding
shares of Company Common Stock pursuant to the Offer or otherwise, each of the
parties hereto shall take all necessary and appropriate action to cause the
Merger to become effective as soon as practicable after such acquisition,
without a meeting of stockholders of the Company, in accordance with Section 253
of the DGCL.
11
<PAGE>
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time,
---------------------------
by virtue of the Merger and without any action on the part of the holders of any
shares of Company Common Stock or common stock, par value $.01 per share, of the
Purchaser (the "Purchaser Common Stock"):
(a) Purchaser Common Stock. Each issued and outstanding share of the
----------------------
Purchaser Common Stock shall be converted into and become one validly issued,
fully paid and nonassessable share of common stock, $.01 par value per share, of
the Surviving Corporation.
(b) Cancellation of Treasury Stock and Parent-Owned Stock. All
-----------------------------------------------------
shares of Company Common Stock that are owned by the Company as treasury stock,
all shares of Company Common Stock owned by any Subsidiary (as defined in
Section 3.1) of the Company and any shares of Company Common Stock owned by
Parent, the Purchaser or any other wholly owned Subsidiary of Parent shall be
cancelled and retired and shall cease to exist and no consideration shall be
delivered in exchange therefor.
(c) Conversion of Shares. Each issued and outstanding share of
--------------------
Company Common Stock (other than Shares to be cancelled in accordance with
Section 2.1(b) hereof and any Dissenting Shares (as defined in Section 2.3
hereof)), shall be converted into the right to receive the Offer Price payable
to the holder thereof, without interest (the "Merger Consideration"), upon
surrender of the certificate formerly representing such share of Company Common
Stock in the manner provided in Section 2.2 hereof. All such shares of Company
Common Stock, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive the Merger Consideration
therefor upon the surrender of
12
<PAGE>
such certificate in accordance with Section 2.2 hereof, without interest.
Section 2.2 Exchange of Certificates.
------------------------
(a) Paying Agent. Parent shall designate a bank or trust company
------------
(the "Paying Agent") reasonably acceptable to the Company to make the payments
of the funds to which holders of shares of Company Common Stock shall become
entitled pursuant to Section 2.1(c) hereof. Prior to the Effective Time, Parent
shall take all steps necessary to deposit or cause to be deposited with the
Paying Agent such funds for timely payment thereunder. Such funds shall be
invested by the Paying Agent as directed by Parent or the Surviving Corporation.
(b) Exchange Procedures. As soon as practicable after the Effective
-------------------
Time but in no event more than three business days thereafter, Parent shall
cause the Paying Agent to mail to each holder of record of a certificate or
certificates, which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock (the "Certificates"), whose shares
were converted pursuant to Section 2.1 hereto into the right to receive the
Merger Consideration, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Paying Agent and shall be in
such form and have such other provisions as Parent and the Surviving Corporation
may reasonably specify) and (ii) instructions for use in effecting the surrender
of the Certificates in exchange for payment of the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Paying Agent, together with
such letter of transmittal, duly executed, the holder of such Certificate shall
be entitled to receive in exchange therefor the Merger Consideration (subject to
subsection (e), below) for each share of Company Common Stock formerly
represented by such Certificate and the Certificate so surrendered shall
forthwith be cancelled. If payment of the Merger Consideration is to be made to
a person other than the person in whose name the surrendered Certificate is
registered, it shall be a
13
<PAGE>
condition of payment that the Certificate so surrendered shall be properly
endorsed or shall be otherwise in proper form for transfer and that the person
requesting such payment shall have paid any transfer and other taxes required by
reason of the payment of the Merger Consideration to a person other than the
registered holder of the Certificate surrendered or shall have established to
the satisfaction of the Surviving Corporation that such tax either has been paid
or is not applicable. Until surrendered as contemplated by this Section 2.2,
each Certificate shall be deemed at any time after the Effective Time to
represent only the right to receive the Merger Consideration in cash as
contemplated by this Section 2.2.
(c) Transfer Books; No Further Ownership Rights in Company Common
-------------------------------------------------------------
Stock. At the Effective Time, the stock transfer books of the Company shall be
- -----
closed and thereafter there shall be no further registration of transfers of
shares of Company Common Stock on the records of the Company. From and after
the Effective Time, the holders of Certificates evidencing ownership of shares
of Company Common Stock outstanding immediately prior to the Effective Time
shall cease to have any rights with respect to such Shares, except as otherwise
provided for herein or by applicable law. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any reason, they
shall be cancelled and exchanged as provided in this Article II.
(d) Termination of Fund; No Liability. At any time following one year
---------------------------------
after the Effective Time, the Surviving Corporation shall be entitled to require
the Paying Agent to deliver to it any funds (including any interest received
with respect thereto) which had been made available to the Paying Agent and
which have not been disbursed to holders of Certificates, and thereafter such
holders shall be entitled to look only to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) as general creditors thereof
with respect to the payment of any Merger Consideration that may be payable upon
surrender of any Certificates such stockholder holds, as determined pursuant to
this Agreement, without any interest thereon.
14
<PAGE>
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(e) Withholding Taxes. If so specified in the Offer Documents,
-----------------
Parent, the Purchaser, the Surviving Corporation and the Paying Agent shall be
entitled to deduct and withhold from the consideration otherwise payable to a
holder of Shares pursuant to the Offer or Merger such amounts as Parent, the
Purchaser, the Surviving Corporation or the Paying Agent is required to deduct
and withhold with respect to the making of such payment under the Internal
Revenue Code of 1986, as amended (the "Code") or any provision of state, local
or foreign tax law. To the extent amounts are so withheld by Parent, the
Purchaser, the Surviving Corporation or the Paying Agent, the withheld amounts
shall be treated for all purposes of this Agreement as having been paid to the
holder of the Shares in respect of which the deduction and withholding was made.
Section 2.3 Dissenting Shares. Notwithstanding any provision of this
-----------------
Agreement to the contrary, if and to the extent required by the DGCL, shares of
Company Common Stock which are issued and outstanding immediately prior to the
Effective Time and which are held by holders of such shares of Company Common
Stock who have properly exercised appraisal rights with respect thereto (the
"Dissenting Common Stock") in accordance with Section 262 of the DGCL, shall not
be exchangeable for the right to receive the Merger Consideration, and holders
of such shares of Dissenting Common Stock shall be entitled to receive payment
of the appraised value of such shares of Dissenting Common Stock in accordance
with the provisions of Section 262 of the DGCL unless and until such holders
fail to perfect or effectively withdraw or otherwise lose their rights to
appraisal and payment under the DGCL. If, after the Effective Time, any such
holder fails to perfect or effectively withdraws or loses such right, such
shares of Dissenting Common Stock shall thereupon be treated as if they had been
converted into and to have become
15
<PAGE>
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon. Notwithstanding anything to the
contrary contained in this Section 2.3, if (i) the Merger is rescinded or
abandoned or (ii) the stockholders of the Company revoke the authority to effect
the Merger, then the right of any stockholder to be paid the fair value of such
stockholder's Dissenting Common Stock pursuant to Section 262 of the DGCL shall
cease. The Company shall give Parent prompt notice of any demands received by
the Company for appraisals of shares of Dissenting Common Stock. The Company
shall not, except with the prior written consent of Parent, make any payment
with respect to any demands for appraisals or offer to settle or settle any such
demands.
Section 2.4 Company Option Plans. Parent and the Company shall take
--------------------
all actions necessary to provide that, effective as of the Effective Time, (i)
each outstanding employee stock option to purchase Shares ("Option") granted
under the Company's 1996 Stock Option Plan (the "1996 Plan"), whether or not
then exercisable or vested, shall be cancelled and (ii) in consideration of such
cancellation, the Company (or, at Parent's option, the Purchaser) shall pay to
such holders of Options an amount in respect thereof equal to the product of (A)
the excess, if any, of the Offer Price over the exercise price of each such
Option and (B) the number of Shares subject thereto (such payment, if any, to be
net of applicable withholding taxes). As of the Effective Time, the 1996 Plan
shall terminate and all rights under any provision of any other plan, program or
arrangement providing for the issuance or grant of any other interest in respect
of the capital stock of the Company or any Subsidiary of the Company shall be
cancelled. The Company shall take all action necessary to ensure that, after
the Effective Time, no person shall have any right under the 1996 Plan or any
other plan, program or arrangement with respect to equity securities of the
Company, or any direct or indirect Subsidiary of the Company.
ARTICLE III
16
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REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and the Purchaser as
follows:
Section 3.1 Organization. Each of the Company and its Subsidiaries
------------
(as defined in this Section 3.1) is a corporation or other entity duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization and has all requisite
corporate or other power and authority to own, lease and operate its properties
and to carry on its business as it is now being conducted, except where the
failure to be so organized, existing and in good standing or to have such power
or authority would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole. As used in this Agreement, the word "Subsidiary"
means, with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which (i) such party or any other Subsidiary
of such party is a general partner (excluding such partnerships where such party
or any Subsidiary of such party do not have a majority of the voting interest in
such partnership) or (ii) at least a majority of the securities or other
interests having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its Subsidiaries, or by such party and
one or more of its Subsidiaries. It is understood that, for purposes of this
Agreement, Cuban Cigar Brands, N.V. shall be deemed to be a Subsidiary of the
Company. As used in this Agreement, any reference to any event, change or effect
being material or having a material adverse effect on or with respect to any
entity (or group of entities taken as a whole) means such event, change or
effect is materially adverse to the consolidated financial condition, businesses
or results of operations of such entity (or, if used with respect thereto, of
such group of entities taken as a whole). The Company and each of its
Subsidiaries is duly qualified or licensed to do business and in good standing
in each jurisdiction in which the
17
<PAGE>
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except where the failure
to be so duly qualified or licensed and in good standing would not in the
aggregate have a material adverse effect on the Company and its Subsidiaries
taken as a whole.
Section 3.2 Capitalization. (a) The authorized capital stock of the
--------------
Company consists of (i) 300,000,000 shares of Class A Common Stock, (ii)
250,000,000 Class B Common Stock, and (iii) 20,000,000 shares of Preferred
Stock, par value $.01 per share (the "Preferred Stock"). As of the date hereof,
(x) 10,168,116 shares of Class A Common Stock are issued and outstanding, (y)
19,600,000 shares of Class B Common Stock are issued and outstanding ,(iii)
1,840,835 shares of Class A Common Stock are reserved for issuance upon exercise
of outstanding Options granted under the 1996 Plan, (iv) 19,600,000 shares of
Class A Common Stock are reserved for issuance upon the conversion of Class B
Common Stock, (v) no shares of Preferred Stock are issued and outstanding and
(vi) 925,216 Shares are held in the Company's treasury. All the outstanding
shares of the Company Common Stock are, and all shares which may be issued
pursuant to the exercise of outstanding Options when issued in accordance with
the respective terms thereof shall be, duly authorized, validly issued, fully
paid and non-assessable. There are no bonds, debentures, notes or other
indebtedness having general voting rights (or convertible into securities having
such rights) ("Voting Debt") of the Company or any of its Subsidiaries issued
and outstanding. Except (a) as set forth above, and (b) for the transactions
contemplated by this Agreement, as of the date hereof, (i) there are no shares
of capital stock of the Company authorized, issued or outstanding, (ii) there
are no existing options, warrants, calls, pre-emptive rights, subscriptions or
other rights, agreements, arrangements or commitments of any character, relating
to the issued or unissued capital stock of the Company or any of its
Subsidiaries, obligating the Company or any of its Subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or Voting Debt of, or other equity interest in, the Company or any
18
<PAGE>
of its Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests, or obligating the Company or any of its Subsidiaries
to grant, extend or enter into any such option, warrant, call, subscription or
other right, agreement, arrangement or commitment, and (iii) there are no
outstanding contractual obligations of the Company or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any Shares, or capital stock of the
Company or any Subsidiary or affiliate of the Company. The table of Options and
Exercise Prices set forth in Schedule 3.2 is a true and complete list of all
Options to purchase Shares that have been granted by the Company and the
exercise prices thereof.
(b) Except as set forth on Schedule 3.2 hereof, all of the
outstanding shares of capital stock of each of the Subsidiaries are owned by the
Company, directly or indirectly, free and clear of any security interest, lien,
claim, pledge, agreement, limitation on voting rights or other encumbrance of
any nature whatsoever, and all such shares have been validly issued and are
fully paid and nonassessable.
(c) There are no voting trusts or other agreements or understandings
to which the Company or any of its Subsidiaries is a party with respect to the
voting of the capital stock of the Company or any of the Subsidiaries. None of
the Company or its Subsidiaries is required to redeem, repurchase or otherwise
acquire shares of capital stock of the Company, or any of its Subsidiaries,
respectively, as a result of the transactions contemplated by this Agreement.
Section 3.3 Authorization; Validity of Agreement; Company Action.
----------------------------------------------------
(a) The Company has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated hereby, subject
to obtaining the approval of holders of a majority of the Shares prior to the
consummation of the Merger in accordance with section 251 of the DGCL, if so
required. The execution, delivery and performance by the Company of this
Agreement, and the consummation by it of the transactions contemplated hereby,
have been duly
19
<PAGE>
authorized by its Board of Directors and, except for obtaining the approval of
its stockholders as contemplated by Section 1.8 hereof, no other corporate
action on the part of the Company is necessary to authorize the execution and
delivery by the Company of this Agreement and the consummation by it of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company and, assuming due and valid authorization, execution
and delivery hereof by the other parties thereto, is a valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except that (i) such enforcement may be subject to applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws, now or hereafter
in effect, affecting creditors' rights generally, and (ii) the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
(b) The Board of Directors of the Company has approved and taken all
corporate action required to be taken by the Board of Directors for the
consummation of the transactions contemplated by this Agreement.
Section 3.4 Consents and Approvals; No Violations. Except as set
-------------------------------------
forth on Schedule 3.4 hereof and except for filings, permits, authorizations,
consents and approvals as may be required under, and other applicable
requirements of, the Exchange Act, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976 (the "HSR Act"), the Bureau of Alcohol, Tobacco and Firearms (the
"ATF"), the United States Customs Service, state or foreign laws relating to
takeovers, state securities or blue sky laws, foreign antitrust laws and the
DGCL, neither the execution, delivery or performance of this Agreement by the
Company nor the consummation by the Company of the transactions contemplated
hereby nor compliance by the Company with any of the provisions hereof shall (i)
conflict with or result in any breach of any provision of the certificate of
incorporation or by-laws or similar organizational documents of the Company or
of any of its Subsidiaries, (ii) require on the part
20
<PAGE>
of the Company any filing with, or permit, authorization, consent or approval
of, any court, arbitral tribunal, administrative agency or commission or other
governmental or other regulatory authority or agency (a "Governmental Entity"),
(iii) result in a material violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, lease, license,
contract, agreement or other instrument or obligation to which the Company or
any of its Subsidiaries is a party or by which any of them or any of their
properties or assets may be bound and (x) the loss of which would have a
material adverse effect on the Company and its Subsidiaries taken as a whole,
(y) pursuant to which the Company or any Subsidiary expects to or is scheduled
to receive (assuming full performance pursuant to the terms thereof) revenue of
$1.5 million or more during the 12-month period following the date of this
Agreement, or (z) which has been or, as of the date of this Agreement, would be
required to be, filed as an exhibit to the Company SEC Documents (as defined in
Section 3.5) (collectively, the "Material Agreements") or (iv) violate any
order, writ, injunction, decree, statute, rule or regulation applicable to the
Company, any of its Subsidiaries or any of their properties or assets, excluding
from the foregoing clauses (ii) or (iv) where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings, or the
existence of such violations, breaches or defaults, would not, individually or
in the aggregate, have a material adverse effect on the Company and its
Subsidiaries taken as a whole, and which shall not materially impair the ability
of the Company to consummate the transactions contemplated hereby.
Section 3.5 SEC Reports and Financial Statements. The Company has
------------------------------------
filed with the SEC all forms, reports, schedules, statements and other documents
required to be filed by it since August 21, 1996 under the Exchange Act (as such
documents have been amended since the time of their filing, collectively, the
"Company SEC Documents"). As of their respective dates
21
<PAGE>
and, if amended, as of the date of the last such amendment, the Company SEC
Documents, including, without limitation, any financial statements or schedules
included therein did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the Subsidiaries is required to file any forms,
reports or other documents with the SEC pursuant to Section 12 or 15 of the
Exchange Act. The financial statements of the Company (the "1998 Financial
Statements") included in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997 (including the related notes thereto) (the "1997
Form 10-K") and in the quarterly reports on Form 10-Q for the three fiscal
quarters occurring since the 1997 Form 10-K, have been prepared from, and are in
accordance with, the books and records of the Company and its consolidated
subsidiaries, comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto and subject,
in the case of unaudited interim financial statements, to normal year-end
adjustments) and fairly present the consolidated financial position and the
consolidated results of operations and cash flows of the Company and its
consolidated subsidiaries as at the dates thereof or for the periods presented
therein.
Section 3.6 No Undisclosed Liabilities. Except (a) as disclosed in
--------------------------
the Company SEC Documents or on Schedule 3.6 hereto, (b) for liabilities and
obligations incurred in the ordinary course of business and (c) for liabilities
and obligations incurred in connection with the consummation of the transactions
contemplated hereby, since October 3, 1998, neither the Company nor any of its
Subsidiaries has incurred any liabilities which would be reasonably expected to
have a material adverse effect on the Company and its Subsidiaries taken as a
whole.
22
<PAGE>
Section 3.7 Absence of Certain Changes. Except as disclosed in the
--------------------------
Company SEC Documents or on Schedule 3.7 hereto, since October 3, 1998, the
Company and its Subsidiaries have conducted their respective businesses in the
ordinary course of business consistent with past practice and there has not been
(i) as of the date hereof, any change in the consolidated financial condition,
business or results of operations of the Company or the amount, character or
ownership interests of the Company's assets that resulted in or would be
reasonably expected to result in a material adverse effect on the Company and
its Subsidiaries, taken as a whole; (ii) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the equity interests of the Company or of any of its
Subsidiaries; (iii) any change by the Company or any of its Subsidiaries in
accounting principles or methods, except insofar as may be required by a change
in GAAP; (iv) any split, combination or reclassification of shares of the
Company's capital stock; (v) any entry into any written employment agreement
with, or any increase in the rate or terms of compensation payable or to become
payable by the Company or any of its Subsidiaries to, any of their respective
directors, officers or key employees; (vi) any increase in the rate or terms
(including, without limitation, any acceleration of the right to receive
payment) of any bonus, insurance, pension or other employee benefit plan,
payment or arrangement made to, for or with any such directors, officers or key
employees, except increases occurring in the ordinary course of business or as
required by law; or (vii) any action of the Company that, if taken after the
date of this Agreement, would constitute a breach of Section 5.1(a)(ii),
(b)(iv), (c), (d), (e)(ii) or (g).
Section 3.8 Employee Benefit Plans; ERISA.
-----------------------------
(a) Schedule 3.8(a) contains a true and complete list of each
material deferred compensation, bonus, profit sharing, stock option, pension,
incentive compensation, and equity compensation plan; "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974,
23
<PAGE>
as amended ("ERISA")); "pension" plan, fund or program (within the meaning of
section 3(2) of ERISA); each employment, consulting, change in control,
termination or severance agreement; and each fringe benefit, insurance, welfare,
post-retirement, health, life, tuition refund, scholarship, relocation,
disability, accident, sick, vacation, commission, payroll practices, retention,
noncompetition, or any other material employee benefit plan, fund, program,
agreement or arrangement (whether written or unwritten, insured or self-insured,
domestic or foreign), in each case, that is or, within the preceding six years
with regard to any plan subject to Title IV of ERISA, was sponsored, maintained
or contributed to or required to be contributed to by the Company, by any
Subsidiary or by any trade or business, whether or not incorporated (an "ERISA
Affiliate"), that together with the Company would be deemed a "single employer"
within the meaning of section 4001(b) of ERISA or Section 414(b), (c), (m) or
(o) of the Code, or to which the Company, any Subsidiary or an ERISA Affiliate
is a party, for the benefit of any employee, director or shareholder of the
Company or any Subsidiary (whether current, former or retired) or their
beneficiaries (the "Benefit Plans").
(b) With respect to each Benefit Plan, the Company has made or, in
the case of stock option agreements and Foreign Employee Plans (as defined in
subparagraph (k) below), will make available to the Purchaser and Parent true
and complete copies of the Benefit Plan and any amendments thereto (or if the
Benefit Plan is not a written Benefit Plan, a description thereof), any related
trust or other funding vehicle, any reports, financial statements or summaries
required under ERISA or the Code, the most recent determination letter received
from the Internal Revenue Service (the "IRS") with respect to each Benefit Plan
intended to qualify under section 401 of the Code and any material communication
received by or furnished to the Company, any Subsidiary or any ERISA Affiliate
from the IRS or any other governmental entity.
(c) No liability under Title IV or section 302 of ERISA has been
incurred by the Company,
24
<PAGE>
any Subsidiary or any ERISA Affiliate that has not been satisfied in full, and
no condition exists that presents a risk to the Company, any Subsidiary or any
ERISA Affiliate of incurring any such liability, other than liability for
premiums due the Pension Benefit Guaranty Corporation (the "PBGC") (which
premiums have been paid when due).
(d) Except as disclosed on Schedule 3.8(d), no Benefit Plan is a
"multiemployer pension plan," as defined in section 3(37) or 4001(a)(3) of
ERISA, or Section 414(f) of the Code (a "Multiemployer Plan") nor is any Benefit
Plan a plan described in section 4063(a) of ERISA. With respect to each Benefit
Plan that is or was a Multiemployer Plan set forth on Schedule 3.8(d): (i) none
of the Company, any Subsidiary or any ERISA Affiliate (or their predecessors)
has incurred or has any reason to believe it has incurred or will incur any
withdrawal liability; no event has occurred which with the giving of notice
could reasonably be expected to result in any liability under section 4201 of
ERISA as a result of a complete withdrawal (within the meaning of section 4203
of ERISA) or a partial withdrawal (within the meaning of section 4205 of ERISA);
(ii) none of the Company, any Subsidiary or any ERISA Affiliate (or their
predecessors) has received any notice or has any reason to believe that such
Multiemployer Plan is in "reorganization" (within the meaning of section 4241 of
ERISA), that increased contributions may be required to avoid a reduction in
plan benefits or the imposition of an excise tax, or that the Multiemployer Plan
is or may become "insolvent" (within the meaning of section 4241 of ERISA);
(iii) no Multiemployer Plan is a party to any pending merger or asset or
liability transfer under Part 2 of Subtitle E of Title IV of ERISA; (iv) the
PBGC has not instituted proceedings against the Multiemployer Plan; (v) there is
no contingent liability for withdrawal liability by reason of a sale of assets
pursuant to section 4204 of ERISA; and (vi) if the Company, any Subsidiary or
any ERISA Affiliate were to have a complete or partial withdrawal as of the
Effective Time, no obligation to pay withdrawal liability would exist on the
part of the Company, Subsidiary or ERISA Affiliate with respect to any
Multiemployer Plan.
25
<PAGE>
(e) Except as disclosed on Schedule 3.8 hereto, each Benefit Plan
intended to be "qualified" within the meaning of section 401(a) of the Code (or
similar provision for tax-registered or tax-favored plans of foreign
jurisdictions) is so qualified and has received a determination letter from the
Internal Revenue Service (or, if applicable, similar approvals of foreign
governmental authorities) and, to the knowledge of the Company, nothing has
occurred or is reasonably expected to occur through the Effective Time that
caused or could cause the loss of such qualification or exemption or the
imposition of any material penalty or material tax liability.
(f) Except as disclosed on Schedule 3.8(f), no Benefit Plan provides
medical, surgical, hospitalization, death or similar benefits (whether or not
insured) for employees or former employees of the Company or any Subsidiary for
periods extending beyond their retirement or other termination of service, other
than (i) coverage mandated by applicable law, (ii) death benefits under any
"pension plan" or (iii) benefits the full cost of which is borne by current or
former employees (or their beneficiaries).
(g) There are no pending or, to the knowledge of the Company,
threatened or anticipated claims by or on behalf of any Benefit Plan, by any
employee or beneficiary covered under any such Benefit Plan, or otherwise
involving any such Benefit Plan (other than routine claims for benefits).
(h) No "reportable event" within the meaning of section 4043(c) of
ERISA has occurred or is reasonably expected to occur, and the consummation of
the transactions contemplated by this Agreement will not result in a reportable
event.
(i) Except as disclosed on Schedule 3.8(i), with respect to each of
the Benefit Plans on Schedule 3.8(a): (i) all material payments required by any
Benefit Plan, any collective bargaining agreement or other agreement, or by law
(including, without limitation, all contributions, insurance premiums, or
26
<PAGE>
intercompany charges) with respect to all periods through the date of the
Effective Time shall have been made prior to the Effective Time (on a pro rata
basis where such payments are otherwise discretionary at year end) or provided
for by the Company as applicable, by full accruals (as if all targets required
by such Benefit Plan had been or will be met at maximum levels) on its financial
statements; (ii) no "accumulated funding deficiency" (within the meaning of
section 302 of ERISA and section 412 of the Code) has been or could be
reasonably expected to be incurred, whether or not waived, and no excise or
other taxes have been or could be reasonably expected to be incurred or are due
and owing with respect to the Benefit Plan because of any failure to comply with
the minimum funding standards of ERISA and the Code; (iii) the Benefit Plan
complies and has been maintained and operated in all material respects in
accordance with its terms and applicable law, including, without limitation,
ERISA and the Code; (iv) no "prohibited transaction", within the meaning of
section 4975 of the Code and section 406 of ERISA, has occurred or is reasonably
expected to occur with respect to the Benefit Plan; (v) no Benefit Plan is or is
reasonably expected to be under audit or investigation by the IRS, U.S.
Department of Labor, or any other government authority and no such completed
audit, if any, has resulted in the imposition of any tax or penalty; (vi) the
present value of all "benefit liabilities" (whether or not vested) (within the
meaning of section 4001(a)(16) of ERISA) based on the actuarial assumptions (x)
used for funding purposes as set forth in the most recent actuarial report and
(y) as set forth in Financial Accounting Standards Board SFAS No. 87 ("FASB 87")
using the methodology under FASB 87 to calculate the projected benefit
obligation, did not exceed as of the most recent Benefit Plan actuarial
valuation date the then current fair market value of the assets of such Benefit
Plan, and no amendment or other modification to such Benefit Plan or its
actuarial assumptions was adopted since the date of such Benefit Plan's most
recent actuarial report; and (vii) with respect to each Benefit Plan that is
funded mostly or partially through an insurance policy, neither the Company nor
any Subsidiary has any liability in the nature of retroactive rate adjustment,
loss sharing
27
<PAGE>
arrangement or other actual or contingent liability arising wholly or partially
out of events occurring on or before the Effective Time.
(j) The consummation of the transactions contemplated by this
Agreement will not give rise to any liability for severance pay, unemployment
compensation, termination pay, or withdrawal liability, or accelerate the time
of payment or vesting or increase the amount of compensation or benefits due to
any employee or director of the Company or any Subsidiary (whether current,
former, or retired) or their beneficiaries solely by reason of such
transactions. No amounts payable under any Benefit Plan will fail to be
deductible for federal income tax purposes by virtue of section 280G or 162(m)
of the Code. To the knowledge of the Company, neither the Company, any
Subsidiary or any officer or employee thereof, has made any promise or
commitment, whether legally binding or not, to create any additional plan,
agreement, or arrangement, or to modify or change any existing Benefit Plan. No
event, condition, or circumstance exists that would prevent the amendment or
termination of any Benefit Plan in accordance with its terms and applicable law.
Except as set forth on Schedule 3.8(j), none of the Company, any Subsidiary or
any ERISA Affiliate has any unfunded liabilities pursuant to any Benefit Plan
that is intended to be an "employee pension benefit plan" within the meaning of
Section 3(2) of ERISA and that is not intended to be qualified under Section
401(a) of the Code.
(k) Except as set forth on Schedule 3.8(k), with respect to each
scheme or arrangement mandated by a government other than the United States and
with respect to each Benefit Plan that is not subject to United States law and
which is maintained or contributed to by any Subsidiary (a "Foreign Employee
Plan"), the fair market value of the assets of each funded Foreign Employee
Plan, the liability of each insurer for any Foreign Employee Plan funded through
insurance or the book reserve established for any Foreign Employee Plan,
together with any accrued contributions, is, to the knowledge of the Company,
sufficient to procure or provide for the accrued benefit obligations with
respect
28
<PAGE>
to all current and former participants in such Foreign Employee Plan according
to the actuarial assumptions and valuations most recently used to determine
employer contributions to such Foreign Employee Plan, and no transaction
contemplated by this Agreement shall cause such assets or insurance obligations
to be less than such benefit obligations.
Section 3.9 Litigation. Except as disclosed in the Company SEC
----------
Documents or on Schedule 3.9 hereto, there is no suit, action or proceeding
pending or, to the knowledge of the Company, threatened against the Company or
any of its Subsidiaries which is reasonably likely to have a material adverse
effect on the Company and its Subsidiaries, taken as a whole, or which, as of
the date hereof, has had or is reasonably likely to have a material adverse
effect on the ability of the Company to consummate the transactions contemplated
by this Agreement. If any suit, action, or proceeding seeking monetary,
equitable, or injunctive relief arising out of the manufacture, sale,
distribution, advertising, promotion, marketing, packaging, labeling, or use of
tobacco or any tobacco product is threatened or commenced by or on behalf of any
State or any of its officers acting in their official capacities (including but
not limited to its Attorney General), departments, subdivisions, or agencies
(collectively "State Tobacco Litigation"), then for purposes of this Agreement
such State Tobacco Litigation shall be deemed not to have a material adverse
effect on the Company or its Subsidiaries. Except as disclosed in Schedule 3.9,
the Company has no knowledge of any State Tobacco Litigation pending or
threatened against the Company or any of its Subsidiaries.
Section 3.10 No Default; Compliance with Applicable Laws. Except as
-------------------------------------------
set forth on Schedule 3.10 hereto, the business of the Company and each of its
Subsidiaries is not in default or violation of any term, condition or provision
of (i) its respective articles of incorporation or by-laws or similar
organizational documents, (ii) any Material Agreement or (iii) any federal,
state, local or foreign statute, law, ordinance, rule, regulation, judgment,
decree, order, concession,
29
<PAGE>
grant, franchise, permit or license or other governmental authorization or
approval applicable to the Company or any of its Subsidiaries, excluding from
the foregoing clauses (ii) and (iii), defaults or violations which would not,
individually or in the aggregate, have a material adverse effect on the Company
and its Subsidiaries, taken as a whole.
Section 3.11 Taxes. (a) The Company and its Tax Subsidiaries have
-----
(i) duly filed (or there has been filed on their behalf) with the appropriate
governmental authorities all Tax Returns (as defined in Section 3.11(h))
required to be filed by them on or prior to the date hereof, other than those
Tax Returns the failure of which to file would not have a material adverse
effect on the Company and its Tax Subsidiaries, taken as a whole, and such Tax
Returns are true, correct and complete in all material respects, and (ii) duly
paid in full or made provision in accordance with generally accepted accounting
principles (or there has been paid or provision has been made on their behalf)
for the payment of all Taxes (as defined in Section 3.11(h)) shown to be due on
such Tax Returns.
(b) Except as set forth on Schedule 3.11(b) hereto, no federal, state
or local audits, actions, suits, proceedings, investigations, claims or
assessments are presently pending or proposed in writing with regard to any
Taxes or Tax Return of the Company or its Tax Subsidiaries.
(c) Except as set forth on Schedule 3.11(c) hereto, there are no
outstanding written consents to extend the statutory period of limitations
applicable to the assessment of any material Taxes or deficiencies against the
Company or any of its Tax Subsidiaries, and no power of attorney granted by
either the Company or any of its Tax Subsidiaries with respect to any Taxes is
currently in force.
(d) Except as set forth on Schedule 3.11(d), neither the Company nor
any of its Tax Subsidiaries (i) is a party to any agreement providing for the
allocation or sharing of Taxes or (ii) can have
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any liability or entitlement under any such agreement to which it previously was
a party, including without limitation the Amended and Restated Tax Sharing
Agreement dated as of June 15, 1995 with Mafco.
(e) Except as set forth in Schedule 3.11(e), complete copies of (i)
consolidated federal income Tax Returns for the Company and its Tax Subsidiaries
and (ii) state and local income Tax and other Tax Returns of the Company and its
Tax Subsidiaries for each of the years ended 1995, 1996 and 1997, have
heretofore been made available to Parent and the Purchaser.
(f) Except as set forth in Schedule 3.11(f), (i) all material amounts
required to be collected or withheld by the Company and each of its Tax
Subsidiaries with respect to Taxes have been duly collected or withheld and any
such amounts that are required to be remitted to any taxing authority have been
duly remitted, (ii) there are no Tax rulings, requests for rulings, closing
agreements or changes of accounting method relating to the Company or any of its
Tax Subsidiaries that could materially affect their liability for Taxes of the
Company or its Tax Subsidiaries due for any period after the Effective Time,
(iii) all material federal, state and local income Tax Returns of the Company
and each of its Tax Subsidiaries with respect to taxable periods beginning on
March 3, 1993 through the year ended 1997 have been examined and closed or are
Tax Returns with respect to which the applicable statute of limitations has
expired without extension or waiver, (iv) no excess loan account (as referred to
in Treasury Regulations Section 1.1502-19) exists with respect to any Tax
Subsidiary of the Company, (v) neither the Company nor any of its Tax
Subsidiaries has any deferred gain or loss (A) arising from deferred
intercompany transactions (as referred to in Treasury Regulations Section
1.1502-13), or (B) with respect to the stock or obligations of any other member
of the Company's affiliated group (as described in Treasury Regulations Section
1.1502-14), (vi) neither the Company nor any Tax Subsidiary has filed a consent
under Section 341(f) of the Code or any comparable provisions of state revenue
statues, and (vii)
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none of the Company or its Tax Subsidiaries will be required to include in a
taxable period ending after the Effective Time taxable income attributable to a
prior taxable period that was not recognized in that taxable period as a result
of the installment method of accounting, the completed contract method of
accounting, the long-term contract method of accounting, the cash method of
accounting or Section 481 of the Code or comparable provisions of state or local
or foreign tax law;
(g) The Company and its domestic Tax Subsidiaries were included in
Mafco's consolidated federal income Tax Returns for the period beginning March
3, 1993 and ending March 20, 1997;
(h) "Taxes" shall mean any and all taxes, charges, fees, levies,
customs, duties, imposts or other assessments, including, without limitation,
income, gross receipts, excise, real or personal property, sales, withholding,
social security, occupation, use, service, service use, license, net worth,
payroll, franchise, transfer and recording taxes, fees and charges, ad valorem,
value added, asset, license, transaction, capital, estimated, employment,
workers compensation, utility, severance, production, unemployment compensation,
premium, windfall profits and gains taxes imposed by the United States Internal
Revenue Service or any taxing authority (domestic or foreign), including,
without limitation, any state, county, local or foreign government or any
subdivision or taxing agency thereof (including a United States possession)),
whether computed on a separate, consolidated, unitary, combined or any other
basis; and such term shall include any interest, penalties or additional amounts
attributable to, or imposed upon, or with respect to, any such taxes, charges,
fees, levies or other assessments. "Tax Return" shall mean any report, return,
document, declaration or other information or filing required to be supplied to
any taxing authority or jurisdiction (domestic or foreign) with respect to
Taxes. The term "Tax Subsidiaries" shall include all "Subsidiaries" as defined
in Section 3.1 of this Agreement except for Encon Shade
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Company, LLC, Encon Shade Company II, LLC and Cigar Savor Enterprises, LLC.
Section 3.12 Real Property. The Company and the Subsidiaries, as the
-------------
case may be, have sufficient title or leaseholds to real property to conduct
their respective businesses as currently conducted with only such exceptions as
individually or in the aggregate would not have a material adverse effect on the
Company and the Subsidiaries, taken as a whole.
Section 3.13 Environmental Matters. (a) Except (i) as set forth in
---------------------
Schedule 3.13 hereto or (ii) as set forth in the Company SEC Documents:
(i) neither the Company nor any Subsidiary has received any
written communication from any person or entity (including any Governmental
Entity) stating or alleging that the Company or any Subsidiary is a
potentially responsible party or is otherwise liable under Environmental
Law (as defined in Section 3.13(b)) with respect to any actual or alleged
environmental contamination which remains unresolved or outstanding; none
of the Company, any Subsidiary or, to the Company's knowledge, any
Governmental Entity is conducting or has conducted any environmental
remediation or environmental investigation of the Company, any of its
Subsidiaries, the operations of the Company or of any of its Subsidiaries
or any presently or formerly owned, leased or operated property of the
Company or of any of its Subsidiaries (collectively and individually, "Real
Property"), which could reasonably be expected to result in liability for
the Company or any Subsidiary under any Environmental Law; and neither the
Company nor any Subsidiary has received any request for information from
any Governmental Entity or any other person or entity with respect to any
actual or alleged environmental contamination;
(ii) the current operations of the Company and its Subsidiaries,
including any operations at or from Real Property, comply with all
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applicable Environmental Laws. None of the Company, any of its
Subsidiaries or, to the knowledge of the Company, any other person or
entity, has engaged in, authorized, allowed or suffered any operations or
activities upon any of the Real Property for the purpose of or in any way
involving the handling, manufacturing, treatment, processing, storage, use,
generation, release, discharge, spilling, emission, dumping or disposal of
any Hazardous Substance at, on, under or from the Real Property, except in
compliance with all applicable Environmental Laws or where the failure to
be in compliance would not, individually or in the aggregate, have a
material adverse effect on the Company or any of its Subsidiaries;
(iii) to the knowledge of the Company, the Real Property contains
no Hazardous Substances in, on, over, at or under it, in concentrations
which would presently violate any applicable Environmental Law or would be
reasonably likely to result in the imposition of Environmental Liabilities
on the Company, any of its Subsidiaries or the Real property under any
applicable Environmental Law, including any liability or obligation for the
investigation, corrective action, remediation or monitoring of Hazardous
Substances in, on, over, under or at the Real Property;
(iv) there are no underground storage tanks or other Hazardous
Substances (other than Hazardous Substances for use in the ordinary course
of business of the Company and its Subsidiaries, which are stored and
maintained in material compliance with all applicable Environmental Laws)
in, on, over, under or at any Real Property;
(v) the Company and its Subsidiaries are in compliance with the
terms and conditions of all Environmental Permits which are required under
applicable Environmental Laws, except where the failure to be in compliance
would not, individually or in the aggregate, have a material adverse effect
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on the Company or any of its Subsidiaries and, to the best knowledge of the
Company, no reason exists why the Surviving Corporation would not be
capable of continued operation of the business in compliance with the
Environmental Permits and the applicable Environmental Laws, except where
the failure to be in compliance would not, individually or in the
aggregate, have a material adverse effect on the Company or any of its
Subsidiaries;
(vi) the Company has provided to Purchaser, all material
environmental reports, assessments, audits, studies, investigations, data,
Environmental Permits and other material written environmental information
in its custody, possession or control concerning the assets or businesses
of the Company and its Subsidiaries or the Real Property;
(vii) neither the Company nor any of its Subsidiaries has
contractually, by operation of law, by the Environmental Laws, by common
law or otherwise, assumed or succeeded to any material Environmental
Liabilities of any predecessor or any other person or entity; and
(viii) none of the items set forth on Schedule 3.13 individually
or in the aggregate has or is reasonably likely to have a material adverse
effect on the Company or any of its Subsidiaries.
(b) (i) For purposes of this Section 3.13, "Environmental Law" means
all applicable foreign, state, federal and local laws and the common law,
regulations and rules, ordinances, codes, policies, guidances, permits,
judgments, decrees and orders relating to health or safety or the pollution,
preservation or protection of the environment, including the release of
materials into the environment.
(ii) for the purposes of this Section 3.13, "Environmental
Permits" means the permits, licenses, authorizations and approvals
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required or issued under the Environmental Laws which are necessary for the
conduct of the Company's and its Subsidiaries' businesses and for the
operations on, in or at, the assets of the Company and of its Subsidiaries
and the Real Property;
(iii) for the purposes of this Section 3.13, "Environmental
Liabilities" means any claims, judgments, damages (including punitive
damages), losses, penalties, fines, liabilities, encumbrances, liens,
violations, costs and expenses (including attorneys' and consultants' fees)
of investigation, remediation, monitoring or defense of any matter, which
(A) are incurred as a result of (1) the existence of Hazardous Substances
in, on, under, at or emanating from any Real Property, (2) the offsite
transportation, treatment, storage or disposal of Hazardous Substances
generated by the Company or any of its subsidiaries, (3) the violation of
or non-compliance with any Environmental Laws or (B) arise under the
Environmental Laws; and
(iv) for the purposes of this Section 3.13, "Hazardous
Substances" means any petroleum products, petroleum-derived substances,
radioactive materials, hazardous wastes, polychlorinated biphenyls, lead-
based paint, radon, urea formaldehyde, asbestos or any materials containing
asbestos, pesticides, and any chemicals, materials or substances regulated
under any Environmental Law, or defined as or included in the definition of
"hazardous substances", "extremely hazardous substances", "hazardous
materials", "hazardous constituents", "toxic substances", "pollutants",
"contaminants", or any similar denomination intended to classify or
regulate such chemicals, materials or substances by reason of their
toxicity, carcinogenicity, ignitability, corrosivity or reactivity or other
characteristics under the Environmental Laws.
Section 3.1 Intellectual Property.
---------------------
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(a) Either the Company or CCB is the exclusive owner of all right,
title and interest in and to, free and clear of all liens, pledges, security
interests, encumbrances and adverse claims, or the legitimate licensee of, each
of the following:
(i) all material U.S. trademarks, service marks and trade names
used in connection with the business of the Company, CCB or any other
Subsidiary of the Company (collectively the "Marks") and such Marks in
other countries in which the Company conducts commercially significant
business under the Marks. Schedule 3.14(a)(i)(1) is a list of all of the
marks that are currently being used or are contemplated for use by the
Company, CCB or any other Subsidiary of the Company in connection with its
business and the registrations of, and/or applications to register, such
marks in the jurisdictions that are listed and Schedule 3.14(a)(i)(2) is a
list of the aforesaid "Marks," i.e., the U.S. marks which are material to
the businesses of either the Company or CCB, of which the Company or CCB is
the exclusive owner or legitimate licensee in the U.S.;
(ii) all copyrights in and to any and all material copyrightable
works, including without limitation such material copyrightable works used
for: (x) the content, artwork and decorative designs on any products of
the Company, CCB or any other Subsidiary of the Company and on the
packaging and labeling used to hold and sell each such product and (y) the
content, artwork and decorative designs in or on any promotional materials
for any such product (collectively, the "Copyrights");
(iii) all know-how, show-how, methods, processes, inventions,
recipes, specifications, formulas and molds (including without limitation
the cigar molds) used in producing and manufacturing products of the
Company, CCB or any other Subsidiary of the Company, including without
limitation all patentable works and trade secrets, that are material to the
business
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of the Company and its Subsidiaries taken as a whole (collectively, the
"Know-How"). The Marks, Copyrights, and the Know-How are sometimes referred
to as the "Company Intellectual Property Rights".
(b) Schedule 3.14(b) sets forth a list of all license and similar
agreements between the Company, CCB, any other Subsidiary of the Company or any
of their respective affiliates, on the one hand, and third parties, on the other
hand, under which either the Company, CCB, any other Subsidiary of the Company
or any of their respective affiliates has been granted rights to the use,
reproduction, distribution, manufacture, sale or licensing of items embodying
the patent, copyright, trade secret, trademark or other proprietary rights of
such third parties, either as used in the business of the Company, CCB, or any
other Subsidiary of the Company or any of their respective affiliates or as
being developed or acquired for use or potential use in the business of the
Company, CCB, any other Subsidiary of the Company or any of their respective
affiliates (collectively, the "Company License Rights"). True, correct and
complete copies of all such agreements have been made available to the Purchaser
and Parent. Such agreements are in full force and effect and there is no
default or breach or alleged default or breach on the part of any party to such
agreements. None of the Company, CCB, any other Subsidiary of the Company or
any of their respective affiliates, is as a result of the execution and delivery
of this Agreement, or, as a result of the performance of the obligations
hereunder, will be in violation of or lose any right pursuant to any license or
similar agreement described in Schedule 3.14(b). Except as set forth in
Schedule 3.14(b), no third party is entitled to any royalty, fee, payment or
other consideration of whatever nature with respect to the Company License
Rights or Company Intellectual Property Rights. The Company License Rights and
the Company Intellectual Property Rights are sometimes collectively referred to
as the "Company Rights".
(c) With the exception of merchandising agreements, i.e., license
agreements permitting third parties to use the marks of the Company or CCB in
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<PAGE>
connection with non-tobacco products, and inter-company agreements between the
Company, CCB, any other Subsidiary of the Company or any of their respective
affiliates, Schedule 3.14(c) sets forth a list of all agreements under which the
Company, CCB, any other Subsidiary of the Company or any of their respective
affiliates has granted any rights of whatever nature to third parties of, to or
under the Company Rights. All such rights granted have been and are non-
exclusive. True, correct and complete copies of all such agreements have been
made available to the Purchaser and Parent. Such agreements are in full force
and effect and there is no default or breach or alleged default or breach on the
part of any party to such agreements. None of the Company, CCB, any other
Subsidiary of the Company or any of their respective affiliates is, as a result
of the execution and delivery of this Agreement, or, as a result of the
performance of the obligations hereunder, will be in violation of such
agreements.
(d) No claim with respect to the Company Rights has been asserted
that remains unresolved or is threatened by any third party. Also, there are no
valid grounds for any bona fide claim with respect to the Company Rights by any
third party. Specifically, but not without limiting the generality of the
foregoing, neither the Company nor CCB has received from any third party any
claim of ownership or license rights, cease and desist letter, summons or
complaint, notice of opposition or cancellation petition with respect to any one
or more of the Company Intellectual Property Rights. Furthermore, as of the
date hereof, there has not been and there is not any infringement,
misappropriation or any other unauthorized use of any of the Company Rights by
any third party or individual, employee, consultant or former employee or
consultant of either the Company, CCB or any other Subsidiary of the Company
that will have a material adverse effect on their businesses.
(e) None of the Company, CCB or any other Subsidiary of the Company
has or has been alleged to have infringed upon, violated, misappropriated or
misused any intellectual property right or other property right (including,
without limitation, any patent right,
39
<PAGE>
copyright, trade name or trade secret) of any third party by reason of its or
any of its affiliates' use, license, sale or other distribution of the Company
Rights.
(f) No Company Rights are subject to any agreement, injunction,
and/or order restricting in any manner the use or licensing thereof by the
Company, CCB or any other Subsidiary of the Company. None of the Company, CCB,
any other Subsidiary of the Company or any of their respective affiliates has
entered into any agreement to indemnify and/or hold harmless any third party
from or against any cause of action, charge or other claim of infringement of
any other third party's intellectual property rights. With the exception of the
aforementioned merchandising agreements, none of the Company, CCB, any other
Subsidiary of the Company or any of their respective affiliates has entered into
any agreement granting any third party the right to bring infringement actions
or otherwise to enforce rights with respect to any Company Intellectual Property
Rights or, except as disclosed in Schedule 3.14(c), with respect to any Company
License Rights. The Company and CCB have the exclusive right to file, prosecute
and maintain all applications and registrations with respect to the Company
Intellectual Property Rights.
(g) The Company Intellectual Property Rights are valid, enforceable,
subsisting and are owned or legitimately licensed by, and currently registered
or applied for in the U.S., in the name of the Company or CCB, free and clear of
all liens, pledges, security interests, encumbrances and adverse claims. In
addition, the Company has taken all reasonable steps to protect and maintain the
Marks in other countries in which the Company conducts commercially significant
business under such Marks.
Section 3.15 Inventory. The inventory reflected on the Company's
---------
consolidated balance sheet as of October 3, 1998 is merchantable and fit for the
purpose for which it was procured or manufactured and legally qualified for
export and sale. Except as reserved for on such balance sheet, all such
inventory is in good and marketable condition, does not and will not
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<PAGE>
include any items which are distressed, damaged or defective and is salable in
the normal course of the business of the Company and its Subsidiaries, as
currently conducted.
Section 3.16 Labor Matters. Except as set forth on Schedule 3.16,
-------------
there are no controversies pending or, to the knowledge of the Company,
threatened between the Company or any of its Subsidiaries and any of their
respective employees, which controversies are reasonably likely to have a
material adverse effect on the Company and its Subsidiaries taken as a whole.
Neither the Company nor any of its Subsidiaries is involved in or threatened
with any material labor dispute, grievance or litigation relating to labor,
safety or discrimination matters involving any person employed by the Company or
any of its Subsidiaries, including, without limitation, charges of unfair labor
practices or discrimination complaints. Neither the Company nor any of its
Subsidiaries has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act or similar such legislation of foreign
jurisdictions in a manner that would be reasonably likely to have a material
adverse effect on the Company and its Subsidiaries taken as a whole. Except as
set forth in Schedule 3.16, neither the Company nor any of its Subsidiaries is
presently a party to, or bound by, any collective bargaining agreement or union
contract with respect to any persons employed by the Company or any of its
Subsidiaries, and no collective bargaining agreement is being negotiated by the
Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries has any knowledge of any strikes, slowdowns, work stoppages or
lockouts, or threats thereof, by or with respect to any employees of the Company
or any of its Subsidiaries, and there have been no such strikes, slowdowns, work
stoppages or lockouts within the past three years. The Company and each of its
Subsidiaries is in compliance in all material respects with all laws,
regulations and orders relating to workers' compensation and the Worker
Adjustment and Retraining Notification Act or similar such legislation of
foreign jurisdictions, except where the failure to be
41
<PAGE>
in compliance would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole.
Section 3.17 Restrictions on Business Activities. There is no
-----------------------------------
material agreement, judgment, injunction, order or decree binding upon the
Company or any of its Subsidiaries which has the effect of prohibiting or
impairing any material business operations of the Company or any of its
Subsidiaries.
Section 3.18 Year 2000 Compliance. To the knowledge of the Company,
--------------------
the computer systems of the Company and its Subsidiaries are Year 2000 Compliant
or will be Year 2000 Compliant by December 31, 1999, except where the failure to
be Year 2000 Compliant would not have a material adverse effect on the Company
and its Subsidiaries taken as a whole. The computer systems of the Company and
its Subsidiaries have the ability to interface properly and will continue to
interface properly with internal and external applications and systems of third
parties with which the Company and its Subsidiaries exchange data electronically
whether or not they are Year 2000 Compliant, except where the failure to so
interface would not have a material adverse effect on the Company and its
Subsidiaries taken as a whole. The Company has taken affirmative steps to
assess, address and correct any and all potential problems and liabilities
relating to Year 2000 Compliance and its impact on any Benefit Plan and its
participants and beneficiaries.
The term "Year 2000 Compliant" as used herein means that the computer
systems (i) are capable of recognizing, processing, managing, representing,
interpreting and manipulating correctly date related data for dates earlier and
later than January 1, 2000, including calculating, comparing, sorting, storing,
tagging and sequencing, without resulting in or causing logical or mathematical
errors or inconsistencies in any user-interface functionalities or otherwise,
including data input and retrieval, data storage, data fields, calculations,
reports, processing or any other input or output; (ii) have the ability to
provide date recognition for any data element without limitation (including
date-
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related data represented without a century designation, date-related data
whose year is represented by only two digits and date fields assigned special
values); (iii) have the ability to function automatically into and beyond the
year 2000 without human intervention and without any change in operations
associated with the advent of the year 2000; (iv) have the ability to interpret
data, dates and time correctly into and beyond the year 2000; (v) have the
ability not to produce noncompliance in existing information, nor otherwise
corrupt such data into and beyond the year 2000; (vi) have the ability to
process correctly after January 1, 2000 data containing dates before that date;
and (vii) have the ability to recognize all "leap years," including February 29,
2000.
Section 3.19 Vote Required. The affirmative vote of the holders of
-------------
the number of Shares of Company Common Stock entitled to be cast, consisting of
a majority of the total voting power of all Shares of Company Common Stock
outstanding, approving this Agreement, is the only vote of the holders of any
series or class of common stock required to approve and adopt the plan of merger
in this Agreement and to approve the Merger of the outstanding shares of the
Company.
Section 3.20 Brokers. No agent, broker, finder, investment banker or
-------
financial advisor (other than Chase Securities, Inc.) or other firm or person is
or shall be entitled to any brokerage or finder's fee or any other commission or
similar fee in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company or any of its
subsidiaries or affiliates.
Section 3.21 Opinion of Financial Advisor. Chase Securities, Inc.,
----------------------------
the Company's independent financial advisor, has advised the Company's Board of
Directors that, in its opinion, as of the date of such opinion, the
consideration to be received by the holders of the Class A Common Stock (other
than Parent and its affiliates) in the Offer and Merger, taken together, is
fair, from a financial point of view, to such stockholders.
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Section 3.22 Information in Proxy Statement; Schedule 14D-1. None of
----------------------------------------------
the information supplied by the Company for inclusion or incorporation by
reference in the Proxy Statement (if any) or the Schedule 14D-1 shall, at the
date mailed to stockholders and at the time of the meeting of stockholders (if
any) to be held in connection with the Merger, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND THE PURCHASER
Parent and the Purchaser jointly and severally represent and warrant
to the Company as follows:
Section 4.1 Organization. Each of Parent and the Purchaser is a
------------
corporation duly organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has all requisite corporate or
other power and authority to own, lease and operate its properties and to carry
on its business as now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power or authority
would not have a material adverse effect on Parent and its Subsidiaries taken as
a whole. Parent and each of its Subsidiaries is duly qualified or licensed to do
business and in good standing in each jurisdiction in which the property owned,
leased or operated by it or the nature of the business conducted by it makes
such qualification or licensing necessary, except where the failure to be so
duly qualified or licensed and in good standing would not, in the aggregate,
have a material adverse effect on Parent and its Subsidiaries, taken as a whole.
Section 4.2 Authorization; Validity of Agreement; Necessary Action.
------------------------------------------------------
Each of Parent and the Purchaser has full corporate power and authority to
execute and deliver this Agreement and to consummate
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the transactions contemplated hereby. The execution, delivery and performance by
Parent and the Purchaser of this Agreement, and the consummation of the
transactions contemplated hereby, have been duly authorized by their Boards of
Directors and by Parent as the sole stockholder of Purchaser and no other
corporate action on the part of Parent and the Purchaser is necessary to
authorize the execution and delivery by Parent and the Purchaser of this
Agreement and the consummation by them of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and the Purchaser,
as the case may be, and, assuming due and valid authorization, execution and
delivery hereof by the Company, is a valid and binding obligation of each of
Parent and the Purchaser, as the case may be, enforceable against them in
accordance with its respective terms, except that (i) such enforcement may be
subject to applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally, and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 4.3 Consents and Approvals; No Violations. Except for
-------------------------------------
filings, permits, authorizations, consents and approvals as may be required
under, and other applicable requirements of, the Exchange Act, the HSR Act, the
ATF, the United States Customs Service, state or foreign laws relating to
takeovers, state securities or blue sky laws, the DGCL, foreign antitrust laws
or the laws of other states in which Parent or the Purchaser is qualified to do
or is doing business, neither the execution, delivery or performance of this
Agreement by Parent and the Purchaser nor the consummation by Parent and the
Purchaser of the transactions contemplated hereby nor compliance by Parent and
the Purchaser with any of the provisions hereof shall (i) conflict with or
result in any breach of any provision of the respective certificate of
incorporation or by-laws or similar organizational documents of Parent, any of
its subsidiaries or the Purchaser, (ii) require on the part of Parent or the
Purchaser any filing with, or
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permit, authorization, consent or approval of, any Governmental Entity,(iii)
result in a violation or breach of, or constitute (with or without due notice or
lapse of time or both) a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, lease, license, contract, agreement or
other instrument or obligation to which Parent, any of its Subsidiaries or the
Purchaser is a party or by which any of them or any of their properties or
assets may be bound, except for such violations, breaches and defaults (or
rights of termination, cancellation or acceleration) as to which requisite
waivers or consents have been obtained, or (iv) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to Parent, any of its
Subsidiaries or the Purchaser or any of their properties or assets, excluding
from the foregoing clauses (ii), (iii) or (iv) where the failure to obtain such
permits, authorizations, consents or approvals or to make such filings, or the
existence of such violations, breaches or defaults, would not, individually or
in the aggregate, have a material adverse effect on Parent, its Subsidiaries and
the Purchaser taken as a whole and shall not materially impair the ability of
Parent or the Purchaser to consummate the transactions contemplated hereby.
Section 4.4 Information in Proxy Statement; Schedule 14D-9. None of
----------------------------------------------
the information supplied by Parent or the Purchaser for inclusion or
incorporation by reference in the Proxy Statement or the Schedule 14D-9 shall,
at the date mailed to stockholders and at the time of the meeting of
stockholders (if any) to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading.
Section 4.5 Financing. Parent and the Purchaser have sufficient
---------
funds available (through cash on hand and existing credit arrangements or
otherwise) to purchase all of the Shares outstanding on a fully diluted basis,
to repay all amounts outstanding under the Credit
46
<PAGE>
Agreement, dated as of March 2, 1998, by and between the Consolidated Cigar
Corporation and Chase Manhattan Bank, as administrative agent, as amended by
Amendment No.1 thereto, dated as of April 27, 1998 (the "Credit Agreement"), to
pay the promissory note dated August 21, 1996 made by the Company to Mafco at
its face value and to pay all fees and expenses related to the transactions
contemplated by this Agreement.
Section 4.6 Share Ownership. None of Parent, Purchaser or any of
---------------
their respective "affiliates" or "associates" (as those terms are defined under
Rule 12b-2 under the Exchange Act) beneficially own any Shares.
Section 4.7 Purchaser's Operations. The Purchaser was formed solely
----------------------
for the purpose of engaging in the transactions contemplated hereby and has not
engaged in any business activities or conducted any operations other than in
connection with the transactions contemplated hereby.
Section 4.8 Brokers or Finders. Parent represents, as to itself, its
------------------
Subsidiaries and its affiliates, that no agent, broker, investment banker,
financial advisor or other firm or person is or shall be entitled to any
brokers' or finders' fee or any other commission or similar fee in connection
with any of the transactions contemplated by this Agreement, except Credit
Suisse First Boston, whose fees and expenses shall be paid by Parent in
accordance with the Parent's agreement with such firm.
ARTICLE V
COVENANTS
Section 5.1 Interim Operations of the Company. The Company covenants
---------------------------------
and agrees that, except (i) as contemplated by this Agreement, (ii) as disclosed
in Schedule 5.1, and (iii) as agreed in writing by Parent, after the date
hereof, and prior to the time the directors of the Purchaser have been elected
to, and shall constitute a majority of, the Board of Directors of
47
<PAGE>
the Company pursuant to Section 1.3 (the "Appointment Date"), the business of
the Company and its Subsidiaries shall be conducted only in the ordinary and
usual course of business consistent with past practices and without limiting the
generality of the foregoing:
(a) the Company shall not, directly or indirectly, (i) sell, transfer
or pledge or agree to sell, transfer or pledge any Company Common Stock or any
other securities of the Company or capital stock or any other securities of any
of its Subsidiaries beneficially owned by it, either directly or indirectly;
(ii) amend or cause to be amended its Certificate of Incorporation or By-laws or
similar organizational documents of any of its Subsidiaries; or (iii) split,
combine or reclassify the outstanding Company Common Stock or any outstanding
capital stock of any of the Subsidiaries of the Company;
(b) neither the Company nor any of its Subsidiaries shall: (i)
declare, set aside or pay any dividend or other distribution payable in cash,
stock or property with respect to its capital stock; (ii) issue, sell, pledge,
dispose of or encumber any additional shares of, or securities convertible into
or exchangeable for, or options, warrants, calls, commitments or rights of any
kind to acquire, any shares of capital stock of any class of the Company or its
Subsidiaries, other than shares of Company Common Stock reserved for issuances
pursuant to the exercise of Options outstanding on the date hereof; (iii)
transfer, lease, license, sell, mortgage, pledge, dispose of or encumber any
right to any trademark, service mark or trade name owned by it or over which it
has any right whatsoever; (iv) transfer, lease, license, sell, mortgage, pledge,
dispose of, or encumber any other material assets other than in the ordinary and
usual course of business and consistent with past practice; (v) incur or modify
any material indebtedness or other material liability, provided that the Company
-------------
may borrow money for use in the ordinary and usual course of business, provided
--------
further that, neither the Company nor any of its Subsidiaries shall make any
- ------------
borrowing or incur any indebtedness or other liability that would cause the
Company's consolidated net debt (including without limitation the indebtedness
currently outstanding
48
<PAGE>
under the promissory note issued by the Company to Mafco) to exceed $205
million; (vi) make any capital expenditures in excess of $2 million in the
aggregate; or (vii) redeem, purchase or otherwise acquire directly or indirectly
any of its capital stock;
(c) neither the Company nor any of its Subsidiaries shall modify,
amend or terminate any of its Material Agreements or waive, release or assign
any material rights or claims;
(d) neither the Company nor any of its Subsidiaries shall permit any
material insurance policy naming it as a beneficiary or a loss payable payee to
be cancelled or terminated without notice to Parent;
(e) neither the Company nor any of its Subsidiaries shall: (i)
assume, guarantee, endorse or otherwise become liable or responsible (whether
directly, contingently or otherwise) for the obligations of any other person,
except in the ordinary course of business and consistent with past practice;
(ii) make any loans, advances or capital contributions to, or investments in, or
acquisitions of, any other person (other than to Subsidiaries of the Company),
other than in the ordinary course of business and consistent with past practice;
or (iii) enter into any commitment or transaction with respect to any of the
foregoing (including, but not limited to, any borrowing, capital expenditure or
purchase, sale or lease of assets);
(f) neither the Company nor any of its Subsidiaries shall change any
of the accounting methods used by it unless required by GAAP or applicable law;
(g) neither the Company nor any of its Subsidiaries shall adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or any of
its Subsidiaries (other than the Merger);
(h) neither the Company nor any of its Subsidiaries shall take, or
agree to commit to take, any
49
<PAGE>
action that would make any representation or warranty of the Company contained
herein inaccurate in any material respect at, or as of any time prior to, the
Effective Time (except for representations made as of a specific date);
(i) except as required under Section 2.4, the Company shall not amend
or change the period (or permit any acceleration, amendment or change) of
exercisability of Options granted under the 1996 Plan or authorize cash payments
in exchange for any Options;
(j) except for year-end bonuses and salary increases made in the
ordinary course of business consistent with past practice, which in the case of
year-end bonuses shall not exceed $2.2 million in the aggregate, neither the
Company nor any Subsidiary shall increase the compensation payable or to become
payable to its officers or directors;
(k) neither the Company nor any of its Subsidiaries shall grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director or officer of the Company or any Subsidiary or
establish, adopt, enter into or terminate or amend any Benefit Plan; and
(l) neither the Company nor any of its Subsidiaries shall authorize
or enter into an agreement to do any of the foregoing.
Section 5.2 Access to Information. Upon reasonable notice, the
---------------------
Company shall (and shall cause each of its Subsidiaries to) afford to the
officers, employees, accountants, counsel, financing sources and other
representatives of Parent, access, during normal business hours to all its
properties (including offices, plants, warehouses and other facilities),
employees, books, contracts, commitments and records (including tax returns),
and the Company shall (and shall cause each of its Subsidiaries to) furnish
promptly to the Parent (a) a copy of each report, schedule, registration
statement and other document filed or received by it during such period pursuant
to the requirements of federal securities laws
50
<PAGE>
and (b) all other information concerning its business, properties and personnel
as Parent may reasonably request. Unless otherwise required by law, Parent shall
hold any such information which is nonpublic in confidence in accordance with
the provisions of the Confidentiality Agreement between the Company and Parent,
dated October 20, 1998 (the "Confidentiality Agreement").
Section 5.3 Repayment of Borrowings Under Credit Agreement. At the
----------------------------------------------
consummation of the Offer, Parent shall cause the Company to repay all
outstanding borrowings under the Credit Agreement in accordance with the terms
thereof (through Parent's cash on hand, existing credit arrangements or
otherwise) such that no event of default shall exist as a result of the
consummation of the transactions contemplated hereby.
Section 5.4 Consents and Approvals. Each of the Company, Parent and
----------------------
the Purchaser shall take all actions necessary to comply promptly with all legal
requirements which may be imposed on it with respect to this Agreement and the
transactions contemplated hereby (which actions shall include, without
limitation, furnishing all information required under the HSR Act and in
connection with approvals of or filings with any other Governmental Entity) and
shall promptly cooperate with and furnish information to each other in
connection with any such requirements imposed upon any of them or any of their
Subsidiaries in connection with this Agreement and the transactions contemplated
hereby. Each of the Company, Parent and the Purchaser shall, and shall cause
its Subsidiaries to, take all actions necessary to obtain (and shall cooperate
with each other in obtaining) any consent, authorization, order or approval of,
or any exemption by, any Governmental Entity or other public or private third
party required to be obtained or made by Parent, the Purchaser, the Company or
any of their Subsidiaries in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
51
<PAGE>
Section 5.5 Employee Benefits.
-----------------
(a) Parent and the Purchaser shall, as of the Effective Time,
continue the employment of all persons who, immediately prior to the Effective
Time, were employees of the Company or its Subsidiaries ("Retained Employees").
Parent and the Purchaser agree that, effective as of the Effective Time and for
a one-year period following the Effective Time, the Surviving Corporation and
its Subsidiaries and successors shall provide the Retained Employees with
employee plans and programs which are, in the aggregate, substantially
comparable to those provided to such Retained Employees immediately prior to the
date hereof (other than with regard to the 1996 Plan). With respect to such
benefits, service accrued by such Retained Employees during employment with the
Company and its Subsidiaries prior to the Effective Time shall be recognized for
all purposes, except to the extent necessary to prevent duplication of benefits.
Nothing in this Section 5.5(a) shall be deemed to require the employment of any
Retained Employee to be continued for any particular period of time after the
Effective Time or limit the right of Parent and the Purchaser to amend, modify,
suspend or terminate any employee plan or program in accordance with the terms
of such employee plan or program and applicable law.
(b) Parent and the Purchaser agree to honor, and cause the Surviving
Corporation to honor, without modification, all employment and severance
agreements and arrangements, as amended through the date hereof, with respect to
employees and former employees of the Company.
Section 5.6 No Solicitation.
---------------
(a) The Company and its Subsidiaries shall not, and shall use their
best efforts to cause their respective officers, directors, employees and
investment bankers, attorneys or other agents retained by or acting on behalf of
the Company or any of its Subsidiaries not to, (i) initiate, solicit or
encourage (including by way of furnishing non-public information), directly or
indirectly, any inquiries or the making of any proposal
52
<PAGE>
that constitutes or is reasonably likely to lead to any Acquisition Proposal (as
defined in Section 5.6(e) hereof), (ii) except as permitted below, engage in
negotiations or discussions with, or furnish any information or data to any
third party relating to an Acquisition Proposal, or (iii) enter into any
agreement with respect to any Acquisition Proposal or approve any Acquisition
Proposal. The Company will also promptly request each person that has heretofore
executed a confidentiality agreement in connection with its consideration of an
Acquisition Proposal to return all non-public information furnished to such
person by or on behalf of the Company or any of its Subsidiaries.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Company and its Board of Directors (i) may participate in
discussions or negotiations (including, as a part thereof, making any
counterproposal) with or furnish information to any third party making an
unsolicited Acquisition Proposal (a "Potential Acquiror") if the Board
determines in good faith, based upon advice of its outside legal counsel, that
the failure to participate in such discussions or negotiations or to furnish
such information would be inconsistent with the Board's fiduciary duties under
applicable law, and (ii) shall be permitted to take and disclose to the
Company's stockholders a position with respect to any tender or exchange offer
by a third party, or amend or withdraw such position, pursuant to Rules 14d-9
and 14e-2 of the Exchange Act.
(c) Any non-public information furnished to a Potential Acquiror
shall be pursuant to a confidentiality agreement substantially similar to the
confidentiality provisions of the confidentiality agreement entered into between
the Company and Parent. In the event that the Company shall determine to provide
any information as described above, or shall receive any Acquisition Proposal,
it shall promptly inform Parent in writing as to the fact that information is to
be provided and shall furnish to Parent the identity of the recipient of such
information or the Potential Acquiror and the terms of such Acquisition
Proposal, except to the extent that the Board determines in good faith, based
upon
53
<PAGE>
advice of its outside legal counsel, that any such action described in this
sentence would be inconsistent with the Board's fiduciary duties under
applicable law. The Company shall keep Parent reasonably informed of the status
of any such Acquisition Proposal except to the extent that the Board determines
in good faith, based upon advice of its outside legal counsel, that any such
action would be inconsistent with the Board's fiduciary duties under applicable
law.
(d) The Board of Directors of the Company shall not (i) withdraw or
modify or propose to withdraw or modify, in any manner adverse to Parent, the
approval or recommendation of such Board of Directors of this Agreement, the
Offer or the Merger or (ii) approve or recommend, or propose to approve or
recommend, any Acquisition Proposal; provided that, the Company's Board of
Directors may withdraw or modify or propose to withdraw or modify its
recommendation of this Agreement, the Offer or the Merger or recommend or
propose to recommend an Acquisition Proposal if, in each case, the Board
determines in good faith, after receiving advice from its financial advisor,
that such Acquisition Proposal is a Superior Proposal and determines in good
faith, based upon advice of its outside legal counsel, that it would be
inconsistent not to do so in order to comply with its fiduciary duties to the
Company's stockholders under applicable law. The Company shall provide
reasonable notice to Parent to the effect that it is taking such action. The
Board of Directors of the Company shall not authorize the Company to enter into
any agreement with respect to an Acquisition Proposal (even if it is a Superior
Proposal).
(e) For purposes of this Agreement, "Acquisition Proposal" shall mean
any offer or proposal, whether in writing or otherwise, made by a third party to
acquire beneficial ownership (as defined under Rule 13(d) of the Exchange Act)
of all or a material portion of the assets of, or any material equity interest
in, the Company or its material Subsidiaries pursuant to a merger, consolidation
or other business combination, recapitalization, sale of shares of capital
stock, sale of assets, tender offer or exchange offer or similar
54
<PAGE>
transaction involving the Company or its material Subsidiaries (other than the
transactions contemplated by this Agreement).
(f) The term "Superior Proposal" means any proposal to acquire,
directly or indirectly, for consideration consisting of cash or securities, more
than a majority of the Shares then outstanding or all or substantially all the
assets of the Company, and otherwise on terms which the Board of Directors of
the Company determines in good faith to be more favorable to the Company and its
stockholders than the Offer and the Merger (based on advice of the Company's
financial advisor that the value of the consideration provided for in such
proposal is superior to the value of the consideration provided for in the Offer
and the Merger), for which financing, to the extent required, is then committed.
Section 5.7 Publicity. The initial press release with respect to the
---------
execution of this Agreement shall be a joint press release reasonably acceptable
to Parent and the Company. Thereafter, so long as this Agreement is in effect,
neither the Company, Parent nor any of their respective affiliates shall issue
or cause the publication of any press release or other announcement with respect
to the Merger, this Agreement or the other transactions contemplated hereby
without the prior consultation of the other party, except as may be required by
law or by any listing agreement with a national securities exchange.
Section 5.8 Notification of Certain Matters. The Company shall give
-------------------------------
prompt notice to Parent and Parent shall give prompt notice to the Company, of
(i) the occurrence, or non-occurrence of any event the occurrence, or non-
occurrence of which would cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time and (ii) any material failure of the Company or Parent, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
-------- --------
delivery of any notice pursuant to this
55
<PAGE>
Section 5.8 shall not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
Section 5.9 Directors' and Officers' Insurance and Indemnification.
------------------------------------------------------
(a) From and after the consummation of the Offer, Parent shall cause the
Surviving Corporation to indemnify, defend and hold harmless any person who is
now, or has been at any time prior to the date hereof, or who becomes prior to
the Effective Time, an officer, director, employee and agent (the "Indemnified
Party") of the Company and its Subsidiaries against all losses, claims, damages,
liabilities, costs and expenses (including attorneys' fees and expenses),
judgments, fines, losses, and amounts paid in settlement in connection with any
actual or threatened action, suit, claim, proceeding or investigation (each a
"Claim") to the extent that any such Claim is based on, or arises out of, (i)
the fact that such person is or was a director, officer, employee or agent of
the Company or any Subsidiaries or is or was serving at the request of the
Company or any of its Subsidiaries as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise, or
(ii) this Agreement, or any of the transactions contemplated hereby, in each
case to the extent that any such Claim pertains to any matter or fact arising,
existing, or occurring prior to or at the Effective Time, regardless of whether
such Claim is asserted or claimed prior to, at or after the Effective Time, to
the full extent permitted under Delaware law or the Company's Certificate of
Incorporation, By-laws or indemnification agreements in effect at the date
hereof, including provisions relating to advancement of expenses incurred in the
defense of any action or suit. Without limiting the foregoing, in the event any
Indemnified Party becomes involved in any capacity in any Claim of the type
described above, then from and after consummation of the Offer, Parent shall
cause the Company (or the Surviving Corporation if after the Effective Time) to
periodically advance to such Indemnified Party its legal and other expenses
(including the cost of any investigation and preparation incurred in connection
therewith), subject to the provision by such Indemnified Party of an undertaking
56
<PAGE>
to reimburse the amounts so advanced in the event of a final non-appealable
determination by a court of competent jurisdiction that such Indemnified Party
is not entitled thereto.
(b) All rights to indemnification and all limitations of liability
existing in favor of the Indemnified Party as provided under Delaware law or the
Company's Certificate of Incorporation, By-laws or indemnification agreements in
effect at the date hereof shall survive the Merger and shall continue in full
force and effect, without any amendment thereto, for a period of six years from
the Effective Time; provided that, in the event any Claim or Claims are asserted
-------- ----
or made within such six year period, all rights to indemnification in respect of
any such Claim or Claims shall continue until disposition of any and all such
Claims; provided further, that any determination required to be made with
-------- -------
respect to whether an Indemnified Party's conduct complies with the standards
set forth under Delaware law, the Company's Certificate of Incorporation or By-
laws or such agreements, as the case may be, shall be made by independent legal
counsel selected by the Indemnified Party and reasonably acceptable to Parent
and; provided further, that nothing in this Section 5.9 shall impair any rights
-------- -------
or obligations of any present or former directors or officers of the Company.
(c) In the event Parent or the Purchaser or any of their successors or
assigns (i) consolidates with or merges into any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger, or (ii) transfers or conveys all or substantially all of its properties
and assets to any person, then, and in each such case, to the extent necessary
to effectuate the purposes of this Section 5.9, proper provision shall be made
so that the successors and assigns of Parent and the Purchaser assume the
obligations set forth in this Section 5.9.
(d) At the Effective Time, the Purchaser shall deliver a policy or
policies ("Run-off Policies") of directors and officers liability insurance
covering any person who is covered under the Company's existing
57
<PAGE>
officers' and directors' liability insurance policy. Such Run-off Policies shall
cover, for a period of not less than six years after the Effective Time, claims
for liability brought against such persons described above after the Effective
Time but alleging acts or omissions occurring before the Effective Time. Such
Run-off Policies shall be written in amounts and with terms and conditions no
less favorable than those policies currently covering such persons; provided,
that the Purchaser shall not be obligated to obtain any such insurance to the
extent that the premium for the Run-off policies exceed 300% of the annual
premiums paid as of the date of this Agreement by the Company and its
subsidiaries for directors and officers liability insurance. If the premiums for
the Run-off Policies exceed such amount, the Purchaser shall be obligated to
obtain Run-off Policies with the greatest coverage available for a cost not
exceeding such amount. The Company and its subsidiaries represent to the Parent
and the Purchaser that the annual premium paid for its directors and officers
liability policies as of the date of this Agreement is not more than $175,000.
The Purchaser shall keep, or cause the Surviving Corporation to keep, the Run-
off Policies in effect for the full six-year term.
Section 5.10 Further Assurances. Subject to the terms and conditions
------------------
herein provided, each of the parties hereto agrees to use their respective
reasonable best efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement. If at any time after the Closing Date any
further action is necessary or desirable to carry out the purposes of this
Agreement, the parties hereto shall take or cause to be taken all such necessary
action, including, without limitation, the execution and delivery of such
further instruments and documents as may be reasonably requested by the other
party for such purposes or otherwise to consummate and make effective the
transactions contemplated hereby.
58
<PAGE>
Section 5.11 Fees and Expenses. All costs and expenses incurred in
-----------------
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such expenses. The Company agrees that all fees and
expenses that have been or will be incurred by it in connection with this
Agreement and the transactions contemplated hereby (including the $3 million fee
plus reasonable expenses payable to Chase Securities, Inc.) shall not, in the
aggregate, exceed $5,000,000.
Section 5.12 Mafco Note. Promptly upon the earlier of consummation
----------
of the Offer or purchase of Shares pursuant to the Tender Agreement, the Company
shall pay the promissory note dated August 21, 1996 made by the Company to Mafco
at its outstanding face value and Purchaser shall, to the extent the Company
does not have funds available to pay such note at such time, provide the Company
with such funds.
ARTICLE VI
CONDITIONS
Section 6.1 Conditions to Each Party's Obligation To Effect the
---------------------------------------------------
Merger. The respective obligation of each party to effect the Merger shall be
- ------
subject to the satisfaction on or prior to the Closing Date of each of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved
--------------------
and adopted by the requisite vote of the holders of Company Common Stock, if
required by applicable law and the Certificate of Incorporation, in order to
consummate the Merger;
(b) HSR Act. Any waiting period applicable to the Merger under
-------
the HSR Act shall have expired or been terminated;
(c) Statutes; Consents. No statute, rule, order, decree or
------------------
regulation shall have been enacted or promulgated by any foreign or domestic
Governmental
59
<PAGE>
Entity or authority of competent jurisdiction which prohibits the
consummation of the Merger and all foreign or domestic governmental consents,
orders and approvals required for the consummation of the Merger and the
transactions contemplated hereby shall have been obtained and shall be in effect
at the Effective Time;
(d) Injunctions. There shall be no order or injunction of a foreign
-----------
or United States federal or state court or other governmental authority of
competent jurisdiction in effect precluding, restraining, enjoining or
prohibiting consummation of the Merger; and
(e) Purchase of Shares in Offer. Parent, the Purchaser or their
---------------------------
affiliates shall have purchased shares of Company Common Stock pursuant to the
Offer or the Tender Agreement, except that Parent and the Purchaser shall not be
entitled to rely on this condition if the Purchaser shall have failed to
purchase Shares pursuant to the Offer in breach of its obligations under this
Agreement.
ARTICLE VII
TERMINATION
Section 7.1 Termination. Anything herein or elsewhere to the contrary
-----------
notwithstanding, this Agreement may be terminated and the Merger contemplated
herein may be abandoned at any time prior to the Effective Time, whether before
or after stockholder approval thereof:
(a) By the mutual consent of the Board of Directors of Parent
and the Board of Directors of the Company.
(b) By either of the Board of Directors of the Company or the
Board of Directors of Parent:
(i) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree, ruling or other
action the parties hereto shall use their respective reasonable best
60
<PAGE>
efforts to lift), in each case permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by this Agreement and such order,
decree, ruling or other action shall have become final and non-appealable;
provided that the party seeking to terminate this Agreement shall have used all
- --------
reasonable efforts to challenge such order, decree or ruling;
(ii) if the Offer shall have expired without any Shares
being purchased therein and the period in the Tender Agreement during which the
option granted therein is exercisable shall have expired without such option
having bee n exercised, provided, however, that the right to terminate this
-------- -------
Agreement under this Section 7.1(b) shall not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Purchaser to purchase Shares in the Offer; or
(iii) if the Effective Time shall not have occurred by
August 31, 1999, unless the Effective Time shall not have occurred because of a
material breach of this Agreement by the party seeking to terminate this
Agreement.
(c) By the Board of Directors of the Company if Parent, the Purchaser
or any of their affiliates shall have failed to commence the Offer on or prior
to five business days following the date of the initial public announcement of
the Offer; provided, that the Company may not terminate this Agreement pursuant
--------
to this Section 7.1(c) if the Company is in material breach of this Agreement.
(d) By the Board of Directors of Parent:
(i) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Parent, the Purchaser, or any of their
affiliates shall have failed to commence the Offer on or prior to five business
days following the date of the initial public announcement of the Offer;
provided, that Parent may not terminate this Agreement pursuant to
- --------
61
<PAGE>
this Section 7.1(d)(i) if Parent is in material breach of this Agreement; or
(ii) if, prior to the purchase of shares of Company Common Stock
pursuant to the Offer, the Board of Directors of the Company shall have
withdrawn, or modified or changed in a manner adverse to Parent or the Purchaser
its approval or recommendation of the Offer, this Agreement or the Merger or
shall have recommended a Superior Proposal or shall have resolved to do either
of the foregoing.
Section 7.2 Effect of Termination. In the event of the termination
---------------------
of this Agreement as provided in Section 7.1, written notice thereof shall
forthwith be given to the other party or parties specifying the provision hereof
pursuant to which such termination is made, and this Agreement shall forthwith
become null and void, and there shall be no liability on the part of the Parent
or the Company, except nothing in this Section 7.2 shall relieve any party of
liability for fraud or for breach of this Agreement (other than a breach of this
Agreement arising solely out of the inaccuracy of a representation or warranty
made by the Company that was accurate when made on the date hereof and which
inaccuracy was not caused by the intentional actions or omissions by the
Company).
ARTICLE VII
MISCELLANEOUS
Section 8.1 Amendment and Modification. Subject to applicable law,
--------------------------
this Agreement may be amended, modified and supplemented in any and all
respects, whether before or after any vote of the stockholders of the Company
contemplated hereby, by written agreement of the parties hereto (which in the
case of the Company shall require approval of its Board of Directors and include
approvals as contemplated in Section 1.3(b)), at any time prior to the Closing
Date with respect to any of the terms contained herein; provided, however, that
-------- -------
after the approval of this Agreement by the stockholders of the
62
<PAGE>
Company, no such amendment, modification or supplement shall reduce or change
the Merger Consideration.
Section 8.2 Nonsurvival of Representations and Warranties. None of
---------------------------------------------
the representations and warranties in this Agreement or in any schedule,
instrument or other document delivered pursuant to this Agreement shall survive
the Effective Time.
Section 8.3 Notices. All notices and other communications hereunder
-------
shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by an overnight courier service, such as
Federal Express, to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) if to Parent or the Purchaser, to:
Societe Nationale des Exploitation
Industrielle des Tabacs et Allumettes
53, quai d'Orsay
75347 Paris Cedex 07, France
Attention: Charles Lebeau
Telephone No.: 33.1.45.56.63.89
Telecopy No.: 33.1.45.56.62.83
Attention: Jean-Philippe Carriere
Telephone No.: 33.1.45.56.62.17
Telecopy No.: 33.1.45.56.61.33
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Ronald Papa, Esq.
Telephone No.: (212) 969-3352
Telecopy No.: (212) 969-2900
and
Proskauer Rose LLP
9, rue Le Tasse
63
<PAGE>
75116 Paris, France
Attention: Delia Spitzer, Esq.
Telephone No.: 33.1.44.30.25.30
Telecopy No.: 33.1.44.30.25.35
(b) if to the Company, to:
Barry F. Schwartz, Esq.
Consolidated Cigar Holdings Inc.
35 East 62/nd/ Street
New York, New York 10021
Telephone No.: (212) 572-8600
Telecopy No.: (212) 572-5056
and
Theo W. Folz
Consolidated Cigar Holdings Inc.
5900 North Andrews Avenue, 10/th/ Fl.
Fort Lauderdale, Florida 33309-2367
Telephone No.: (954) 938-7800
Telecopy No.: (954) 938-7812
with a copy to:
Skadden, Arps, Slate, Meagher
& Flom LLP
919 Third Avenue
New York, New York 10022
Telephone No.: (212) 735-3780
Telecopy No.: (212) 735-2000
Attention: Franklin M. Gittes, Esq.
and
Alan C. Myers, Esq.
Section 8.4 Counterparts. This Agreement may be executed in two or
------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when two or more counterparts have been signed by
each of the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
64
<PAGE>
Section 8.5 Entire Agreement; Third Party Beneficiaries. This
-------------------------------------------
Agreement and the Confidentiality Agreement (including the documents and the
instruments referred to herein and therein): (a) constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof, and (b)
except as provided in Sections 1.3, 2.4, 5.5, 5.9 and 5.12, are not intended to
confer upon any person other than the parties hereto any rights or remedies
hereunder.
Section 8.6 Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void, unenforceable or against its regulatory
policy, the remainder of the terms, provisions, covenants and restrictions of
this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 8.7 Governing Law. This Agreement shall be governed and
-------------
construed in accordance with the laws of the State of Delaware without giving
effect to the principles of conflicts of law thereof or of any other
jurisdiction.
Section 8.8 Jurisdiction.
------------
(a) Any legal action or proceeding with respect to this Agreement or
any matters arising out of or in connection with this Agreement or otherwise,
and any action for enforcement of any judgment in respect thereof shall be
brought exclusively in the courts of the State of New York or of the United
States of America for the Southern District of New York, the Court of Chancery
of Delaware or the courts of the United States of America for the District of
Delaware and, by execution and delivery of this Agreement, the Company, Parent
and the Purchaser each hereby accepts for itself and in respect of its property,
generally and unconditionally, the exclusive jurisdiction of the aforesaid
courts and appellate courts thereof. The Company, Parent and the Purchaser
irrevocably consent to service of process out of any of the aforementioned
courts in any such action or
65
<PAGE>
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, or by recognized international express carrier or delivery
service, to the Company, Parent or the Purchaser at their respective addresses
referred to in Section 8.3 hereof.
(b) Each of Parent and the Purchaser hereby designates CT Corporation
as its respective agent for service of process, and service upon Parent or the
Purchaser shall be deemed to be effective upon service of C T Corporation System
as aforesaid or of its successor designated in accordance with the following
sentence. Parent or the Purchaser may designate another corporate agent or law
firm reasonably acceptable to the Company and located in the Borough of
Manhattan, in the City of New York, as successor agent for service of process
upon 30-days prior written notice to the Company.
(c) The Company, Parent and the Purchaser each hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement or otherwise brought in the courts referred to above and
hereby further irrevocably waives and agrees, to the extent permitted by
applicable law, not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of any party hereto to serve process in
any other manner permitted by law.
Section 8.9 Assignment. Neither this Agreement nor any of the
----------
rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties, except that the Purchaser may assign, in
its sole discretion, any or all of its rights, interests and obligations
hereunder to Parent or to any direct or indirect wholly owned Subsidiary of
Parent. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns.
66
<PAGE>
Section 8.10 Headings. The descriptive headings used herein are
--------
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement. "Include,"
"includes," and "including" shall be deemed to be followed by "without
limitation" whether or not they are in fact followed by such words or words of
like import.
67
<PAGE>
IN WITNESS WHEREOF, Parent, the Purchaser and the Company have caused
this Agreement to be signed by their respective officers thereunto duly
authorized as of the date first written above.
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Theo W. Folz
------------------------------
Name: Theo W. Folz
Title: Chairman, President and
Chief Executive Officer
SOCIETE NATIONALE D'EXPLOITATION
INDUSTRIELLE DES TABACS ET
ALLUMETTES, S.A.
By: /s/ Jean-Dominique Comolli
-----------------------------
Name: Jean-Dominique Comolli
Title: Chairman and Chief
Executive Officer
DORSAY ACQUISITION CORP.
By: /s/ Charles Lebeau
-----------------------------
Name: Charles Lebeau
Title: President
<PAGE>
ANNEX A
-------
CONDITIONS TO THE OFFER
-----------------------
Notwithstanding any other provision of the Offer (subject to the
provisions of the Merger Agreement), the Purchaser shall not be required to
accept for payment or, subject to any applicable rules and regulations of the
SEC, including Rule 14e-1(c) under the Exchange Act (relating to the Purchaser's
obligation to pay for or return tendered Shares promptly after termination or
withdrawal of the Offer), pay for, and may delay the acceptance for payment of
or, subject to the restriction referred to above, the payment for, any tendered
Shares, and may terminate the Offer and not accept for payment any tendered
shares if (i) there shall not have been validly tendered and not withdrawn prior
to the expiration of the Offer at least 19,600,000 shares of Class B Common
Stock (the "Minimum Condition"), (ii) any applicable waiting period under the
HSR Act has not expired or terminated prior to the expiration of the Offer, or
(iii) at any time on or after the date of the Merger Agreement, and before the
time of acceptance of Shares for payment pursuant to the Offer, any of the
following events shall occur and be continuing:
(a) there shall be any statute, rule, regulation, judgment, order or
injunction promulgated, entered, enforced, enacted, issued or applicable to the
Offer or the Merger by any domestic or foreign federal or state governmental
regulatory or administrative agency or authority or court or legislative body or
commission which (l) prohibits, or imposes any material limitations on, Parent's
or the Purchaser's ownership or operation of all or a material portion of the
Company's businesses or assets, (2) prohibits, or makes illegal the acceptance
for payment, payment for or purchase of Shares or the consummation of the Offer
or the Merger, (3) results in a material delay in or restricts the ability of
the Purchaser, or renders the Purchaser unable, to accept for payment, pay for
or purchase some or all of the Shares, or (4) imposes material limitations on
the ability of the Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to
A-1
<PAGE>
the Company's stockholders, provided that Parent shall have used all reasonable
--------
efforts to cause any such judgment, order or injunction to be vacated or lifted;
(b) there shall be any action or proceeding pending or instituted by
any domestic or foreign federal or state governmental regulatory or
administrative agency or authority which (1) seeks to prohibit, or impose any
material limitation on, Parent's or the Purchaser's ownership or operation of
all or a material portion of the Company's businesses or assets, (2) seeks to
prohibit or make illegal the acceptance for payment, payment for or purchase of
Shares or the consummation of the Offer or the Merger, (3) is reasonably likely
to result in a material delay in or seeks to restrict the ability of the
Purchaser, or render the Purchaser unable, to accept for payment, pay for or
purchase some or all of the Shares or (4) seeks to impose material limitations
on the ability of the Purchaser or Parent effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to the Company's
stockholders; provided that the Parent shall have used all reasonable efforts to
cause any such action or proceeding to be dismissed;
(c) the representations and warranties of the Company set forth in
the Merger Agreement shall not be true and correct in any respect, disregarding
for this purpose any standard of materiality contained in any such
representation or warranty, as of the date of consummation of the Offer as
though made on or as of such date or the Company shall have breached or failed
in any material respect to perform or comply with any material obligation,
agreement or covenant required by the Merger Agreement to be performed or
complied with by it (including without limitation if the Company shall have
entered into any definitive agreement or any agreement in principle with any
person with respect to an Acquisition Proposal or similar business combination
with the Company), except, in the case of the failure of any representation or
warranty, (i) for changes specifically permitted by the Merger Agreement and
(ii) (A) those representations and warranties that address matters only as of a
particular date which are true and correct as of such date or (B) where the
failure of such
A-2
<PAGE>
representations and warranties to be true and correct, do not, individually or
in the aggregate, have a material adverse effect on the Company and its
Subsidiaries, taken as a whole;
(d) it shall have been publicly disclosed that any person, entity or
"group" (as defined in Section 13(d)(3) of the Exchange Act), shall have
acquired and has beneficial ownership (determined pursuant to Rule 13d-3
promulgated under the Exchange Act) of more than 15% of any class or series of
capital stock of the Company (including the Shares), through the acquisition of
stock, the formation of a group or otherwise, or shall have been granted an
option, right or warrant, conditional or otherwise, to acquire beneficial
ownership of more than 10% of any class or series of capital stock of the
Company (including the Shares), other than any person or group existing on the
date hereof which beneficially owns more than 9% of any class or series of
capital stock of the Company;
(e) (1) any general suspension of trading in securities on any
national securities exchange or in the over-the-counter market, (2) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States or France (whether or not mandatory), or (3) any
limitation (whether or not mandatory) by a United States or French governmental
authority or agency on the extension of credit by banks or other financial
institutions;
(f) the Company's Board of Directors shall have withdrawn, or
modified or changed in a manner adverse to Parent or the Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer, the Merger
Agreement, or the Merger, or recommended another proposal or offer, or shall
have resolved to do any of the foregoing; or
(g) the Merger Agreement shall have been terminated in accordance
with its terms
which in the reasonable judgment of Parent or the Purchaser, in any such case,
and regardless of the circumstances giving rise to such condition, makes it
inadvisable to proceed with the Offer or with such acceptance for payment or
payments.
A-3
<PAGE>
The foregoing conditions are for the sole benefit of the Purchaser and
Parent and may be asserted by either of them or may be waived by Parent or the
Purchaser, in whole or in part at any time and from time to time in the sole
discretion of Parent or the Purchaser.
A-4
<PAGE>
Exhibit 2
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company and Consolidated Cigar did not have a Compensation
Committee prior to the Company's initial public 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 Consoli dated 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 Consoli
dated 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>
$ 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>
(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
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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.
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EXHIBIT 3
Consolidated Cigar Corporation
5900 North Andrews Avenue
10th Floor
Fort Lauderdale, Florida 33309-2369
October 20, 1998
VIA FAX: 01133145 566283
- ------------------------
Mr. Charles Leveau
Executive Vice President
Seita
53 Quai d'Orsay
75347
France
Gentlemen:
You have expressed an interest in exploring a possible transaction (the
"Possible Transaction") concerning Consolidated Cigar Corporation (the
"Company") and have requested that the Company furnish to you certain
information relating to its business, operations, financial condition and
assets. As a condition to the receipt of such information, you agree, as set
forth below, to treat any information concerning the Company or any affiliate
thereof (irrespective of the source of such information and whether such
information and whether such information is furnished in writing, orally or
otherwise) which is furnished to you or your officers, employees, directors,
affiliates, representatives (including, without limitation financial advisors,
attorneys and accountants) or agents (collectively, "Representatives"), whether
before, on or after the date of this letter agreement (collectively referred to
as the "Evaluation Material"), in accordance with the provisions of this letter
agreement and to abide by the other provisions hereof.
The term "Evaluation Material" shall include all reports, notes,
analyses, compilations, studies, interpretations or other documents or records
prepared by you or your Representatives which contain, reflect or are based
upon, in whole or in part, the information furnished to you or your
Representatives which contain, reflect or are based pursuant hereto regardless
of whether such information is specifically identified as "confidential." The
term "Evaluation Material" shall not include information which can demonstrate
(i) is or becomes generally available to the public other than as a result
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of a disclosure by you or your Representatives, (ii) was within your possession
on a non-confidential basis prior to its being furnished hereunder to you by or
on behalf of the Company, or (iii) is or becomes known or available to you on a
non-confidential basis from a source other than the Company or any of its
representatives.
You agree that you shall use the Evaluation Material solely for the purpose
of evaluating the Possible Transaction, that the Evaluation Material will be
kept strictly confidential, that in all events the Evaluation Material will not
be used by you in any way detrimental to the Company, and that you will not
disclose any of the Evaluation Material in any manner whatsoever; provided,
however, that (i) you may disclose the Evaluation Material to your
Representatives only if and to the extent that such Representatives need to know
the contents of such Evaluation Material for the purpose of evaluating the
Possible Transaction, provided that such Representatives are informed of the
confidential nature of the Evaluation Material and agree to keep the Evaluation
Material and all information relating to the Possible Transaction confidential,
and (ii) you may disclose such information to any person with respect to whom
the Company gives its prior written consent. You further agree that (i) you
will be liable for any breach of the terms of this letter agreement by your
Representatives and (ii) you will, at your sole expense, take all reasonable
measures to restrain your Representatives from any disclosure or use of the
Evaluation Material that is prohibited (or not authorized) hereby, if such
potential disclosure of use comes to your attention.
You understand and agree that neither the Company nor any of its
representatives (i) has made or makes any representation or warranty, express or
implied, as to the accuracy or completeness or any of the Evaluation Material or
(ii) shall have any liability to you, your stockholders or your Representatives
relating to or resulting from the use of the Evaluation Material or any errors
therein or omissions therefrom. Only those representations and warranties
contained in a definitive agreement, when, as and if executed, with respect to
the Possible Transaction will have any legal effect. Unless and until a
definitive agreement (excluding any letter or intent or other preliminary
written agreement or any written or oral acceptance of an offer or bid) with
respect to the Possible Transaction has been executed and delivered by the
parties, neither party will be under any legal obligation of any kind whatsoever
by virtue of this letter agreement or any other unilateral written or oral
expression with respect to the Possible Transaction, except for the matters
specifically agreed to herein.
Subject to the following paragraph, without the prior written consent of
the Company, neither you nor your Representatives will disclose to any person
any information regarding a Possible Transaction or any information relating in
any way to the Evaluation Material, including, without limitation (i) the fact
that discussions or negotiations are taking place concerning a Possible
Transaction, including the
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status thereof or the termination of discussions or negotiations with the
Company, (ii) any of the terms, conditions or other facts with respect to any
such Possible Transaction or of your consideration of a Possible Transaction or
(iii) that this agreement exists, that Evaluation Material has been made
available or any opinion or view with respect to the Company or the Evaluation
Material. The term "person" as used in this letter agreement shall include,
without limitation, any corporation, company, partnership, group, individual,
governmental agency, stock exchange or other entity.
In the event that you or any of your Representatives is requested or
required (by oral questions, interrogatories, requests for information or
documents in legal proceedings, subpoena, civil investigative demand or other
similar process) to disclose any of the Evaluation Material or any discussion
relating to the potential transaction, you shall provide the Company with prompt
written notice of any such request or requirement so that the Company may seek
a protective order or other appropriate remedy and/or waive compliance with the
provisions of this letter agreement, and you shall cooperate with the Company in
pursuing any such course of action. In the event such protective order or other
remedy or waiver by the Company is not obtained and you or any of your
Representatives is legally compelled to disclose Evaluation Material or any
discussion relating to the potential transaction then your Party or your
Representatives may, without liability hereunder, disclose only that portion of
the Evaluation Material or any discussion relating to the potential transaction
which your counsel advises you is legally required to be disclosed, provided
that you exercise good faith efforts to preserve the confidentiality of the
Evaluation Material, including, without limitation, by cooperating with the
Company's efforts to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Evaluation Material.
You understand and agree that, in connection with its review of Evaluation
Material, all (i) communications regarding the Possible Transaction, (ii)
requests for additional information, (iii) requests for facility tours or
meetings with management and (iv) discussions or questions regarding procedures,
shall be submitted or directed exclusively to the undersigned representative of
the Company or the legal and financial advisors identified by the Company, and
that neither you nor your Representatives shall initiate or cause to be
initiated any communication with any other representative of the Company
concerning the Evaluation Material.
Without the prior consent of the Company, for a period of two years from
the date of this letter agreement, neither you nor any of your Representatives
who are aware of the Evaluation Material and/or the Possible Transaction will,
directly or indirectly, solicit for employment or hire any person who is an
employee of the Company or initiate, participate in or contribute to any
interference with the Company's relationship with its employees. The placing of
an advertisement of a
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position of employment by you to members of the public generally and the
recruitment of a person through an employment agency shall not constitute a
breach of this paragraph, provided that neither you nor any of your
Representatives encourages or advises such agency to approach any employee of
the Company with whom you or your Representatives had contact. Likewise,
dealing with an employee of the Company who first solicits employment from you
or your Representatives shall not constitute a breach of this paragraph so long
as you or your Representative did not direct or encourage the solicitation.
If at any time you decide that you do not wish to proceed with the Possible
Transaction, you will promptly inform the Company of that decision. In such
case, you will promptly deliver to the Company all documents and other tangible
Evaluation Material (and all copies thereof) furnished to you or your
Representatives pursuant hereto. In addition, all other Evaluation Material
prepared by you or your Representatives shall be destroyed, and not copy thereof
shall be retained by you or your Representatives except as may be required by
law and except that your counsel may retain one copy thereof. In connection
therewith, you shall cause one of your officers to certify promptly in writing
to the Company that such return and destruction have been completed.
Notwithstanding the return or destruction of the Evaluation Material, you and
your Representatives will continue to be bound by the obligations of
confidentiality and other obligations hereunder.
You are aware of the restrictions imposed by the United States securities
laws on the purchase or sale of securities by any person who has received
material, non-public information from the issuer of such securities and on the
communication of such information to any other person when it is reasonably
forseeable that such other person is likely to purchase or sell such securities
in reliance upon such information.
You understand and agree that monetary damages would not be an adequate
remedy for any breach or threatened breach of this letter agreement, and that,
in addition to all other remedies to which the Company would be entitled at law
or in equity, the Company shall be entitled to specific performance and
injunctive or other equitable relief as a remedy for any such breach or
threatened breach.
You hereby submit to the non-exclusive jurisdiction of any state or Federal
court sitting in New York over any suit, action or proceeding arising out of or
relating to this letter agreement. You hereby agree that service of any process,
summons, notice or document by U.S. registered mail addressed to you shall be
effective service of process for any action, suit or proceeding brought against
you in any such court.
All modifications or, waiver of and amendments to this letter agreement or
any part hereof must be in writing signed on behalf of each of the parties. No
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failure or delay by the Company in exercising any right, power or privilege
under this letter agreement shall operate as a waiver thereof nor shall any
single or partial exercise thereof preclude any other or further exercise of any
right, power or privilege hereunder.
In the event that any provision or portion of this letter agreement is
determined to be invalid or unenforceable for any reason, in whole or in part,
the remaining provisions of this letter agreement shall be unaffected thereby
and shall remain in full force and effect to the fullest extent permitted by
applicable law.
Your obligation to keep the Evaluation Material confidential as provided in
this letter will survive for a period of three years from the date hereof.
This letter agreement constitutes the complete agreement of the parties
with respect to the subject matter hereof and supersedes any prior agreements,
written or oral, between the parties with respect thereto.
This letter agreement shall be governed by, and construed and enforced in
accordance with, the laws of the State of New York, without regard to principles
of conflicts of laws.
Please confirm your agreement with the foregoing by signing and returning
one copy of this letter agreement to the undersigned, whereupon this letter
agreement shall become a binding agreement.
Very truly yours,
CONSOLIDATED CIGAR CORPORATION
By: /s/ Theo W. Folz
----------------------------------
Name: Theo W. Folz
Title: Chairman of the Board of Directors,
President and Chief Executive Officer
Agreed to and accepted:
SEITA
By: /s/ Charles Lebeau
---------------------------
Name: Charles Lebeau
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Title: Executive Vice President
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Exhibit (4)
TENDER AND VOTING AGREEMENT
THIS TENDER AND VOTING AGREEMENT dated as of December 16, 1998
(this "Agreement") is by and among SOCIETE NATIONALE D'EXPLOITATION INDUSTRIELLE
DES TABACS ET ALLUMETTES, a corporation organized under the laws of France ("
Parent"), DORSAY ACQUISITION CORP. , a Delaware corporation and a wholly owned
subsidiary of Parent(the "Purchaser"), and MAFCO CONSOLIDATED GROUP INC., a
Delaware corporation ("Mafco").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, simultaneously with the execution of this Agreement,
Parent, Purchaser and Consolidated Cigar Holdings Inc., a Delaware corporation
(the "Company"), have entered into an Agreement and Plan of Merger (as amended
from time to time, the "Merger Agreement"), pursuant to which Purchaser has
agreed, among other things, to commence a cash tender offer (as such tender
offer may hereafter be amended from time to time, the "Offer") to purchase any
and all shares of Class A common stock, $0.01 par value, of the Company and any
and all shares of Class B common stock, $0.01 par value, of the Company
(together, the "Company Common Stock");
WHEREAS, as an inducement and a condition to its entering into
the Merger Agreement and incurring the obligations set forth therein, including
the Offer and the Merger, Parent has required that Mafco enter into this
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises, representations, warranties, covenants and agreements contained
herein and in the Merger Agreement, the parties hereto, intending to be legally
bound hereby, agree as follows:
1. Certain Definitions. Capitalized terms used and not defined
-------------------
herein have the respective meanings ascribed to them in the Merger Agreement. In
addition, for purposes of this Agreement:
"Affiliate" means, with respect to any specified Person, any
Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, the Person
specified. For purposes of this Agreement, with respect to Mafco, "Affiliate"
shall not include the Company and the Persons that directly, or indirectly
through one or more intermediaries, are controlled by the Company.
"Beneficially Own" or "Beneficial Ownership" with respect to
any securities means having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act ), including pursuant
to any agreement, arrangement or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same
<PAGE>
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all Affiliates of such Person and all other Persons with
whom such Person would constitute a "group" within the meaning of Section 13(d)
of the Exchange Act and the rules promulgated thereunder.
"Encumbrances" shall mean any and all liens, charges, security
interests, options, claims, mortgages, pledges, proxies, voting trusts or
agreements, obligations, understandings or arrangements or other restrictions of
any nature whatsoever.
"Owned Shares" means the 19,600,000 shares of Company Common
Stock owned by Mafco on the date hereof, together with any other shares of
Company Common Stock, or any other securities of the Company entitled, or which
may be entitled, to vote generally in the election of directors and any other
shares of Company Common Stock or other equity securities of the Company, any
securities convertible, exchangeable or exercisable for any equity securities of
the Company or any Voting Debt of the Company which may hereafter be owned by
Mafco.
"Person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
"Representative" means, with respect to any Person, such
Person's officers, directors, employees, agents and representatives (including
any investment banker, financial advisor, agent, representative or expert
retained by or acting on behalf of such Person or its subsidiaries).
"Transfer" means, with respect to a security, the sale,
transfer, pledge, hypothecation, encumbrance, assignment or disposition of such
security or the Beneficial Ownership thereof, the offer to make such a sale,
transfer or other disposition, and each option, agreement, arrangement or
understanding, whether or not in writing, to effect any of the foregoing. As a
verb, "Transfer" shall have a correlative meaning.
2. Representations and Warranties of Mafco. Mafco hereby
---------------------------------------
represents and warrants to Parent and Purchaser as follows:
(a) Upon the consummation of the Offer or exercise of the
Option (as defined in Section 6), Purchaser will acquire good and marketable
title to the Owned Shares, free and clear of all Encumbrances, except for any
Encumbrance arising under the Securities Act of 1933, as amended, or any
applicable state securities laws. The Owned Shares constitute all of the capital
stock of the Company Beneficially Owned by Mafco.
(b) Mafco is a corporation duly organized and validly existing
under the laws of its jurisdiction of incorporation, and is in good standing
under the laws of its jurisdiction of incorporation. Mafco has the corporate
power and authority to execute and deliver this Agreement and perform its
obligations hereunder. The execution, delivery and
2
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performance by Mafco of this Agreement and the consummation by Mafco of the
transactions contemplated hereby have been duly and validly authorized by the
Board of Directors of Mafco and no other corporate proceedings on the part of
Mafco are necessary to authorize the execution, delivery or performance of this
Agreement or the consummation of the transactions contemplated hereby.
(c) This Agreement has been duly and validly executed and delivered by
Mafco and constitutes a valid and binding agreement of Mafco, enforceable
against Mafco in accordance with its terms except (i) to the extent limited by
applicable bankruptcy, insolvency or similar laws affecting creditors rights and
(ii) the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to equitable defenses and to the discretion of
the court before which any proceeding therefor may be brought.
(d) None of the execution and delivery of this Agreement by Mafco, the
consummation by Mafco of the transactions contemplated hereby or compliance by
Mafco with any of the provisions hereof shall (i) conflict with or result in a
breach of any provision of the certificate of incorporation, by-laws or similar
organizational document of Mafco, (ii) result in a violation or breach of, or
constitute (with or without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancellation, material
modification or acceleration) under any of the terms, conditions or provisions
of any note, loan agreement, bond, mortgage, indenture, license, contract,
commitment, arrangement, understanding, agreement or other instrument or
obligation of any kind to which Mafco is a party or by which Mafco or any of its
properties or assets (including the Owned Shares) may be bound, (iii) require on
the part of Mafco any filing with, or permit, authorization, consent or approval
of, any Governmental Entity, other than any filing required to be made under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), any foreign antitrust law or with the Bureau of Alcohol, Tobacco and
Firearms (the "ATF") or the United States Customs Service, or (iv) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to Mafco or any of its properties or assets, excluding from the
foregoing such violations, breaches, defaults or failure to make any filing or
to obtain any permit, authorization, consent or approval which would not,
individually or in the aggregate, have a material adverse effect on Mafco, and
which will not materially impair the ability of Mafco to consummate the
transactions contemplated hereby.
(e) Except as set forth on Schedule 2(e) to this Agreement, Mafco is the
record and Beneficial Owner, has sole voting power, sole power of disposition
and sole power to agree to all of the matters set forth in this Agreement, in
each case with respect to the Owned Shares, subject to applicable securities
laws and the terms of this Agreement.
3. Representations and Warranties of Parent and Purchaser. Parent and
------------------------------------------------------
Purchaser hereby represent and warrant to Mafco as follows:
(a) Each of Parent and Purchaser is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation, and each
of them is in good
3
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standing under the laws of its jurisdiction of incorporation. Parent and
Purchaser have the corporate power and authority to execute and deliver this
Agreement and perform their respective obligations hereunder. The execution and
delivery by Parent and Purchaser of this Agreement and the performance by Parent
and Purchaser of their respective obligations hereunder have been duly and
validly authorized by the Board of Directors of each of Parent and Purchaser and
no other corporate proceedings on the part of Parent or Purchaser are necessary
to authorize the execution, delivery or performance of this Agreement or the
consummation of the transactions contemplated hereby.
(b) This Agreement has been duly and validly executed and delivered by
Parent and Purchaser and constitutes a valid and binding agreement of each of
Parent and Purchaser, enforceable against each of them in accordance with its
terms except (i) to the extent limited by applicable bankruptcy, insolvency or
similar laws affecting creditors rights and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(c) None of the execution and delivery of this Agreement by Parent or
Purchaser, the consummation by Parent or Purchaser of the transactions
contemplated hereby or compliance by Parent or Purchaser with any of the
provisions hereof shall (i) conflict with or result in any breach of the
certificate of incorporation or by-laws of Parent or Purchaser, or (ii) result
in a violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond, mortgage, indenture,
license, contract, commitment, arrangement, understanding, agreement or other
instrument or obligation of any kind to which Parent or Purchaser is a party or
by which Parent or Purchaser or any of their respective properties or assets may
be bound, (iii) require on the part of Parent or the Purchaser any filing with,
or permit, authorization, consent or approval of, any Governmental Entity, other
than any filing required to be made under the HSR Act, or any foreign antitrust
law or with the ATF or the United States Customs Service or (iv) violate any
order, writ, injunction, decree, judgment, statute, rule or regulation
applicable to Parent or Purchaser or any of their respective properties or
assets, excluding from the foregoing such violations, breaches, defaults or
failure to make any filing or to obtain any permit, authorization, consent or
approval which would not, individually or in the aggregate, have a material
adverse effect on Parent or the Purchaser, and which will not materially impair
the ability of Parent or the Purchaser to consummate the transactions
contemplated hereby.
4. Tender of Shares. Mafco shall tender or cause the record owner thereof
----------------
to tender, pursuant to and in accordance with the terms of the Offer, and shall
not withdraw, all Owned Shares.
5. Voting of Owned Shares; Proxy. (a) During the period commencing on the
-----------------------------
date hereof and continuing until the earlier of (x) the consummation of the
Offer and (y) the
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termination of this Agreement (such period being referred to as the "Voting
Period"), at any meeting (whether annual or special, and whether or not an
adjourned or postponed meeting) of the Company's stockholders, however called,
or in connection with any written consent of the Company's stockholders, subject
to the absence of a preliminary or permanent injunction or other requirement
under applicable law by any United States federal, state or foreign court
barring such action, Mafco shall vote (or cause to be voted) all Owned Shares:
(i) in favor of the Merger, the execution and delivery by the Company of the
Merger Agreement and the approval and adoption of the Merger and the terms
thereof and each of the other actions contemplated by the Merger Agreement and
this Agreement and any actions required in furtherance thereof and hereof; and
(ii) against any action or agreement that would impede, interfere with, or
prevent the Offer or the Merger. Mafco shall not enter into any agreement,
arrangement or understanding with any Person the effect of which would be
inconsistent or violative of the provisions and agreements contained in this
Section 5.
(b) By its execution hereof and in order to secure its obligations under
this Agreement, during the period commencing on the date hereof, Mafco
irrevocably grants to, and appoints, Parent and Charles Lebreau and Eric
Albrand, or either of them, in their respective capacities as employees of
Parent, and any individual who shall hereafter succeed to either of their
respective positions at Parent, and each of them individually, as its true and
lawful proxy and attorney-in-fact (with full power of substitution), for and in
the name, place and stead of it, to vote the Owned Shares or grant a consent or
approval in respect of the Owned Shares in favor of the various transactions
contemplated by the Merger Agreement and against any Acquisition Proposal
("Irrevocable Proxy").
(c) Mafco understands and acknowledges that Parent is entering into the
Merger Agreement in reliance upon its execution and delivery of this Irrevocable
Proxy. Mafco hereby affirms that this Irrevocable Proxy is given in connection
with the execution of this Agreement and the Merger Agreement, and further
affirms that this Irrevocable Proxy is coupled with an interest in this
Agreement for the term stated herein and may under no circumstances be revoked.
Mafco hereby ratifies and confirms all that this Irrevocable Proxy may lawfully
do or cause to be done by virtue hereof. This Irrevocable Proxy is executed and
intended to be irrevocable in accordance with the provisions of Section 212(e)
of the Delaware General Corporation Law.
6. Option. (a) Mafco hereby grants the Purchaser an irrevocable option (the
------
"Option") to purchase all Owned Shares at a price per share equal to the Offer
Price (the "Option Price"). The Option shall become exercisable, in whole but
not in part, in the event that the Offer is terminated without the Purchaser
purchasing Shares thereunder and such failure to purchase is not in
contravention of the Purchaser's or Parent's obligations under the Merger
Agreement or the Offer.
(b) In any such case, the Option shall remain exercisable until 60 days
after the occurrence of the event giving rise to the right to exercise the
Option (the "60 Day Period"), so long as: (i) all waiting periods under the HSR
Act required for the purchase of
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the Owned Shares upon such exercise shall have expired or been waived and (ii)
there shall not be in effect any preliminary injunction or other order issued by
any Governmental Entity prohibiting the exercise of the Option pursuant to this
Agreement; provided, that if (i) all HSR Act waiting periods shall not have
expired or been waived or (ii) there shall be in effect any such injunction or
order, in each case on the expiration of the 60 Day Period, the 60 Day Period
shall be extended until five business days after the later of (A) the date of
expiration or waiver of all HSR Act waiting periods and (B) the date of removal
or lifting of such injunction or order, but in no event shall the Option be
exercisable after July 23, 1999. If the Purchaser wishes to exercise the Option,
it or Parent shall send a written notice to Mafco specifying the place and date
(which shall not be fewer than two business days after the date of the notice)
for the closing of the purchase.
(c) It is understood that the Purchaser shall not be entitled to purchase
the Shares pursuant to the Option if the Purchaser shall have failed to purchase
Shares pursuant to the Offer in breach of its obligations under the Merger
Agreement. Upon the purchase of the Owned Shares pursuant to the Option, the
Purchaser shall, unless the Company shall have breached its obligations pursuant
to the last sentence of Section 5.6(d) of the Merger Agreement, subject to
applicable law, offer to purchase any and all remaining Shares of Company Common
Stock at the Option Price, by way of merger or otherwise.
7. Insured Claims. (a) In the event that, after the consummation of the
--------------
Offer, the Company or any of its subsidiaries shall suffer any loss, arising out
of a third party claim or otherwise, that the Parent in good faith notifies
Mafco would be covered by any insurance policy maintained by or for the benefit
of Mafco or any of its affiliates (an "Insured Claim"), Mafco shall present and
cooperate by all reasonable means (including providing access to documents and
witnesses and making witnesses available for testimony at the Company's sole
cost and expense) in the pursuit of claims for payment under such policy in
respect of such loss, but shall not be required to sue or otherwise litigate
with its insurers (in which case, Mafco shall assign to the Parent all such
rights to sue under the policies as are assignable under applicable law), and
pay to the Company the proceeds of such claim under such policy as reimbursement
in respect of the amount of such loss, subject to the provisions of this Section
7.
(b) Until the Effective Time, Mafco or the Company shall take all
reasonable steps necessary to ensure the continuation of all such insurance
policies in order to permit the Company to recover under such policies.
(b) Mafco shall not be obligated to present any claim under any such
insurance policy with respect to any Insured Claim unless (i) such Insured Claim
is based upon bodily injury, property damage, wrongful or other acts or another
condition or event that arose or occurred (all as determined under the
applicable insurance policy) prior to the consummation of the Offer and (ii) the
Company or the relevant affiliate of the Company cooperates fully at is expense
with Mafco's insurers in the investigation of such Insured Claim and (in the
case of any Insured Claim arising out of a third party claim) the defense
thereof.
6
<PAGE>
(c) The amount of proceeds of any such insurance claim to be paid over to
the Company shall be limited to the amount actually received by Mafco from its
insurers with respect to such claim (net of any self-insured retention amount,
deductible amount, or other amount that Mafco is required to reimburse its
insurers under its contractual agreements with them or to pay prior to the
insurer paying any funds, in each case with respect to such claim, its defense
or investigation), minus the aggregate amount of all reasonable out-of-pocket
expenses incurred by Mafco in presenting such claim (to the extent not paid or
reimbursed by its insurers). Mafco shall not be responsible for any such sums
which would be payable under insurance policies not paid as a result of insurer
bankruptcy, insurer schemes of arrangements, insurer reorganizations, insurer
liquidations, acts of governmental authorities and take overs of the
administration any insurer or other or like situations. Mafco shall not be
required to advance any funds for investigations, defense, or payment of any
judgement or settlement of any claim. In the event Mafco is forced to advance
any such funds because of failure of the Parent or the Purchaser to make prompt
payment of such sums, the Parent shall immediately pay Mafco such funds.
8. Restrictions on Transfer, Other Proxies; No Solicitation.
--------------------------------------------------------
(a) Except as provided in Sections 4, 5 or 6 hereof, Mafco shall not, until
the termination of this Agreement, directly or indirectly: (i) Transfer to any
Person any or all Owned Shares; or (ii) grant any proxies or powers of attorney,
deposit any Owned Shares into a voting trust or enter into a voting agreement,
understanding or arrangement with respect to such Owned Shares. Nothing
contained herein shall prevent Mafco from transferring any or all of the Owned
Shares to an Affiliate of Mafco which agrees to be bound by this Agreement;
provided that Mafco shall continue to remain liable for all its obligations
- --------
under this Agreement.
(b) Mafco hereby agrees, in its capacity as a stockholder of the Company,
that it and its subsidiaries or affiliates shall not, and Mafco shall cause its
officers, directors, partners, employees, representatives and agents, including,
but not limited to, investment bankers, attorneys and accountants, not to,
directly or indirectly, (i) initiate, solicit or encourage (including by way of
furnishing non-public information) any inquiries or the making of any proposal
that constitutes or is reasonably likely to lead to an Acquisition Proposal or
(ii) engage in any negotiations or discussions with, or furnish any information
or data, to, any third party relating to an Acquisition Proposal. Mafco will
immediately inform Parent of the terms of any proposal, discussion, negotiation
or inquiry (and will disclose any written materials received by Mafco in
connection with such proposal, discussion, negotiation or inquiry) and the
identity of the party making such proposal or inquiry which Mafco may receive in
respect of any Acquisition Proposal. Mafco will also promptly request each
Person that has heretofore received any non-public information in connection
with its consideration of an Acquisition Proposal to return all such non-public
information furnished to such person by or on behalf of Mafco, the Company or
any of the Company's Subsidiaries. Any action taken by the Company or any member
of the Board of Directors of the Company in his capacity as such in accordance
with the terms of the Merger Agreement shall be deemed not to violate this
Section 7(b).
7
<PAGE>
9. Stop Transfer. Mafco shall not request that the Company register the
-------------
transfer (book-entry or otherwise) of any certificate or uncertificated interest
representing any of the Owned Shares, unless such transfer is made in compliance
with this Agreement.
10. Further Assurances. From time to time, at the other party's request and
------------------
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further lawful action as may be necessary
or desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
11. Waiver of Appraisal Rights. Mafco hereby waives any rights of appraisal
--------------------------
or rights to dissent from the Merger that it may have.
12. Termination. This Agreement, and all rights and obligations of the
-----------
parties hereunder, shall terminate upon the earlier of (a) the date upon which
the Parent shall have purchased and paid for all of the Owned Shares of Mafco in
accordance with the terms of the Offer and (b) the date on which the Option has
expired.
13. Miscellaneous.
-------------
(a) This Agreement and the Indemnification Agreement, dated as of December
16, 1998, constitute the entire agreement between the parties with respect to
the subject matter hereof and supersede all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof.
(b) Mafco agrees that this Agreement and the respective rights and
obligations of Mafco hereunder shall attach to all Owned Shares.
(c) All costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
(d) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted assigns, but neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by either party (whether by operation of law or otherwise) without the
prior written consent of the other party; provided, that Parent and the
Purchaser may assign their rights and obligations hereunder to any assignee of
such parties' rights and obligations under the Merger Agreement or to any other
Subsidiary of Parent. Except for the last sentence of Section 6 hereof, which is
intended to benefit the Company's stockholders, nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
8
<PAGE>
(e) This Agreement may not be amended, changed, supplemented, or otherwise
modified or terminated, except upon the execution and delivery of a written
agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
(f) All notices and other communications hereunder shall be in writing and
shall be deemed given upon (i) transmitter's confirmation of a receipt of a
facsimile transmission, (ii) confirmed delivery by a standard overnight carrier
or when delivered by hand or (iii) the expiration of five business days after
the day when mailed by certified or registered mail, postage prepaid, addressed
at the following addresses (or at such other address for a party as shall be
specified by like notice):
If to Parent
or Purchaser Societe Nationale des Exploitation
Industrielle des Tabacs et Allumettes
53, quai d'Orsay
75347 Paris Cedex 07, France
Attention: Charles Lebeau
Telephone No.: 33.1.45.56.63.89
Telecopy No.: 33.1.45.56.62.83
Attention: Jean-Philippe Carriere
Telephone No.: 33.1.45.56.62.17
Telecopy No.: 33.1.45.56.61.33
with a copy to:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Ronald Papa, Esq.
Telephone No.: (212) 969-3352
Telecopy No.: (212) 969-2900
and
Proskauer Rose LLP
9, rue Le Tasse
75116 Paris, France
Attention: Delia Spitzer, Esq.
Telephone No.: 33.1.44.30.25.30
Telecopy No.: 33.1.44.30.25.35
9
<PAGE>
If to Mafco: Mafco Consolidated Group Inc.
35 East 62nd Street
New York, New York 10021
Att: General Counsel
Telecopier Number: (212) 527-8600
Copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Att: Franklin M. Gittes, Esq. and
Alan C. Myers, Esq.
Telecopier Number: (212) 735-2000
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
(g) Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without affecting the validity or
enforceability of the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
(h) Each of the parties hereto acknowledges and agrees that in the event of
any breach of this Agreement, each non-breaching party would be irreparably and
immediately harmed and could not be made whole by monetary damages. It is
accordingly agreed that the parties hereto (a) will waive, in any action for
specific performance, the defense of adequacy of a remedy at law and (b) shall
be entitled, in addition to any other remedy to which they may be entitled at
law or in equity, to compel specific performance of this Agreement.
(i) All rights, powers and remedies provided under this Agreement or
otherwise available in respect hereof at law or in equity shall be cumulative
and not alternative, and the exercise of any thereof by any party shall not
preclude the simultaneous or later exercise of any other such right, power or
remedy by such party. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(j) Notwithstanding anything herein to the contrary, nothing set forth
herein shall in any way restrict any director in the exercise of his or her
fiduciary duties as a director of the Company.
10
<PAGE>
(k) This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware without giving effect to the principles of
conflicts of law thereof.
(l) The descriptive headings used herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. "Include," "includes," and "including" shall
be deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import.
(m) This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which, taken together, shall constitute one
and the same instrument.
(n) Any legal action or proceeding with respect to this Agreement or any
matters arising out of or in connection with this Agreement or otherwise, and
any action for enforcement of any judgment in respect thereof shall be brought
exclusively in the courts of the State of New York or of the United States of
America for the Southern District of New York, the Court of Chancery of Delaware
or the courts of the United States of America for the District of Delaware and,
by execution and delivery of this Agreement, Mafco, Parent and the Purchaser
each hereby accepts for itself and in respect of its property, generally and
unconditionally, the exclusive jurisdiction of the aforesaid courts and
appellate courts thereof. Mafco, Parent and the Purchaser irrevocably consent to
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, or by recognized international express carrier or delivery
service, to Mafco, Parent or the Purchaser at their respective addresses
referred to in Section 12(f) hereof.
(o) Each of Parent and the Purchaser hereby designates CT Corporation as
its respective agent for service of process, and service upon Parent or the
Purchaser shall be deemed to be effective upon service of C T Corporation System
as aforesaid or of its successor designated in accordance with the following
sentence. Parent or the Purchaser may designate another corporate agent or law
firm reasonably acceptable to Mafco and located in the Borough of Manhattan, in
the City of New York, as successor agent for service of process upon 30-days
prior written notice to Mafco.
(p) Mafco, Parent and the Purchaser each hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement or otherwise brought in the courts referred to above and hereby
further irrevocably waives and agrees, to the extent permitted by applicable
law, not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum. Nothing
herein shall affect the right of any party hereto to serve process in any other
manner permitted by law.
11
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and Mafco have caused this Agreement
to be duly executed as of the day and year first above written.
SOCIETE NATIONALE D'EXPLOITATION
INDUSTRIELLE DES TABACS ET
ALLUMETTES, S.A.
By: /s/ Jean-Dominique Comolli
--------------------------------------------
Name: Jean-Dominique Comolli
Title: Chairman and Chief Executive
Officer
DORSAY ACQUISITION CORP.
By: /s/ Charles Lebeau
--------------------------------------------
Name: Charles Lebeau
Title: President
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Glenn P. Dickes
--------------------------------------------
Name: Glenn P. Dickes
Title: Vice President
<PAGE>
Exhibit (5)
INDEMNIFICATION AGREEMENT
December 16, 1998
-----------------
The parties to this agreement are Mafco Holdings, Inc. ("Mafco Holdings"),
Mafco Consolidated Group Inc. ("Mafco"), Societe Nationale d'Exploitation
Industrielle des Tabacs et Allumettes, a joint stock company registered in the
Commercial Register of Paris ("Parent"), Dorsay Acquisition Corp., a Delaware
corporation ("Purchaser") and Consolidated Cigar Holdings Inc., a Delaware
corporation ("Company").
Mafco, Parent and Purchaser are parties to a Tender and Voting Agreement
dated as of December 16, 1998, which was entered into in connection with the
Agreement and Plan of Merger dated as of December 16, 1998 among Parent,
Purchaser and the Company (the "Merger Agreement"). This Agreement is the
Indemnification Agreement referred to in the Tender and Voting Agreement.
The parties agree as follows:
1. Indemnification. Mafco Holdings and Mafco shall jointly and severally
---------------
indemnify, save harmless and defend Parent, Purchaser and the Company and each
of their stockholders, affiliates, directors, officers, agents and
representatives, from and against any and all losses, liabilities, fines,
judgments, claims, damages, penalties, obligations, payments, actions or causes
of action, liens, costs and expenses (including reasonable attorney's fees)
incurred by any of them by reason of, or arising out of, (a) any liability for
income and franchise taxes arising out of the inclusion of the Company and any
Subsidiaries in any consolidated federal income tax return, or any consolidated,
combined or unitary state or local tax return, of Mafco Holdings or Mafco,
except for any such liability as is directly attributable to the operations of
the Company and any Subsidiaries, and (b) any liability or obligation of an
entity, whether or not incorporated, which is or was part of a controlled group
or under common control with the Company or otherwise treated as a "single
employer" with the Company within the meaning of Section 414(b), (c), (m) or (o)
of the Internal Revenue Code of 1986, as amended (the "Code") or under Section
4001 of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (other than the Company or any Subsidiary of the Company as defined in
Section 3.1 of the Merger Agreement), with respect to any "employee benefit
plan" (as defined in Section 3(3) of ERISA, but which is not a Benefit Plan as
defined in Section 3.8(a) of the Merger Agreement) established, maintained,
sponsored or contributed to by such entity, including, but not limited to (i)
liabilities for complete and partial withdrawals under any "multiemployer plan"
(as defined in Section 3(37) of ERISA) pursuant to Section 4203 or 4205 of
ERISA, respectively; (ii) liabilities to the Pension Benefit Guaranty
Corporation (including, without limitation, liabilities for premiums and
terminations); (iii) liabilities under Section 4980B of the Code or Part 6 of
<PAGE>
Subtitle B of Title I of ERISA; and (iv) liabilities arising under Section 412
of the Code or Section 302(a)(2) of ERISA.
2. Proceedings. If there is an audit, examination or administrative or
-----------
judicial proceeding (a "Tax Proceeding") relating to any liability for taxes as
to which the Company and any Subsidiaries were included in a consolidated
federal income tax return or a consolidated, combined or unitary state or local
tax return of Mafco Holdings or Mafco, Mafco Holdings and Mafco will control the
audit or other proceedings; provided, however, the Company shall be entitled to
-------- -------
participate in that portion of the Tax Proceeding, if any, relating solely to
items for which the Company is liable pursuant to Section 1 of this Agreement
("Company Items"). In the event that either Mafco Holdings or Mafco believes
that a position in the Tax Proceeding that the Company proposes to take with
respect to a Company Item is unreasonable, the parties will in good faith
attempt to negotiate a prompt settlement of the disagreement, and if the parties
are unable to negotiate a resolution of the disagreement within 15 days, the
dispute will be submitted to the New York office of a firm of independent
accountants of nationally recognized standing reasonably satisfactory to Mafco
and the Company (or, if Mafco and the Company do not agree on such a firm, then
a firm chosen by the Arbitration and Mediation Committee of the New York Society
of Certified Public Accountants) (the "Tax Dispute Accountants") for a
determination as to whether the position is unreasonable, and, if so, what is a
reasonable position. The decision of the Tax Dispute Accountants shall be
conclusive and binding on the parties, and the fees and expenses of the Tax
Dispute Accountants in resolving the dispute will be borne equally by Mafco
Holdings and Mafco on the one hand and the Company on the other.
3. Certain Payments. Notwithstanding anything to the contrary herein, in
----------------
the Amended and Restated Tax Sharing Agreement dated as of June 15, 1995 among
Mafco Holdings, Mafco, the Company (then named Consolidated Cigar (Parent)
Holdings Inc.) and Consolidated Cigar Corporation, or in any other agreement,
the Company and Subsidiaries shall have no obligation to make any payment with
respect to any liability for Taxes that duplicates any other payment by the
Company or any Subsidiary with respect to the same liability (whether either
such payment was to a taxing authority, to Mafco Holdings or to Mafco).
4. Miscellaneous.
-------------
a. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
b. All costs and expenses incurred in connection with this Agreement and
the transactions contemplated hereby shall be paid by the party incurring such
expenses.
c. This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of the parties and their respective successors,
personal or legal representatives, executors, administrators, heirs,
distributees, devisees, legatees and permitted
-2-
<PAGE>
assigns, but neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by either party (whether by operation of
law or otherwise) without the prior written consent of the other party;
provided, that Parent and the Purchaser may assign their rights and obligations
- --------
hereunder to any assignee of such parties' rights and obligations under the
Merger Agreement or to any other Subsidiary of Parent.
d. This Agreement may not be amended, changed, supplemented, or
otherwise modified or terminated, except upon the execution and delivery of a
written agreement executed by each of the parties hereto. The parties may waive
compliance by the other parties hereto with any representation, agreement or
condition otherwise required to be complied with by such other party hereunder,
but any such waiver shall be effective only if in writing executed by the
waiving party.
e. All notices and other communications hereunder shall be in
writing and shall be deemed given upon (i) transmitter's confirmation of a
receipt of a facsimile transmission, (ii) confirmed delivery by a standard
overnight carrier or when delivered by hand or (iii) the expiration of five
business days after the day when mailed by certified or registered mail, postage
prepaid, addressed at the following addresses (or at such other address for a
party as shall be specified by like notice):
If to Parent or Purchaser: Societe Nationale d'Exploitation
Industrielle des Tabacs et Allumettes
53, quai d'Orsay
75347 Paris Cedex 07, France
Att: Charles Lebeau
Telecopier Number: (33-1) 45-56-62-83
Att: Jean-Philippe Carriere
Telecopier Number: (33-1) 45-56-61-33
Copy to: Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Att: Ronald Papa, Esq.
Telecopier Number: (212) 969-2900
And copy to: Proskauer Rose
9, rue Le Tasse
75116 Paris, France
-3-
<PAGE>
Att: Delia Spitzer, Esq.
Telecopier Number: (33-1) 44-30-25-35
If to Mafco Holdings or Mafco: Mafco Consolidated Group Inc.
35 East 62nd Street
New York, New York 10021
Att: General Counsel
Telecopier Number: (212) 572-5056
Copy to: Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Att: Franklin M. Gittes, Esq. and
Alan C. Myers, Esq.
Telecopier Number: (212) 735-2000
or to such other address or facsimile number as the Person to whom notice is
given shall have previously furnished to the others in writing in the manner set
forth above.
f. Any provision of this Agreement which is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without affecting the validity or
enforceability of the remaining provisions hereof. Any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
g. This Agreement shall be governed and construed in accordance with the
laws of the State of Delaware without giving effect to the principles of
conflicts of law thereof.
h. The descriptive headings used herein are inserted for convenience of
reference only and are not intended to be part of or to affect the meaning or
interpretation of this Agreement. "Include," "includes," and "including" shall
be deemed to be followed by "without limitation" whether or not they are in fact
followed by such words or words of like import.
i. This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which, taken together, shall constitute one
and the same instrument.
-4-
<PAGE>
j. Any legal action or proceeding with respect to this Agreement or any
matters arising out of or in connection with this Agreement or otherwise, and
any action for enforcement of any judgment in respect thereof shall be brought
exclusively in the courts of the State of New York or of the United States of
America for the Southern District of New York, the Court of Chancery of Delaware
or the courts of the United States of America for the District of Delaware and,
by execution and delivery of this Agreement, Mafco Holdings, Mafco, Parent and
the Purchaser each hereby accepts for itself and in respect of its property,
generally and unconditionally, the exclusive jurisdiction of the aforesaid
courts and appellate courts thereof. Mafco Holdings, Mafco, Parent and the
Purchaser irrevocably consent to service of process out of any of the
aforementioned courts in any such action or proceeding by the mailing of copies
thereof by registered or certified mail, postage prepaid, or by recognized
international express carrier or delivery service, to Mafco Holdings, Mafco,
Parent or the Purchaser at their respective addresses referred to in Section
4(e) hereof.
k. Each of Parent and the Purchaser hereby designates C T Corporation as
its respective agent for service of process, and service upon Parent or the
Purchaser shall be deemed to be effective upon service of C T Corporation System
as aforesaid or of its successor designated in accordance with the following
sentence. Parent or the Purchaser may designate another corporate agent or law
firm reasonably acceptable to Mafco and located in the Borough of Manhattan, in
the City of New York, as successor agent for service of process upon 30-days
prior written notice to Mafco.
l. Mafco Holdings, Mafco, Parent and the Purchaser each hereby irrevocably
waives any objection which it may now or hereafter have to the laying of venue
of any of the aforesaid actions or proceedings arising out of or in connection
with this Agreement or otherwise brought in the courts referred to above and
hereby further irrevocably waives and agrees, to the extent permitted by
applicable law, not to plead or claim in any such court that any such action or
proceeding brought in any such court has been brought in an inconvenient forum.
Nothing herein shall affect the right of any party hereto to serve process in
any other manner permitted by law.
-5-
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser, Mafco Holdings and Mafco have caused
this Agreement to be duly executed as of the day and year first above written.
SOCIETE NATIONALE D'EXPLOITATION INDUSTRIELLE
DES TABACS ET ALLUMETTES, S.A.
By: /s/ Jean-Dominique Comolli
-----------------------------------------------------
Name: Jean-Dominique Comolli
Title: Chairman and Chief Executive Officer
DORSAY ACQUISITION CORP.
By: /s/ Charles Lebeau
-----------------------------------------------------
Name: Charles Lebeau
Title: President
MAFCO CONSOLIDATED GROUP INC.
By: /s/ Glenn Dickes
-----------------------------------------------------
Name: Glenn Dickes
Title: Vice President
MAFCO HOLDINGS INC.
By: /s/ Glenn Dickes
-----------------------------------------------------
Name: Glenn Dickes
Title: Senior Vice President
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Theo W. Folz
-----------------------------------------------------
Name: Theo W. Folz
Title: Chairman, President and Chief
Executive Officer
<PAGE>
EXHIBIT 6
CONSOLIDATED CIGAR CORPORATION
December 1, 1998
James L. Colucci
10374 Stonebridge Boulevard
Boca Raton, FL 33498
Dear James:
This will confirm the understanding between the Company and
you in the event that, on or before June 30, 1999, the Company ceases to be
controlled by Mafco Holdings Inc. (a "Change of Control").
If, on or before June 30, 1999 a Change of Control occurs and
you are on such date employed by the Company, you will become eligible to
receive from the Company a cash payment (in addition to all other compensation
payable by the Company to you) of Five Hundred Fifty Thousand Dollars ($550,000)
(the "Special Bonus"), subject to all applicable withholding, to be made upon
the earlier to occur of (A) the Company dismisses you for any reason other than
for (i) your neglect of your duties, (ii) your conviction of a felony, (iii)
your conviction of any lesser crime or offense involving the property of the
Company or any of its subsidiaries or affiliates, (iv) your willful misconduct
in connection with the performance of any material portion of your duties, (v)
your breach of the Company's Code of Conduct or (vi) any other conduct on your
part which would make your continued employment by the Company materially
prejudicial to the best interests of the Company and (B) the second anniversary
of the Change of Control provided, however, if your employment by the Company
terminates prior to the second anniversary of the Change of Control as a
consequence of your death, disability or voluntary severance, you will cease to
be eligible to receive the Special Bonus.
In the event there has not been a Change of Control by June
30, 1999, this letter agreement will cease to be of any further force or effect.
In addition, this
<PAGE>
James L. Colucci
December 1, 1998
Page 2
letter agreement does not confer upon you any right to continue in the employ of
the Company or to be entitled to any compensation or to receive any benefits not
specifically described in this letter nor does it interfere with or limit in any
way the right of the Company to terminate your employment for any reason.
This letter agreement sets forth the entire understanding
between the Company and you with regard to the Special Bonus; it cannot be
amended except by a subsequent written agreement signed by the Company and you.
This letter agreement will be governed by and construed in accordance with the
laws of the State of New York applicable to agreements made and to be performed
entirely in New York.
Please sign two originals of this letter agreement in the
space provided below and return one to me.
Very truly yours,
CONSOLIDATED CIGAR
CORPORATION
By:
-----------------------------
Theo W. Folz
Chairman, President &
Chief Executive Officer
Accepted and agreed:
- ------------------------
James L. Colucci
<PAGE>
Exhibit 7
AMENDMENT TO
EMPLOYMENT AGREEMENT
FIRST AMENDMENT dated as of November 9, 1998 to Employment
Agreement, dated as of August 1, 1996, between Consolidated Cigar Corporation
(the "Company") and Theo W. Folz (the "Executive").
WHEREAS, the parties entered into an Employment Agreement
dated as of August 1, 1996 (the "Employment Agreement"); and
WHEREAS, the parties wish to make certain amendments to the
Employment Agreement.
NOW THEREFORE, the parties agree as follows:
1. Section 3 is hereby amended by deleting it in its entirety
and inserting in lieu thereof:
3. Term of Employment; Certain Post-Term Benefits.
----------------------------------------------
1.1 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, 2001 or such later date to which the Term is extended pursuant to
Section 3.2.
1.2 End-of-Term Provisions. At any time on or after December
----------------------
31, 2000 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,
2002, unless and until the Company gives written notice of non-renewal as
provided in this Section 3.2, the Term automatically shall be extended day-by-
day; upon the giving of such notice by the Company, the Term automatically shall
be extended so that it ends twelve months after the last day of the month in
which the Company gives such notice.
1.3 Special Curtailment. The Term shall end earlier than the
-------------------
original December 31, 2001 termination date provided in Section 3.1 or any
extended termination date provided in Section 3.2, in either case if sooner
terminated pursuant to Section 5. Non-extension of the Term shall not be deemed
to be a wrongful termination of the Term or this Agreement by the Company
pursuant to Section 5.4.
<PAGE>
2. The parties agree that except as expressly amended hereby,
the Agreement as amended hereby shall be in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the date first above written.
CONSOLIDATED CIGAR CORPORATION
By:
-------------------------------------
Howard Gittis
Vice Chairman
-------------------------------------
Theo W. Folz
2
<PAGE>
EXHIBIT 9
[LOGO OF CHASE APPEARS HERE]
ANNEX A
December 16, 1998
Board of Directors
Consolidated Cigar Holdings Inc.
5900 North Andrews Avenue
Fort Lauderdale, Florida 33309-2369
Members of the Board:
You have informed us that Societe Nationale d'Exploitation Industrielle des
Tabacs et Allumettes (the "Buyer"), Dorsay Acquisition Corp., a wholly-owned
subsidiary of the Buyer ("Sub"), and Consolidated Cigar Holdings Inc. (the
"Company") propose to enter into an Agreement and Plan of Merger, dated as of
December 16, 1998 (the "Merger Agreement"), which provides, among other
things, for the tender offer (the "Offer") by Sub for all outstanding shares
of the Company's Class A Common Stock, par value $.01 per share (the "Class A
Shares") and the Company's Class B Common Stock, par value $.01 per share (the
"Class B Shares" together with the Class A Shares, the "Company Shares") at a
purchase price per Company Share of $17.85 (the "Consideration"), to be
followed by a merger of Sub with and into the Company (the "Merger") pursuant
to which each then outstanding Company Share not acquired in the Offer, other
than Company Shares held in the treasury or held by Sub, Buyer or any other
wholly owned subsidiary of Buyer or as to which dissenter's rights have been
perfected, will be converted into the right to receive an amount equal to the
Consideration in cash. Together, the Offer and the Merger, taken as a whole
and not separately, are referred to herein as the "Transaction."
You have requested that we render our opinion as to the fairness, from a
financial point of view, to the holders of Class A Shares (other than Buyer
and its affiliates) of the Consideration to be received by such holders in the
Transaction.
In arriving at the opinion set forth below, we have, among other things:
(a)reviewed a draft of the Merger Agreement in the form provided to us and
have assumed that the final form of the Merger Agreement will not vary in
any regard that is material to our analysis;
(b) reviewed certain publicly available business and financial information
that we deemed relevant relating to the Buyer and the Company and the
respective industries in which they operate;
(c)reviewed certain internal non-public financial and operating data
provided to us by or on behalf of the management of the Company relating to
the Company, including management forecasts and projections of future
financial results of the Company;
(d)discussed with members of the senior management and representatives of
the Company, the Company's operations, historical financial statements and
future prospects, as well as such other matters as we deemed necessary or
appropriate;
(e)compared the financial and operating performance of the Company with
publicly available information concerning certain other companies we deemed
relevant and reviewed the relevant historical stock prices and trading
volumes of the Class A Shares and certain publicly traded securities of
such other companies;
(f)reviewed the financial terms of certain recent business combinations and
acquisition transactions we deemed relevant to the Transaction and
otherwise relevant to our inquiry;
(g)considered our discussions (and in certain cases the descriptions
provided to us of various discussions held by others) with third parties
with respect to such third parties' potential interest in the acquisition
of the Company; and
(h)made such other analyses and examinations as we have deemed necessary or
appropriate.
A-1
<PAGE>
We have assumed and relied upon, without assuming any responsibility for
verification, the accuracy and completeness of all of the financial and other
information provided to, discussed with, or reviewed by or for us, or publicly
available for purposes of this opinion, and have further relied upon the
assurances of management of the Company that they are not aware of any facts
that would make such information inaccurate or misleading. We have neither
made nor obtained any independent evaluations or appraisals of the assets or
liabilities of the Company, nor assumed any obligation to conduct a physical
inspection of the properties and facilities of the Company. We have assumed
that the financial forecast and projection information provided to us by or on
behalf of the Company have been reasonably determined on bases reflecting the
best currently available estimates and judgements of the management of the
Company as to the future financial performance of the Company. We express no
view as to such forecast or projection information or the assumptions on which
they were based.
Our opinion herein is necessarily based on market, economic and other
conditions as they exist and can be evaluated on the date of this letter. Our
opinion is limited to the fairness, from a financial point of view, to the
holders of the Class A Shares (other than the Buyer and its affiliates) of the
Consideration to be received by such holders in the Transaction and we express
no opinion as to the merits of the underlying decision by the Company to
engage in the Transaction. This opinion does not constitute a recommendation
to any holder of Company Shares as to whether such holder should tender
Company Shares in the Offer or as to how such holder of Company Shares should
vote with respect to the Merger.
Chase Securities Inc., as part of its financial advisory business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions and valuations for estate, corporate
and other purposes. We have acted as a financial advisor to the Company in
connection with the Transaction and will receive a fee for our services,
payment of which is contingent on either the entering into of the Merger
Agreement or the consummation of the Offer. In addition, the Company has
agreed to indemnify us for certain liabilities arising out of our engagement.
As we have previously advised you, The Chase Manhattan Corporation and its
affiliates, including Chase Securities Inc., in the ordinary course of
business, have, from time to time, provided, and in the future may continue to
provide, commercial and/or investment banking services to the Buyer and the
Company and their affiliates, including serving as agent bank under credit
facilities of the Company and its affiliates. In the ordinary course of
business, we or our affiliates may trade in the debt and equity securities of
the Buyer and the Company and their affiliates for our own accounts and for
the accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Based upon and subject to the foregoing, we are of the opinion, as of the
date hereof, that the Consideration to be received by the holders of the Class
A Shares (other than Buyer and its affiliates) in the Transaction is fair,
from a financial point of view, to such holders.
This opinion is for the use and benefit of the Board of Directors of the
Company in its evaluation of the Transaction and shall not be used for any
other purpose without the prior written consent of Chase Securities Inc.
Very truly yours,
CHASE SECURITIES INC.
A-2
<PAGE>
EXHIBIT 10
[LETTERHEAD OF CONSOLIDATED CIGAR HOLDINGS INC. APPEARS HERE]
December 22, 1998
Dear Stockholder:
I am pleased to inform you that on December 16, 1998, Consolidated Cigar
Holdings Inc. (the "Company") entered into an Agreement and Plan of Merger
(the "Merger Agreement") with Societe Nationale d'Exploitation Industrielle
des Tabacs et Allumettes ("Parent") and Dorsay Acquisition Corp., a wholly
owned subsidiary of Parent (the "Purchaser"). Pursuant to the Merger
Agreement, the Purchaser today commenced a tender offer (the "Offer") to
purchase all outstanding shares of the Company's common stock for $17.85 per
share in cash, subject to the terms and conditions in the Offer to Purchase
and the related Letter of Transmittal that are included in the Purchaser's
offering materials. Under the Merger Agreement, the Offer will be followed by
a merger (the "Merger") of the Purchaser with and into the Company and all
shares not purchased in the Offer (other than shares held in the Company's
treasury or held by Parent, the Purchaser, any other wholly owned subsidiary
of Parent or the Company or by dissenting stockholders) will be converted into
the right to receive $17.85 per share in cash in the Merger.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE OFFER, THE MERGER AND
THE MERGER AGREEMENT AND HAS DETERMINED THAT THE TERMS OF EACH ARE FAIR TO,
AND IN THE BEST INTERESTS OF, THE COMPANY AND ITS STOCKHOLDERS. ACCORDINGLY,
THE BOARD RECOMMENDS THAT STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES IN THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors, including, among other things, the
opinion of Chase Securities Inc., the Company's independent financial advisor,
that, as of the date of such opinion, the consideration to be received by the
holders of the Company's Class A common stock, par value $.01 per share,
(other than Parent and its affiliates) in the Offer and the Merger, taken
together, is fair, from a financial point of view, to such stockholders.
Attached is a copy of the Schedule 14D-9 filed by the Company with the
Securities and Exchange Commission. The Schedule 14D-9 describes the reasons
for your Board of Directors' recommendation, includes as an exhibit the full
text of the December 16, 1998 opinion of Chase Securities Inc. and contains
other important information relating to the Offer. Also enclosed is the Offer
to Purchase, dated December 22, 1998, of the Purchaser, together with related
materials, including a Letter of Transmittal to be used for tendering your
shares. These documents set forth the terms and conditions of the Offer and
the Merger and provide instructions on how to tender your shares. I urge you
to read the Schedule 14D-9 and the enclosed materials carefully.
Sincerely,
/s/ Theo W. Folz
Theo W. Folz
Chairman, President and
Chief Executive Officer
<PAGE>
Exhibit 11
Paris, France and Fort Lauderdale, Florida
December 16, 1998
SEITA ANNOUNCES AGREEMENT TO ACQUIRE US CIGAR MAKER
CONSOLIDATED CIGAR HOLDINGS INC.
Seita S.A., (SBF Paris Bourse: Seita), France's largest producer and distributor
of tobacco products, announced today that it has signed a definitive agreement
to acquire Consolidated Cigar Holdings Inc. (NYSE: CIG), the leading cigar maker
in the United States in revenue terms, for 17.85 $ per share, net to the seller
in cash.
Consolidated Cigar Holdings, which in 1997 had sales of $299 million (around FRF
1.7 billion) and net income of $54 million (around FRF 300 million), employs
5,400 people, including 550 in the United States. The company is headquartered
in Fort Lauderdale, Florida and operates eight plants--two in the United States,
two in Puerto Rico, two in the Honduras, one in Dominican Republic and one in
Jamaica.
Consolidated Cigar realizes almost all its sales in the United States, where it
has a market share of approximately 24% with such brands as Dutch Treats,
Antonio y Cleopatra, Dutch Masters, Muriel and Backwoods, Don Diego, Te-Amo,
Montecruz and Henry Clay. It also holds the US marketing rights to the
prestigious H. Upmann, Montecristo and Por Larranaga brands, which are made
from tobacco grown outside of Cuba.
With FRF 18.4 billion (3.3 billion US$) in sales and FRF 827 million (150
million US$) in net income in 1997, Seita is France's leading tobacco products
company. Its shares are listed on the Paris Bourse. It sold 64.3 billion
cigarettes in 1997, of which nearly 50% outside France. In the cigar segment,
the company is number one in France, with 38% of the market, number four in
Europe and number seven worldwide. It is strategically committed to expanding
in the global marketplace, supported by sustained growth in sales and an active
acquisitions program.
The United States is the world's largest cigar market. The Consolidated Cigar
acquisition will provide Seita with extensive expertise in the premium,
hand-rolled cigar market and will enable it to develop synergies in tobacco
purchasing and in the production and marketing of its Pleiades brand in the
United States. In addition, the transaction will make Seita the world's leading
cigar company, with total volume of 1.6 billion cigars. In this way, it will
create, in line with Seita's strategic vision, a second strong business
alongside the cigarettes division, which is focusing on the international
development of the Gauloises Blondes brand.
The agreement calls for a wholly owned subsidiary of Seita to commence a tender
offer at the latest December 22, 1998 for all of Consolidated Cigar's
outstanding shares. The
<PAGE>
Exhibit 11
offer will be conditioned upon, among other things, the expiration or earlier
termination of the applicable waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and the tender of approximately 65% of the
shares of common stock of Consolidated Cigar outstanding. Following the
consummation of the offer, Seita's subsidiary will be merged with Consolidated
Cigar and any remaining shares will be converted into the right to receive
$17.85 per share in cash.
As a part of the transaction, Mafco Consolidated Group Inc., a wholly owned
subsidiary of MacAndrews and Forbes Holdings Inc., has agreed to tender all of
its Consolidated Cigar shares, representing approximately 65% of the outstanding
shares, and has granted Seita an option to purchase all its Consolidated Cigar
shares under certain circumstances.
The closing is expected to occur in the first quarter of 1999.
The acquisition of 100% of shares would represent an investment of approximately
$530 million. The total value of the transaction is approximately $730 million,
including assumed debt.
Theo Folz, Consolidated Cigar's current President and Chief Executive Officer,
will continue to manage the company.
The tender offer will be made only pursuant to an offer to purchase and related
documents to be filed with the U.S. Securities and Exchange Commission.
Consolidated Cigar will be from 1999 fully integrated in Seita's accounts.
According to present expectations, after amortization of goodwill, the company
is expected to make a positive contribution to Seita's consolidated income
from the first year.
The Consolidated Cigar Holdings brands portfolio
------------------------------------------------
Cigares "premium" Cigares "mass-market"
H. Upmann Antonio y Cleopatra
Montecristo Backwoods
Por Larranga Dutch Masters
Henry Clay Dutch Treats
Montecruz El Producto
Royal Jamaica Muriel
Primo del Rey
Cabanas
Don Diego
La Corona
Santa Damiana
<PAGE>
Exhibit 11
Las Cabrillas
Te-Amo
Santa Rosa
