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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from to Commission file
number 1-11995
CONSOLIDATED CIGAR HOLDINGS INC.
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(Exact name of registrant as specified in its charter)
Delaware 13-3694743
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5900 NORTH ANDREWS AVENUE
FORT LAUDERDALE, FLORIDA 33309-2369
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(Address of principal executive offices, including zip code)
(954) 772-9000
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(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
- ---------------------------------------- ---------------------------------
Class A Common Stock, $0.01 par value New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X]
As of March 24, 1998 the Registrant had 10,975,101 shares of Class
A Common Stock and 19,600,000 shares of Class B Common Stock outstanding. All
of the shares of Class B Common Stock were held by Mafco Consolidated Group
Inc.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's proxy statement for the Annual Meeting of
Stockholders, which is to be filed within 120 days of the end of the fiscal
year, are incorporated by reference into Part III.
Exhibit Index on Page 24
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CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
1997 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PAGE
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PART I
ITEM 1. BUSINESS........................................................ 3
ITEM 2. PROPERTIES...................................................... 13
ITEM 3. LEGAL PROCEEDINGS............................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............. 13
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS............................................. 14
ITEM 6. SELECTED FINANCIAL DATA......................................... 15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS............................ 18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..................... 23
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE............................. 23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.............. 23
ITEM 11. EXECUTIVE COMPENSATION.......................................... 23
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.. 23
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................. 23
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 24
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PART I
ITEM 1. BUSINESS
BACKGROUND
Consolidated Cigar Holdings Inc. (the "Company" or the "Registrant")
is a holding company with no business operations of its own. The Company was
formed as a Delaware corporation on January 6, 1993 to hold all of the
outstanding capital stock of Consolidated Cigar Corporation ("Consolidated
Cigar"), through which the Company conducts its business operations.
On August 21, 1996, the Company, then a direct wholly-owned
subsidiary of Mafco Consolidated Group Inc. ("Mafco Consolidated Group"),
completed an initial public offering (the "IPO") in which it issued and sold
6,075,000 shares of its Class A Common Stock for $23.00 per share. The
proceeds, net of underwriters' discount and related fees and expenses, of
$127.8 million, were paid as a dividend to Mafco Consolidated Group. On March
20, 1997 the Company completed a secondary offering (the "Offering"), of
5,000,000 shares of Class A Common Stock sold by Mafco Consolidated Group,
reducing its ownership in the Company to approximately 63.9%. The Company did
not receive any of the proceeds from the Offering. As a result of Mafco
Consolidated Group's ownership decreasing below 80.0%, the Company is no
longer subject to the consolidated tax return provisions of the Tax Sharing
Agreement with Mafco Consolidated Group and as such, has begun paying taxes
directly to the federal government and will be filing tax returns on a
separate company basis.
Since July 9, 1997, Mafco Consolidated Group has been a wholly owned
subsidiary of Mafco Holdings Inc. ("Mafco Holdings"), which is owned by Ronald
O. Perelman. Prior to that date, Mafco Holdings held an 85% ownership interest
in Mafco Consolidated Group.
GENERAL
The Company is the largest manufacturer and marketer of cigars sold
in the United States in terms of dollar sales, with a 1997 market share of
approximately 24% according to the Company's estimates. The Company markets
its cigar products under a number of well-known brand names at all price
levels and in all segments of the growing cigar market, including premium
large cigars, mass market large cigars and mass market little cigars. The
Company attributes its leading market position to the following competitive
strengths: (i) well-known brand names, many of which are the leading brands in
their category; (ii) broad range of product offerings within both the premium
and mass market segments of the United States cigar market; (iii) commitment
to and reputation for manufacturing quality cigars; (iv) marketing expertise
and close attention to customer service; (v) efficient manufacturing
operations; and (vi) an experienced management team. The Company is also a
leading producer of pipe tobacco and is the largest supplier of private label
and branded generic pipe tobacco to mass market retailers. In addition, the
Company distributes a variety of pipe and cigar smokers' accessories.
The Company's cigars and pipe tobacco products are marketed under a
number of well-known brand names. The Company's premium cigars include the H.
UPMANN, MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO
DEL Rey, MONTECRUZ, LAS CABRILLAS and SANTA ROSA brands. The Company's mass
market large cigars include the ANTONIO Y CLEOPATRA (also known as AYC), DUTCH
MASTERS, EL PRODUCTO, MURIEL, BACKWOODS, SUPER VALUE and SUPRE SWEETS brands.
The Company's mass market little cigars include the DUTCH TREATS, SUPER VALUE
and SUPRE SWEETS brands. The Company's pipe tobacco products include the
MIXTURE NO. 79 and CHINA BLACK brands.
According to industry sources, the cigar industry experienced
declining consumption between 1964 and 1993 at a compound annual unit rate of
3.6% (and, with respect to large cigar consumption, at a compound annual unit
rate of 5.0%). The Company experienced similar trends in the unit volume of
its cigars during such period. While the cigar industry has experienced
significantly better trends in unit consumption since 1993 compared to this
historical trend, there can be no assurance that these positive trends will
continue or that the Company would be able to offset any future decline in
consumption.
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BUSINESS STRATEGY
The Company's business strategy is to (i) capitalize on growth
opportunities in the premium cigar market, (ii) expand mass market cigar and
pipe tobacco products business, (iii) broaden mass market cigar distribution
channels, (iv) improve manufacturing processes and raw material procurement
and (v) pursue selectively strategic acquisitions. The Company's ability to
implement its business strategy successfully will be dependent on business,
financial and other factors beyond the Company's control, including, among
others, prevailing changes in consumer preferences, access to sufficient
quantities of raw materials, availability of trained laborers and changes in
tobacco products regulation. There can be no assurance that the Company will
continue to be successful in implementing its business strategy or that the
Company's net sales, operating margin and net margin will continue to increase
at rates similar to those experienced by the Company in 1997.
PRODUCTS
The Company manufactures cigars in all subcategories and at all price
levels. The Company also manufactures its own cigar boxes and man-made
wrapper, filler and binder and little-cigar filters.
PREMIUM CIGARS
Premium cigars are generally hand made and primarily sell at retail
price points above $1.00 per cigar. The Company's premium cigars are primarily
long-filler, large cigars that have high quality natural leaf wrappers and
binders. The Company uses tobaccos of the best grades for its premium cigars.
Such tobaccos are combined according to brand-specified formulas to create the
"filler" of each cigar. In order to make hand made cigars, "binder" tobacco is
hand-wrapped around filler to create the "bunch" which is placed into a mold.
Then, "wrapper" tobacco is hand-wrapped around the bunch, creating a premium
cigar. In the Company's premium cigars, the wrapper, binder and filler are
natural tobacco leaf.
The Company's premium cigars include the well-known H. UPMANN,
MONTECRISTO, DON DIEGO, TE-AMO, SANTA DAMIANA, ROYAL JAMAICA, PRIMO DEL REY,
MONTECRUZ, LAS CABRILLAS and SANTA ROSA brands as well as other recognized
brand names. The Company's premium cigars are manufactured in its Dominican
Republic, Jamaica and two Honduras facilities, except for Te-Amo, which is
manufactured in Mexico and purchased from a third party. On August 26, 1997,
the Company entered into a stock purchase agreement with certain shareholders
of Fabrica de Tabacos La Flor de Copan, S.A. de C.V., a Honduran corporation
("La Flor"), to acquire 75% of La Flor's outstanding capital stock. La Flor is
a manufacturer of handmade premium cigars located in Santa Rosa, Honduras.
MASS MARKET CIGARS
Mass market cigars are machine made and generally have a retail price
point of $1.00 or less per cigar. Mass market cigars use less expensive
tobacco than premium cigars. The Company uses a variety of techniques and
grades of tobacco to produce mass market cigars which compete at all the price
points in the mass cigar market. Mass market cigars include large cigars
(weighing three pounds per 1,000 cigars or more) and little cigars (weighing
less than three pounds per 1,000 cigars).
Mass market large cigars generally consist of filler tobacco that is
wrapped first with a binder and then with a wrapper. The more expensive mass
market large cigars combine natural leaf wrapper and man-made binder made from
tobacco ingredients instead of natural binder, with filler threshed into
short, uniform pieces. In less expensive mass market large cigars, man-made
wrapper made primarily from tobacco ingredients replaces natural tobacco leaf.
The Company adds flavors and/or plastic tips to certain of its popularly
priced mass market large cigars. The Company's major mass market brands
include ANTONIO Y CLEOPATRA, DUTCH MASTERS, EL PRODUCTO, BACKWOODS, MURIEL,
SUPER VALUE and SUPRE SWEETS.
Generally, little cigars consist of filler tobacco wrapped only by a
wrapper with a filter tip. Most little cigars are made on a high-speed machine
with man-made wrapper made from tobacco ingredients and no binder. Little
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cigars are flavored and produced with a filter. Generally, little cigars are
the lowest priced segment of the mass market category. The Company's little
cigar brands include DUTCH TREATS, SUPER VALUE and SUPRE SWEETS.
PIPE TOBACCO AND ACCESSORIES
In addition to its cigars, the Company manufactures pipe tobaccos for
sale under its own brand names, such as MIXTURE NO. 79 and CHINA BLACK, and
for sale in bulk to tobacconists, as well as private label brands for chain
stores and wholesale distributors. The Company also distributes smokers'
accessories, such as tobacco pouches, pipe cleaners and cigar cutters. Net
sales attributable to the distribution of such accessories was not material to
the Company's results of operations in fiscal 1997.
The Company uses tobaccos of various types, grades, countries of
origin and crop years for its pipe tobacco, which are moisturized with steam
and then blended according to specific formulas ("primary blends"). The
primary blends are "cased" (sprayed or dipped) in liquids containing water,
humectant, sugars, licorice, cocoa, fruit juices or other flavorings in order
to keep the tobacco in pliable condition and to enhance its aroma and taste.
The cased tobaccos are cut and dried and then held in bins to allow the casing
and moisture to be distributed uniformly throughout the tobacco. Thereafter,
the tobacco blends are flavored with natural and artificial flavors, herbs or
spices, and blends are held for a short period of time prior to packaging into
pouches, bags, cans or other selling containers.
SPECIALTY AND OTHER PRODUCTS
The Company's other products include various tobacco and non-tobacco
related products manufactured by the Company in order to utilize excess
manufacturing capacity at certain of its facilities and improve overall
efficiency.
BACKORDERS
The increased demand for cigars, especially premium cigars, had
caused the Company's backorders of premium cigars to increase from 4.3 million
cigars at December 31, 1995 to 37.0 million cigars at December 31, 1996.
Although the demand for premium cigars continued to increase, the substantial
increase in backorders of premium cigars experienced by the Company in 1996
was due, in part, to the practice by customers of submitting orders well in
excess of required quantities in an attempt to ensure a larger allocation of
the Company's premium cigar production. As such, the increase in backorders
did not accurately reflect the demand for the Company's premium cigars. In
1997, the Company established new ordering policies to reduce backorders.
These actions greatly reduced the number of backorders, rendering them more
manageable.
At the same time, the Company was successful in significantly
increasing plant capacity and production of its premium cigars, and, in the
second half of 1997, especially the last quarter, began to fill distribution
pipelines, reducing back orders even further. However, the Company's
backorders of premium cigars were still at a level of 4.8 million cigars at
December 31, 1997. It is expected that these backorders will reduce to more
normal levels during the first quarter of 1998.
The Company's ability to manufacture premium and mass market cigars
may be constrained by the ability of tobacco growers and suppliers to meet the
Company's demands for its raw materials in a timely manner. Tobacco, as a crop
that is harvested annually, restricts the ability of tobacco growers to adjust
acreage grown in any given year to meet changes in market demand. In addition,
increases in acreage of tobacco grown requires significant capital, which
growers may be unable or unwilling to invest. Tobacco crops are also
susceptible to the variances of severe weather conditions, when they occur.
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SALES AND MARKETING
The Company sells its cigar and pipe tobacco products throughout the
United States to over 3,000 customers, consisting of wholesale distributors,
direct buying chains, including drug store chains and mass market retailers,
and tobacconists. The Company employs a full-time in-house sales organization
to develop and service its sales to wholesalers, distributors, direct buying
chains and tobacconists. The Company's sales force is organized into two sales
units: a mass market division and a premium division. The mass market sales
force calls on distributors and retail and chain store accounts, including
Kmart, Wal-Mart, Eckerd Drug Stores, CVS Stores and Thrifty Drug Stores,
across the United States. Approximately 87% of the Company's mass market cigar
products are sold through wholesale distributors while approximately 13% are
sold to direct buying chains or independent retailers that warehouse for
themselves. The premium cigar sales force calls directly on tobacconists and
distributors. The Company's sales force operates regionally and locally from
home and car, maintaining close familiarity with local customers. Most
salespeople maintain a small stock of inventory which is used primarily to
replace local distributors' old or damaged products and to display new product
introductions or promotions.
The Company supplies cigar merchandising fixtures to retailers at no
cost and believes that it is the primary supplier of such fixtures to the
United States retail trade. These fixtures help to maintain an attractive
product display and to increase shelf space available for the Company's
products.
For the year ended December 31, 1997, the Company had more than 3,000
customers, the top five of which accounted for approximately 23% of annual
sales with the largest customer accounting for approximately 7%. The Company
believes that the loss of any one customer would not be material to the
Company's business. The Company maintains no long-term contracts for the sale
of its merchandise.
The Company advertises its mass market cigar products primarily
through coupons and other promotions distributed at point of sale and through
direct mail. The Company advertises its premium cigar products in magazines,
such as Cigar Aficionado, Playboy and The New York Times Sunday Magazine, as
well as in newspapers and on radio. In order to strengthen and broaden further
the brand recognition of its premium cigars and to maximize the business
opportunities created by the resurgence in popularity of and increased demand
for premium cigars, the Company has increased its marketing and advertising
expenditures in connection with its existing premium cigar brands. The
increased advertising and marketing expenditures are being used to support new
product introductions and increase awareness and recognition of the Company's
premium brands.
Sales of the Company's cigar products outside of the United States
are currently not material, although the Company is continuing its efforts to
strengthen its presence in the international market for premium and mass
market cigars, particularly in Europe, the Middle East, Latin America and
Asia, by increasing management's focus on the Company's direct export
business. During 1997, the Company hired a Business Development Director for
Europe to concentrate on foreign sales and promotions. Currently the Company
has a total of 68 agents and distributors throughout Europe, the Middle East,
Latin America and Asia.
TRADEMARKS
Trademarks and brand name recognition are important to the Company's
business. The Company generally owns the trademarks under which its products
are sold. The Company has registered its trademarks in the United States and
many other countries and will continue to do so as new trademarks are
developed or acquired. The Company does not hold or own the right to use
certain of its well-known trademarks and brand names in certain foreign
markets. The Company's ability to expand into such markets by capitalizing on
the strength of its brand names in the United States may be limited by its
right to use or acquire such brand names in those foreign markets.
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Unless otherwise indicated, the Company owns the trademarks listed
below:
PREMIUM CIGAR TRADEMARKS
Cabanas H. Upmann(a) Primo Del Rey
Don Diego Henry Clay Royal Jamaica
Don Marcos Las Cabrillas Santa Damiana
Don Melo Malaguena Santa Rosa
Don Miguel Montecristo(a) Santa Ynez
Encanto Montecruz Super Value
Flor de Canarias Por Larranaga(a) Te-Amo
Wonder Blend
MASS MARKET CIGAR TRADEMARKS
Antonio y Cleopatra El Producto Roi-Tan
Backwoods Harvester Super Value
Ben Franklin Headline Supre Sweets
Dutch Masters La Corona Wonder Blend
Dutch Treats Muriel
PIPE TOBACCO TRADEMARKS
China Black Kriswill Three Star Royal
Dutch Masters Mixture No. 79 Wonder Blend
Super Value
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(a) Trademark is owned by Cuban Cigar Brands, N.V., a 51% owned subsidiary of
the Company.
While the Company does not believe that any single trademark is
material to the vitality of its business, it believes that its trademarks taken
as a whole are material to its business. Accordingly, the Company has taken,
and will continue to take, action to protect its interests in all such
trademarks.
RAW MATERIALS
The Company has developed and continues to develop long-term
relationships with tobacco suppliers and is expanding its commercial and
technical ties with local growers to secure a variety of sources for raw
materials, ensure the quality of its raw materials and maximize cost savings.
The Company buys tobacco directly from a large number of suppliers in
Brazil, Cameroon, the Central African Republic, Costa Rica, Germany, Italy, the
Dominican Republic, Paraguay, the Philippines, Indonesia, the United States,
Ecuador, Honduras, Mexico and other countries and does not believe that it is
dependent on any single source for tobacco. The Company has recently
experienced shortages in certain types of its natural wrapper and premium cigar
tobaccos due to the increase in demand for high quality natural-wrapped cigars.
Additionally, some shortages of wrapper tobaccos have also been the result of
heavy rains in South America and damaging organism growths (blue mold) in the
United States. These shortages have caused the price of natural wrapper and
premium cigar tobaccos to increase. To date, these shortages of tobacco have
not materially adversely affected cigar manufacturing or the Company's
profitability, but could if the Company is unable to purchase additional
quantities of certain tobaccos in the future or is unable to pass increases for
such raw materials onto its customers.
In addition, the Company purchases packaging materials from multiple
suppliers predominantly in the United States. No single supplier accounts for
10% or more of the Company's raw materials.
COMPETITION
The Company is the largest manufacturer and marketer of cigars in the
United States in terms of dollar sales and believes that it is the only
participant in the cigar industry that is a major competitor in all
subcategories of cigars at all price levels. The other three significant
competitors in the cigar market in terms of market share, in order of size, are
Swisher International Group Inc. and General Cigar Co. Inc., majority
controlled public companies and Havatampa/Phillies Cigar Corporation, a
privately held corporation, recently sold to Tabacalera S.A. (the former
Spanish tobacco monopoly). In addition, Tobacco Exporters International Limited
(a subsidiary of Rothmans
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International) is a significant competitor in the little cigar market. The
Company believes that its leading market position in the cigar industry is due
to its strong, well-known brand names, broad range of product offerings within
both the mass market and premium segments of the United States cigar market,
commitment to and reputation for manufacturing quality cigars, marketing
expertise, close attention to customer service, efficient manufacturing
operations and an experienced management team. If and when normalization of
relations between the United States and Cuba occurs, the entry of Cuban
premium cigars into the United States market could increase competition in the
Company's core premium cigar market.
Through its Allied Tobacco Division in Richmond, Virginia, the Company
competes in all areas of the U.S. pipe tobacco business including branded,
private label and bulk tobacco. The Company believes it is the fourth largest
manufacturer in the U.S. of pipe tobacco, in terms of dollar sales, and its
largest competitors in order of size are Lane Limited, John Middleton Inc. and
UST Inc.
THE TOBACCO INDUSTRY
REGULATION
Cigar manufacturers, like other producers of tobacco products, are
subject to regulation in the United States at federal, state and local levels.
Together with changing public attitudes towards smoking, a constant expansion
of smoking regulations since the early 1970's has been a major cause of the
overall decline in consumption of tobacco products.
Moreover, the trend is toward increasing regulation of the tobacco industry.
Federal law has required health warnings on cigarettes since 1965 and
has required states, in order to receive full funding for federal substance
abuse block grants, to establish a minimum age of 18 years for the sale of
tobacco products together with an appropriate enforcement program. In recent
years, a variety of bills relating to tobacco issues have been introduced in
the Congress of the United States, including bills that would have (i)
prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of such advertising expenses; (ii)
increased labeling requirements on tobacco products to include, among other
things, addiction warnings and lists of additives and toxins; (iii) modified
federal preemption of state laws to allow state courts to hold tobacco
manufacturers liable under common law or state statutes; (iv) shifted
regulatory control of tobacco products and advertisements from the Federal
Trade Commission (the "FTC") to the Food and Drug Administration (the "FDA");
(v) increased tobacco excise taxes; and required tobacco companies to pay for
health care costs incurred by the federal government in connection with tobacco
related diseases. Hearings have been held on certain of these proposals;
however, to date, only excise tax increases on tobacco products starting in the
year 2000, in varying amounts, have been passed by Congress. Future enactment of
such proposals or similar bills may have an adverse effect on the sales or
operations of the Company. In addition, various federal agencies, including the
FDA, have recently proposed to regulate the tobacco industry. The FTC on
February 9, 1998 ordered the five largest cigar companies, including the
Company, to report, for 1996 and 1997, the number of cigars sold and their
dollar value and the amount of money spent on advertising, merchandising, and
promotion. The orders also require a listing of different categories of
advertising and marketing expenses for each cigar brand marketed, including any
payments for placement of cigar products in movies and on television. These
categories of information are similar to those that cigarette and smokeless
tobacco manufacturers are required to report to the FTC, which information then
is reported on an aggregate basis by the FTC to Congress. The FTC's activities
may result in regulations and/or legislation concerning cigar advertising and
promotion, including health warning labels.
As a result primarily of lawsuits brought by a large number of state
Attorneys General against certain tobacco companies and others seeking to
recover, among other things, health care cost reimbursement, five tobacco
manufacturers agreed on June 20, 1997 to support the adoption by Congress of a
proposed resolution (the "Proposed Resolution") that calls for significant
regulation of tobacco products and the payment of $368.5 billion over the first
25 years. As a result, a number of bills have been introduced in Congress that
would result in significant regulation of tobacco. Some of these bills cover
cigars, as well as substantial tax increases on tobacco products. Although it
is not possible to predict whether and when any such legislation will be
enacted into law, its enactment may fundamentally alter the way in which
tobacco companies conduct business in this country.
In addition, the majority of states restrict or prohibit smoking in
certain public places and restrict the sale of tobacco products to minors.
Local legislative and regulatory bodies have also increasingly moved to curtail
smoking by
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prohibiting smoking in certain buildings or areas or by requiring designated
"smoking" areas. In a few states, legislation has been introduced, but has not
yet passed, which would require all little cigars sold in those states to be
"fire-safe" (i.e., cigars which extinguish themselves if not continuously
smoked). Passage of this type of legislation could have an adverse effect on
the Company's little cigar sales because of the technological difficulties in
complying with such legislation. The Company does not expect the passage of
any such legislation to have a material adverse effect on the Company's
business or results of operations taken as a whole. There is currently an
effort by the U.S. Consumer Product Safety Commission to establish such
standards for cigarettes. The enabling legislation, as originally proposed,
included little cigars; however, little cigars were deleted due to the lack of
information on fires caused by these products.
Increased cigar consumption and the publicity such increase has
received may increase the risk of additional regulation of tobacco products or
of cigars. Consideration at both the federal and state level also has been
given to the consequences of tobacco smoke on others who are not currently
smoking (so called "second-hand" smoke). In California, the exemption that had
applied generally to certain establishments, including bars, with respect to
that state's ban on smoking in public places lapsed on January 1, 1998. In late
January 1998, however, the California state Assembly approved a bill that
generally would repeal the current total smoking ban in bars. The California
Senate has not yet acted. There can be no assurance that regulation relating to
second-hand smoke will not be adopted elsewhere and that such regulation or
related litigation would not have a material adverse effect on the Company's
results of operations or financial condition.
Although federal law has required health warnings on cigarettes since
1965, there is no federal law requiring that cigars or pipe tobacco carry such
warnings. However, California requires "clear and reasonable" warnings to
consumers who are exposed to chemicals known to the state to cause cancer or
reproductive toxicity, including tobacco smoke and several of its constituent
chemicals. Violations of this law, known as Proposition 65, can result in a
civil penalty not to exceed $2,500 per day for each violation. Although similar
legislation has been introduced in other states, no action has been taken.
During 1988, the Company and 25 manufacturers of tobacco products
entered into a settlement of legal proceedings filed against them pursuant to
Proposition 65. Under the terms of the settlement, the Company and such other
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos other than cigarettes manufactured or
imported for sale in California with a specified warning label. To guarantee
compliance with the California requirements, to eliminate errors in
distribution and to maintain the efficiencies of the manufacturing process, the
Company and most of its competitors have begun using the label on all of their
tobacco products shipped to customers in all states, except for a few premium
cigar customers.
Massachusetts recently enacted legislation requiring manufacturers of
cigarettes, chewing tobacco and snuff to provide the state annually with a list
of the additives (in descending order of weight) and the nicotine yield ratings
of each brand they produce, which information will, subject to certain
conditions, be made publicly available. In response to challenges to the law
brought by a number of tobacco manufacturers, in December 1997 the United
States District Court for the District of Massachusetts preliminarily enjoined
the additive disclosure requirement. The nicotine yield rating reporting
requirement was unaffected by this decision. In addition, various legislative
proposals have been introduced in Massachusetts that would extend such
reporting requirements to cigar manufacturers and require health warnings on
cigars. Several other states have proposed or enacted similar laws.
The U.S. Environmental Protection Agency (the "EPA") published a
report in January 1993 with respect to the respiratory health effects of
passive smoking, which concluded that widespread exposure to environmental
tobacco smoke presents a serious and substantial public health concern. In June
1993, Philip Morris Companies Inc. and five other representatives of the
tobacco manufacturing and distribution industries filed suit against the EPA
seeking a declaration that the EPA does not have the statutory authority to
regulate environmental tobacco smoke, and that, in view of the available
scientific evidence and the EPA's failure to follow its own guidelines in
making the determination, the EPA's final risk assessment was arbitrary and
capricious. The court ruled in May 1995 that plaintiffs have standing to pursue
this action. In April 1997, the plaintiffs moved for partial summary judgment,
and, in May 1997, the EPA cross-moved for partial summary judgment. Whatever
the outcome of this litigation, issuance of the report, which is based
primarily on studies of passive cigarette smokers, may lead to further
legislation designed to protect non-smokers.
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In February 1994, the FDA, in a letter to an anti-smoking group,
claimed that it may be possible for the FDA to regulate cigarettes under the
drug provisions of the Food, Drug, and Cosmetic Act (the "FDC Act"). The FDA's
claim is based upon allegations that manufacturers may intend that their
products contain nicotine to satisfy an alleged addiction on the part of some
of their customers. The letter indicated that regulation of cigarettes under
the FDC Act could ultimately result in the removal from the market of products
containing nicotine at levels that cause or satisfy addiction. In March 1994,
the FDA began investigating whether cigarettes should be regulated as a drug.
In July 1995, the FDA announced that it has concluded for the first time that
nicotine is a drug that should be regulated and proposed to regulate smokeless
tobacco and cigarettes. The FDA in 1996 adopted final regulations relating to
the marketing, promotion and advertisement of smokeless tobacco and cigarettes.
Although the FDA's definition of cigarettes originally included little cigars,
little cigars were excluded from the final regulations. These regulations were
challenged by tobacco companies in the United States District Court for the
Eastern District of North Carolina. In April 1997, the district court ruled
that the FDA was not precluded as a matter of law from regulating cigarettes
and smokeless tobacco as medical devices and from implementing certain labeling
and access restrictions. The court also ruled that the FDA lacked authority to
implement advertising and promotion restrictions. Certain aspects of the
Court's ruling are on appeal to the United States Court of Appeals for the
Fourth Circuit. Pending before the FDA is a petition by Action on Smoking and
Health requesting that the FDA assert jurisdiction over cigars. The Cigar
Association of America, an industry trade organization, has opposed the
petition on behalf of the cigar industry. While the Company is unable to
predict the effect of these regulatory efforts on its business, these and other
regulations promulgated by the FDA in the future could have a material adverse
effect on the operations of the Company.
LITIGATION
Historically, the cigar industry has not experienced material
health-related litigation and, to date, the Company has not been the subject of
any material health-related litigation. However, the cigarette and smokeless
tobacco industries have experienced and are experiencing significant
health-related litigation involving tobacco and health issues.
Litigation against the cigarette industry has historically been
brought by individual cigarette smokers. In 1992, the United States Supreme
Court in Cippollone v. Liggett Group, Inc. ruled that federal legislation
relating to cigarette labeling requirements preempts claims based on failure to
warn consumers about the health hazards of cigarette smoking, but does not
preempt claims based on express warranty, misrepresentation, fraud or
conspiracy. To date, individual cigarette smokers' claims against the cigarette
industry have been generally unsuccessful; however, on August 9, 1996, a
Florida jury in Carter v. Brown & Williamson Tobacco Corporation determined
that a cigarette manufacturer was negligent in the production and sale of its
cigarettes and sold a product that was unreasonably dangerous and defective,
awarding the plaintiffs a total of $750,000 in compensatory damages. The
verdict is on appeal.
Current tobacco litigation generally falls within one of three
categories: class actions, individual actions and actions brought by individual
states or localities, unions and others, to recover health care costs allegedly
attributable to tobacco-related illnesses. The pending actions allege a broad
range of injuries resulting from the use of tobacco products or exposure to
tobacco smoke and seek various remedies, including compensatory and, in some
cases, punitive damages together with certain types of equitable relief such as
the establishment of medical monitoring funds and restitution. The major
tobacco companies are vigorously defending these actions. During 1997, the
health care cost reimbursement actions brought by state Attorneys General in
Mississippi, Florida, and Texas were settled for significant amounts in the
billions of dollars for the first 25 years and the Minnesota Attorney General
action is currently in trial. As noted above, five tobacco companies on June
20, 1997, entered into a Proposed Resolution that contains provisions that, if
enacted by Congress, would significantly impact tobacco litigation. The
Proposed Resolution requires the payment of $368.5 billion dollars over the
first 25 years and would, in effect, limit litigation to individual actions for
compensatory damages. As discussed above, several bills purporting to implement
some or all of the provisions of the Proposed Resolution have been introduced
in Congress and some of those bills include cigars.
The recent increase in the sales of cigars and the publicity such
increase has received may have the effect of increasing the probability of
legal claims. Also, a recent study published in the journal Science reported
that a chemical found in tobacco smoke has been found to cause genetic damage
in lung cells that is identical to damage observed in many malignant tumors of
the lung and, thereby, directly links lung cancer to smoking. In addition, the
National
10
<PAGE>
Cancer Institute is expected to issue in the near future a comprehensive
report on the alleged health effects of cigar smoking. Such studies and
reports could affect pending and future tobacco regulation or litigation.
In May 1996, the Fifth Circuit Court of Appeals in Castano v. American
Tobacco, et al. reversed a Louisiana district court's certification of a
nationwide class consisting essentially of nicotine dependent cigarette
smokers. Notwithstanding the dismissal, new class actions asserting claims
similar to those in Castano have been filed in a number of states. To date, a
number of pending class actions against major cigarette manufacturers have been
certified. One class action that had been pending in Florida was settled in
1997 for several hundred million dollars. The class was composed of flight
attendants allegedly injured through exposure to secondhand smoke.
There can be no assurance that there will not be an increase in
health-related litigation involving tobacco and health issues against the
cigarette industry or similar litigation in the future against cigar
manufacturers. The costs to the Company of defending prolonged litigation and
any settlement or successful prosecution of any material health-related
litigation against manufacturers of cigars, cigarettes or smokeless tobacco or
suppliers to the tobacco industry could have a material adverse effect on the
Company's business.
EXCISE TAXES
Cigars and pipe tobacco have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed
to be increased, in some cases significantly, to fund various legislative
initiatives.
From 1977 until December 31, 1990, cigars were subject to a federal
excise tax of 8.5% of wholesale list price, capped at $20.00 per thousand
cigars. Effective January 1, 1991, the federal excise tax rate on large cigars
(weighing more than three pounds per thousand cigars) increased to 10.625%,
capped at $25.00 per thousand cigars, and increased to 12.75%, capped at $30.00
per thousand cigars, effective January 1, 1993. However, the base on which the
federal excise tax is calculated was lowered effective January 1, 1991 to the
manufacturer's selling price, net of the federal excise tax and certain other
exclusions. In addition, the federal excise tax on pipe tobacco increased from
$0.45 per pound to $0.5625 per pound effective January 1, 1991. The excise tax
on pipe tobacco increased effective January 1, 1993, to $0.675 per pound. The
federal excise tax on little cigars (weighing less than three pounds per
thousand cigars) increased from $0.75 per thousand cigars to $0.9375 per
thousand cigars effective January 1, 1991. The excise tax on little cigars
increased to $1.125 per thousand cigars effective January 1, 1993. The increase
in the federal excise tax rate in 1991 and again in 1993 did not have a
material adverse effect on the Company's product sales.
In the past, there have been various proposals by the federal
government to fund legislative initiatives through increases in federal excise
taxes on tobacco products. In 1993, the Clinton Administration proposed a
significant increase in excise taxes on cigars, pipe tobacco, cigarettes and
other tobacco products to fund the Clinton Administration's health care reform
program. The Company believes that the volume of cigars and pipe tobacco sold
would have been dramatically reduced if excise taxes were enacted as originally
proposed as part of the Clinton Administration's health care reform program. In
1997, Congress approved excise tax increases, effective January 1, 2000 which
will bring the federal excise tax rate on large cigars to 18.063% of wholesale
list price, capped at $42.50 per thousand cigars, and will increase to 20.719%,
capped at $48.75 per thousand cigars, effective January 1, 2002. In addition,
the federal excise tax on pipe tobacco will increase to $0.9567 per pound
effective January 1, 2000 and will increase on January 1, 2002 to $1.097 per
pound. The federal excise tax on little cigars effective January 1, 2000 will
increase to $1.594 per thousand cigars and will increase to $1.828 per thousand
cigars on January 1, 2002. The Company does not believe the federal excise tax
rate increases scheduled for 2000 and again for 2002 will have a material
adverse effect on product sales. Future enactment of significant increases in
excise taxes, such as those initially proposed by the Clinton Administration or
other proposals not linked specifically to health care reform, would have a
material adverse effect on the business of the Company. The Company is unable
to predict the likelihood of the passage or the enactment of future increases
in tobacco excise taxes.
Tobacco products are also subject to certain state and local taxes.
Deficit concerns at the state level continue to exert pressure to increase
tobacco taxes. Since 1964, the number of states that tax cigars has risen from
six to forty-two. Since 1988, the following twelve states have enacted excise
taxes on cigars, where no prior tax had been in effect: California,
Connecticut, New Jersey, New York, North Carolina, Ohio, South Dakota, Rhode
Island, Illinois, Missouri, Michigan and Massachusetts. State excise taxes
generally range from 2% to 78% of the wholesale purchase price. In addition,
the following twelve states have increased existing taxes on large cigars since
1988: Alaska, Arizona, Arkansas, Idaho, Iowa, Maine, New Jersey, New York,
North Dakota, Oregon, Vermont and Washington. Most
11
<PAGE>
recently, New Jersey increased their state excise taxes effective January 1,
1998 on cigars and other tobacco products from 24% to 48%. The following five
states tax little cigars at the same rates as cigarettes: California,
Connecticut, Iowa, Oregon and Tennessee. Except for Tennessee, all of these
states have increased their cigarette taxes since 1988.
In most states, cigar excise taxes are not subject to caps similar to
the federal cigar excise tax. From time to time, the imposition of state and
local taxes has had some impact on sales regionally. The enactment of new state
excise taxes and the increase in existing state excise taxes are likely to have
an adverse effect on regional sales, which in turn, is likely to have an
adverse effect on the Company's results of operations. The Company is unable to
predict the materiality or likelihood of the enactment of new state excise
taxes or the increase in existing state excise taxes and, therefore, is unable
to predict the extent of any adverse effect on the Company's business or
results of operations that may result from the imposition of such taxes.
EMPLOYEES
The Company employs approximately 7,800 persons. The Company believes
that its relations with its employees are satisfactory. Union contracts,
expiring at various dates, cover salesmen in New York and hourly employees in
McAdoo, Pennsylvania and Richmond, Virginia. The McAdoo agreement with the
Teamsters Local 401 expires in December 1998 and the Richmond agreement with
the Warehouse Employees Local 322 expires in January 1999. The Company has
experienced no work stoppages due to labor problems in the last eleven years.
SEASONALITY
The Company's business is generally non-seasonal. However, slight
increases in cigar unit volume are experienced prior to Father's Day and the
Christmas season.
12
<PAGE>
ITEM 2. PROPERTIES
As of December 31, 1997, the principal properties owned or leased by
the Company for use in its business included:
<TABLE>
<CAPTION>
APPROXIMATE
OWNED OR FLOOR SPACE
LOCATION PRINCIPAL USE LEASED (SQ. FT.)
- -------- ------------- ------ ---------
<S> <C> <C> <C>
McAdoo, Pennsylvania Distribution center and mass market cigar Owned 369,000
manufacturing
Cayey, Puerto Rico Mass market cigar manufacturing Owned 280,000
La Romana, Dominican Republic Premium cigar manufacturing Leased 230,000
Comerio, Puerto Rico Tobacco processing Owned 151,000
Santa Rosa, Honduras Premium cigar manufacturing Leased 130,000
Owned 46,000
Richmond, Virginia Pipe tobacco manufacturing Leased 90,000
Danli, Honduras Premium cigar manufacturing Owned 77,000
May Pen, Jamaica Premium cigar manufacturing Owned 25,000
Fort Lauderdale, Florida Administrative office Leased 19,000
</TABLE>
The Company believes that its existing and planned manufacturing
facilities and distribution centers are adequate for the current level of the
Company's operations. The Company believes that additional facilities, if
necessary, would be readily available on a timely basis on commercially
reasonable terms. In 1997, the Company expanded its existing manufacturing
facilities in the Dominican Republic and Danli, Honduras and acquired
additional manufacturing equipment for a total cost of approximately $3.9
million. In addition, the Company invested $14.4 million during 1997 for the La
Flor acquisition.
Further, the Company believes that the leased space that houses its
existing manufacturing and distribution facilities is not unique and could be
readily replaced, if necessary, at the end of the terms of its existing leases
on commercially reasonable terms. The Company's leases have expiration dates
ranging from 1999 to 2008, many of which are renewable at the option of the
Company.
All of the principal properties owned by the Company were subject to
first priority liens granted in favor of the lenders under the credit
agreement, as amended to February 4, 1998 (the "Credit Agreement") of the
Company. Such liens were removed on March 2, 1998 when the Credit Agreement was
replaced by an unsecured new credit agreement (see Note G in the Notes to
Consolidated Financial Statements of the Company included elsewhere in this
report).
The Company has excess capacity in all of its cigar and pipe tobacco
plants. The Company's ability to take advantage of such excess capacity by
increasing shift operations and the production of premium and mass market
cigars may be limited by the availability of trained laborers and shortages in
the supply of tobacco.
The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to lawsuits incidental to its business. The
Company believes that the outcome of such pending legal proceedings in the
aggregate will not have a material adverse effect on the Company's consolidated
financial position. The Company carries general liability insurance but has no
health hazard policy, which, to the best of the Company's knowledge, is
consistent with industry practice. There can be no assurance, however, that the
Company will not experience material health-related litigation in the future.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Since the IPO of the Company's Class A Common Stock at $23.00 per
share in August 1996, the Class A Common Stock has been traded on the New York
Stock Exchange (the "NYSE") under the symbol "CIG." The following table sets
forth for the periods indicated the high and low sale prices per share of the
Class A Common Stock as reported by the NYSE.
HIGH LOW
1997 ---- ---
First Quarter...................................... $27.25 $22.25
Second Quarter..................................... 30.25 21.75
Third Quarter...................................... 40.33 24.67
Fourth Quarter..................................... 44.20 26.00
HIGH LOW
1996 ---- ---
Third Quarter (August 16 to September 30).......... $32.63 $26.00
Fourth Quarter..................................... 31.25 23.50
As of the close of business on March 2, 1998, there were
approximately 162 holders of record of the Company's Class A Common Stock and
one holder of record of the Company's Class B Common Stock.
The Company does not anticipate that any dividends will be declared
on the Class A Common Stock in the foreseeable future. The Company intends to
retain earnings to finance the expansion of its business. For the year ended
December 31, 1996, the Company paid cash dividends of $12.8 million (excluding
the dividend of the proceeds of the IPO). The Company did not pay any
dividends for the year ended December 31, 1997.
The Company, as a holding company with no business operations of its
own, is dependent on dividends and distributions from Consolidated Cigar to
pay any cash dividends or distributions on the Common Stock. The terms of the
Credit Agreement and the 10 1/2% Senior Subordinated Notes due 2003 (the
"Senior Subordinated Notes") of Consolidated CigaR limit the payment of
dividends or distributions to the Company by Consolidated Cigar to an amount
(based on a formula set forth in the indenture (the "Senior Subordinated Notes
Indenture") pursuant to which the Senior Subordinated Notes were issued) equal
to approximately $26.4 million as of December 31, 1997. In connection with the
IPO, Consolidated Cigar entered into an amendment to the Credit Agreement,
which, among other things, permitted Consolidated Cigar to pay a $5.6 million
dividend to the Company and permits Consolidated Cigar to pay dividends and
make distributions on terms substantially similar to those contained in the
Senior Subordinated Notes Indenture. So long as the Credit Agreement is in
effect and the Senior Subordinated Notes are outstanding, each in their
current form, the Company's ability to obtain distributions from Consolidated
Cigar to enable it to fund dividend payments will be limited. Subject to such
restrictions, any future declaration of cash dividends will be at the
discretion of the Company's Board of Directors and will be dependent upon the
Company's results of operations, financial condition, contractual restrictions
and other factors deemed relevant by the Board of Directors of the Company.
On March 2, 1998, the Senior Subordinated Notes were redeemed and the
Credit Agreement was replaced by the New Credit Agreement (see Note G in the
Notes to Consolidated Financial Statements of the Company included elsewhere in
this report).
The Company did not sell any unregistered securities in 1997.
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected historical financial data of the Company for, and as of
the end of, each of the periods indicated in the five-year period ended
December 31, 1997 have been derived from the audited Consolidated Financial
Statements of the Company.
The Company's only material asset is all of the outstanding capital
stock of Consolidated Cigar through which the Company conducts its business
operations. The selected historical financial data, therefore, reflects the
consolidated results of Consolidated Cigar and its predecessors. Prior to
March 3, 1993, Consolidated Cigar was a wholly owned subsidiary of Triple C
Acquisition Corp. ("Triple C"). On March 3, 1993, Mafco Holdings acquired (the
"1993 Acquisition") all of the outstanding shares of Triple C and merged
Triple C into the Consolidated Cigar, with Consolidated Cigar being the
surviving corporation. Accordingly, the selected historical financial data
reflect for the periods (i) prior to March 3, 1993, the results of Triple C
and (ii) subsequent to March 2, 1993, the consolidated results of Consolidated
Cigar, as adjusted to account for the 1993 Acquisition under the purchase
accounting method. The results of operations and financial condition of the
Company subsequent to the 1993 Acquisition ("Post-Acquisition") have been
significantly affected by adjustments resulting from the 1993 Acquisition,
including adjustments for the substantial increase in debt associated with the
1993 Acquisition, the allocation of the purchase price and related
amortization. As a result, the Post-Acquisition results of operations and
financial position of the Company are not comparable with the results of
operations and financial position of the Company prior to the 1993 Acquisition
("Pre-Acquisition").
On August 21, 1996, the Company completed the IPO of 6,075,000 shares
of Class A Common Stock at an initial public offering price of $23.00 per
share. The proceeds, net of underwriter's discount and related fees and
expenses, of $127.8 million, were paid as a dividend to Mafco Consolidated
Group. Simultaneously with the IPO, each of the Company's then outstanding
shares of common stock were converted into 24,600 shares of the newly created
Class B Common Stock, resulting in a total of 24,600,000 shares of Class B
Common Stock outstanding following the IPO. In addition, the Company issued a
non-interest bearing promissory note in an original principal amount of $70.0
million (the "Promissory Note") to Mafco Consolidated Group. On March 20, 1997,
the Company completed the Offering of 5,000,000 shares of Class A Common Stock
sold by Mafco Consolidated Group, reducing its ownership in the Company to
approximately 63.9%.
The following selected historical financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company included elsewhere in this report.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRE-ACQUISITION POST-ACQUISITION
----------------------------------------------------------------------------------------------
TWO MONTHS | TEN MONTHS
ENDED | ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 2, | DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 | 1993 1994 1995 1996 1997
--------- | --------- --------- --------- --------- ---------
<S> <C> | <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA: |
Net sales...................... $ 15,563 | $110,384 $131,510 $158,166 $216,868 $299,067
Cost of sales.................. 9,088 | 69,871 78,836 94,347 126,013 167,285
--------- | --------- --------- --------- --------- ---------
Gross profit................... 6,475 | 40,513 52,674 63,819 90,855 131,782
Selling, general an |
administrative expenses..... 4,580 | 24,956 29,413 32,393 36,776 39,468
--------- | --------- --------- --------- --------- ---------
Operating income............... 1,895 | 15,557 23,261 31,426 54,079 92,314
--------- | --------- --------- --------- --------- ---------
|
|
Interest expense, net.......... (1,660) | (10,930) (12,838) (12,635) (10,619) (10,551)
Minority interest.............. 5 | 209 78 (262) (310) (1,598)
Miscellaneous, net............. (226) | (690) (828) (1,000) (906) (1,355)
--------- | --------- --------- --------- --------- ---------
|
Income before provision for |
income taxes ............... 14 | 4,146 9,673 17,529 42,244 78,810
Provision for income taxes..... 91 | 1,267 1,989 3,599 12,449 25,219
--------- | --------- --------- --------- --------- ---------
|
Net income (loss).............. $ (77) | $ 2,879 $ 7,684 $ 13,930 $ 29,795 $ 53,591
========= | ========= ========= ========= ========= =========
|
|
Basic net income per common |
share(a).................... $ - | $ 0.12 $ 0.31 $ 0.57 $ 1.11 $ 1.75
========= | ========= ========= ========= ========= =========
|
Basic weighted average common |
shares outstanding (a)...... 24,600 | 24,600 24,600 24,600 26,891 30,682
========= | ========= ========= ========= ========= =========
|
Diluted net income per common |
share (a)................... $ - | $ 0.12 $ 0.31 $ 0.57 $ 1.11 $ 1.73
========= | ========= ========= ========= ========= =========
|
Diluted weighted average common |
shares outstanding (a)........ 24,600 | 24,600 24,600 24,600 26,964 31,019
========= | ========= ========= ========= ========= =========
<CAPTION>
POST-ACQUISITION
----------------------------------------------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995 1996 1997
-------------- -------------- -------------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD
END):
Total assets................................ $205,906 $196,909 $191,730 $205,511 $279,433
Long-term debt (including current
portion and the Promissory Note)......... 145,300 126,200 110,600 167,500 173,557
Total stockholders' equity.................. 32,879 40,563 54,328 1,355 55,137
</TABLE>
(Footnotes on following page)
16
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (CONTINUED)
<TABLE>
<CAPTION>
PRE-ACQUISITION POST-ACQUISITION
-------------------------------------------------------------------------------------------------
TWO MONTHS | TEN MONTHS
ENDED | ENDED YEAR ENDED YEAR ENDED YEAR ENDED YEAR ENDED
MARCH 2, | DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 | 1993 1994 1995 1996 1997
-------------------------------- ---------------- -------------- --------------- ------------
<S> <C> |<C> <C> <C> <C> <C>
OTHER DATA: |
Gross margin (b)................. 41.6% | 36.7% 40.1% 40.3% 41.9% 44.1%
Operating margin (b)............. 12.2 | 14.1 17.7 19.9 24.9 30.9
EBITDA(c)........................ $2,792 | $25,156 $30,046 $38,125 $60,547 $99,287
EBITDA margin (c)................ 17.9% | 22.8% 22.8% 24.1% 27.9% 33.2%
Capital expenditures............. $ 115 | $ 881 $ 788 $ 983 $ 5,278 $ 6,176
Amortization of goodwill......... 18 | 1,399 1,771 1,771 1,651 1,702
Cash flows provided by |
operating activities.......... 3,462 | 8,842 14,259 19,801 32,583 17,250
Cash flows provided by |
(used for) investing activities (247) | (611) 5,036 (989) (5,875) (20,290)
Cash flows provided by(used for) |
financing activities............. (2,078) | (12,143) (18,810) (19,367) (25,947) 4,365
(a) Basic and diluted net income per common share has been computed assuming
the conversion of the Company's common stock, prior to the IPO, into Class B
Common Stock as of the beginning of all periods presented and is therefore
based upon the weighted average of 24,600,000 shares of common stock
outstanding prior to the IPO and in 1996, 30,675,000 shares of common stock
outstanding after the IPO. The weighted average of common stock outstanding for
1997 is based on 30,693,332 shares of common stock outstanding. For 1997 and
1996, the only difference between the basic and diluted net income per common
share calculation is the dilutive effect of stock options which are included in
the diluted net income per common share calculation. For the years 1995 and
earlier, there is no difference between the basic and the diluted net income
per common share calculation.
(b) Gross margin is defined as gross profit as a percentage of net sales and
operating margin is defined as operating income as a percentage of net sales.
(c) EBITDA is defined as earnings before interest expense, net, taxes,
extraordinary items, depreciation and amortization and minority interest. The
Company believes that EBITDA is a measure commonly used by analysts, investors
and others interested in the cigar industry. Accordingly, this information has
been disclosed herein to permit a more complete analysis of the Company's
operating performance. EBITDA should not be considered in isolation or as a
substitute for net income or other consolidated statement of operations or cash
flows data prepared in accordance with generally accepted accounting principles
as a measure of the profitability or liquidity of the Company. EBITDA does not
take into account the Company's debt service requirements and other commitments
and, accordingly, is not necessarily indicative of amounts that may be
available for discretionary uses. EBITDA margin is defined as EBITDA as a
percentage of net sales.
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following should be read in conjunction with the Consolidated
Financial Statements of the Company included elsewhere in this report.
OVERVIEW
The Company is the largest manufacturer and marketer of cigars sold in
the United States in terms of dollar sales, with a 1997 market share of
approximately 24% according to the Company's estimates. The Company markets its
cigar products under a number of well-known brand names at all price levels and
in all segments of the growing cigar market. The Company is also a leading
producer of pipe tobacco and is the largest supplier of private label and
branded generic pipe tobacco to mass market retailers. In addition, the Company
distributes a variety of pipe and cigar smokers' accessories. For the year
ended December 31, 1997, cigars accounted for approximately 94% of the
Company's net sales.
The United States cigar industry experienced declining consumption
between 1964 and 1993 at a compound annual unit rate of 3.6% (and, with respect
to large cigar consumption, at a compound annual unit rate of 5.0%). Recently,
cigar smoking has gained popularity in the United States, resulting in a
significant increase in consumption and retail sales of cigars, particularly
for premium cigars. Management believes that this increase in cigar consumption
and retail sales is the result of a number of factors, including: (i) the
increase in the number of adults over the age of 50 (a demographic group
believed to smoke more cigars than any other demographic segment) and (ii) the
emergence of an expanding base of younger affluent adults who have recently
started smoking cigars and who tend to smoke premium cigars. The growth in
industry retail sales of cigars has outpaced unit growth since 1991 primarily
as a result of a combination of increased prices and a shift in the sales mix
to more expensive cigars. There can be no assurance that unit consumption and
retail sales of cigars will continue to increase in the future. On March 10,
1998 the Company announced that due to a number of factors, including
non-recurring timing issues related to retailer/wholesaler inventory
imbalances, the excess of historically unknown brands in the marketplace and
production problems in the Company's supplier's new facility in Mexico, the
Company expects its first quarter 1998 results to show little or no earnings
growth compared with the first quarter of 1997 (before an extraordinary charge
related to debt refinancing).
The increased demand for cigars, especially premium cigars, and the
shortage of experienced skilled laborers caused the Company's backorders of
premium cigars to increase from 4.3 million cigars at December 31, 1995 to 37.0
million cigars at December 31, 1996. Although the demand for premium cigars
continued to increase , the substantial increase in backorders of premium
cigars experienced by the Company in 1996 was due, in part, to the practice by
customers of submitting orders well in excess of required quantities in an
attempt to ensure a larger allocation of the Company's premium cigar
production. As such, the increase in backorders did not accurately reflect the
demand for the Company's premium cigars. Beginning in 1997, the Company
established new ordering policies which had the effect of reducing backorders.
As a result of such new ordering policies and an increase in cigar production,
the amount of premium cigar backorders decreased to 4.8 million cigars at
December 31, 1997. The Company believes the majority of the backorders will be
filled by the end of the first quarter of 1998.
The Company is hiring and training new rollers and bunchers and is
building additional plant capacity to meet future growth in demand for its
premium cigars. Although the Company believes that these measures will enable
it to increase its production of premium cigars, there can be no assurance that
the Company will be able to meet any future level of demand for its premium
cigars. The Company's ability to manufacture premium and mass market cigars may
also be constrained by the ability of tobacco growers and suppliers to meet the
Company's demands for its raw materials in a timely manner.
RESULTS OF OPERATIONS
The discussion set forth below relates to the consolidated results of
operations and financial condition of the Company for the years ended December
31, 1995, 1996 and 1997.
18
<PAGE>
The following table sets forth certain statement of operations data
and the related percentage of net sales (dollars in millions):
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1995 1996 1997
-------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net sales................................... $158.2 100.0% $216.9 100.0% $299.1 100.0%
Cost of sales............................... 94.4 59.7 126.0 58.1 167.3 55.9
----- --------- -------- ---- ------ ----
Gross profit................................ 63.8 40.3 90.9 41.9 131.8 44.1
Selling, general and administrative
expenses............................ 32.4 20.4 36.8 17.0 39.5 13.2
----- --------- -------- ---- ------ ----
Operating income............................ 31.4 19.9 54.1 24.9 92.3 30.9
Interest expense, net....................... 12.6 8.0 10.6 4.9 10.6 3.5
Minority interest and miscellaneous
expense, net........................ 1.3 0.8 1.3 0.6 2.9 1.0
Provision for income taxes.................. 3.6 2.3 12.4 5.7 25.2 8.5
----- --------- -------- ---- ------ ----
Net income.................................. $ 13.9 8.8% $ 29.8 13.7% $ 53.6 17.9%
===== ========= ======== ==== ====== ====
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net sales were $299.1 million and $216.9 million in 1997 and 1996,
respectively, an increase of $82.2 million or 37.9%. The increase in net sales
was primarily due to higher sales of cigars. Cigar sales increased primarily as
a result of both a shift in sales mix to higher priced cigars and price
increases on certain cigar brands, and, to a lesser extent, an increase in
cigar unit volume, particularly in the premium market.
Gross profit was $131.8 million and $90.9 million in 1997 and 1996,
respectively, an increase of $40.9 million or 45.1%. The increase in gross
profit for 1997 was due to the increase in sales, partially offset by increases
in the costs of raw materials. As a percentage of net sales, gross profit
increased to 44.1% in 1997 from 41.9% in 1996, primarily due to the impact of
price increases, increased sales of higher margin premium cigars and fixed
manufacturing costs spread over increased production volume.
Selling, general and administrative ("SG&A") expenses were $39.5
million and $36.8 million in 1997 and 1996, respectively, an increase of $2.7
million or 7.3%, primarily due to increased marketing and selling expenses in
addition to increased professional fees. As a percentage of net sales, SG&A
expenses decreased to 13.2% in 1997 from 17.0% in 1996. The decrease was
primarily due to SG&A expenses increasing at a lower rate relative to the
increase in net sales.
Operating income was $92.3 million and $54.1 million in 1997 and 1996,
respectively, an increase of $38.2 million or 70.7%. As a percentage of net
sales, operating income increased to 30.9% in 1997 from 24.9% in 1996,
primarily due to higher gross profit margins and a decrease in SG&A expenses as
a percentage of net sales.
Interest expense, net, was $10.6 million in both 1997 and 1996.
Interest expense for 1997 reflects lower average borrowings under the Company's
Credit Agreement which was offset by slightly higher interest rates. In
addition, the Company had funded the La Flor acquisition in the third quarter
through borrowings of approximately $15.0 million under the Credit Agreement.
The provision for income taxes as a percentage of income before income
taxes was 32.0% and 29.5% in 1997 and 1996, respectively. The increase in the
effective rate is primarily due to an increase in income subject to United
States taxation during 1997 partially offset by tax benefits associated with
the Company's operations in Puerto Rico. Income tax expense for 1997 and 1996
reflect provisions for federal income taxes, Puerto Rico tollgate taxes and on
Puerto Rico source income, together with state income and franchise taxes.
As a result of the foregoing, the Company had net income of $53.6
million in 1997, compared to $29.8 million in 1996, an increase of $23.8
million or 79.9%.
19
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net sales were $216.9 million and $158.2 million in 1996 and 1995,
respectively, an increase of $58.7 million or 37.1%. The increase in net sales
was primarily due to higher sales of cigars. Cigar sales, particularly in the
premium market, increased primarily as a result of both a shift in sales mix to
higher priced cigars and price increases on certain cigar brands, and, to a
lesser extent, an increase in cigar unit volume.
Gross profit was $90.9 million and $63.8 million in 1996 and 1995,
respectively, an increase of $27.1 million or 42.4%. The increase in gross
profit for 1996 was due to the increase in sales, partially offset by increases
in the costs of raw materials. As a percentage of net sales, gross profit
increased to 41.9% in 1996 from 40.3% in 1995, primarily due to fixed
manufacturing costs spread over increased production volume.
SG&A expenses were $36.8 million and $32.4 million in 1996 and 1995,
respectively, an increase of $4.4 million or 13.5%, primarily due to increased
compensation expense in addition to increased marketing and selling expenses.
As a percentage of net sales, SG&A expenses decreased to 17.0% in 1996 from
20.4% in 1995. The decrease was primarily due to SG&A expenses increasing at a
lower rate relative to the increase in net sales.
Operating income was $54.1 million and $31.4 million in 1996 and 1995,
respectively, an increase of $22.7 million or 72.1%. As a percentage of net
sales, operating income increased to 24.9% in 1996 from 19.9% in 1995,
primarily due to higher gross profit margins and a decrease in SG&A expenses as
a percentage of net sales.
Interest expense, net, was $10.6 million and $12.6 million in 1996 and
1995, respectively. The decrease of $2.0 million was primarily a result of a
lower amount of outstanding debt due to third parties during 1996.
The provision for income taxes as a percentage of income before income
taxes was 29.5% and 20.5% in 1996 and 1995, respectively. The increase in the
effective rate is primarily due to an increase in income subject to United
States taxation during 1996 partially offset by tax benefits associated with
the Company's operations in Puerto Rico. Income tax expense for 1996 reflects
provisions for federal income taxes, Puerto Rico tollgate taxes and taxes on
Puerto Rico source income, together with state and franchise taxes. Income tax
expense for 1995 reflects provisions for federal income taxes, net of tax
benefit resulting from the utilization of net operating loss carryforwards,
Puerto Rico tollgate taxes and taxes on Puerto Rico source income, along with
state and franchise taxes.
As a result of the foregoing, the Company had net income of $29.8
million in 1996, compared to $13.9 million in 1995, an increase of $15.9
million or 113.9%.
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities were $17.2 million, $32.6
million and $19.8 million for 1997, 1996, and 1995, respectively. The decrease
in cash flows of $15.4 million between 1997 and 1996 was due primarily to a
significant increase in inventories and other working capital requirements,
partially offset by an increase in net income. The increase of $12.8 million
from 1995 to 1996 was primarily due to an increase in net income partially
offset by increased working capital requirements.
Cash flows used for investing activities were $20.3 million, $5.9
million and $1.0 million for 1997, 1996, and 1995, respectively. Cash flows
used for investing activities for 1997 include $14.4 million for the La Flor
acquisition. Capital expenditures were $6.2 million, $5.3 million and $1.0
million for the years ended December 31, 1997, 1996, and 1995, respectively.
The capital expenditures in 1995 relate primarily to investments in cigar
manufacturing equipment which were part of the continual maintenance and
upgrading of the Company's manufacturing facilities. The capital expenditures
in 1996 and 1997 relate primarily to investments in the Company's manufacturing
facilities to meet the increased demand for the Company's premium cigars,
including expansion of its existing facilities in the Dominican Republic and
Danli, Honduras. In 1996, capital expenditures also included construction, as
part of a joint venture, of a new facility in Jamaica. In 1998, the Company
plans to continue expanding its facilities in the Dominican Republic and in
Santa Rosa, Honduras, as well as to add equipment to other facilities for a
total cost of approximately $7.5 million.
20
<PAGE>
Cash flows provided by financing activities for 1997 were $4.4 million
and consisted primarily of net borrowings under the Credit Agreement reduced by
payments of the Promissory Note. Cash flows used for financing activities in
1996 and 1995 were $25.9 million and $19.4 million, respectively. Such cash
flows were used to make net repayments of borrowings, primarily under the
Credit Agreement. In addition, cash flows used for financing activities in 1996
and 1995 were used to pay $12.8 million of dividends to Mafco Consolidated
Group during 1996 and a $5.0 million dividend to Mafco Holdings during 1995. In
1996, cash flows included $127.8 million of net proceeds from the IPO, which
were immediately paid as a dividend to Mafco Consolidated Group.
In December 1993 and January 1994, the Company entered into two
five-year interest rate swap agreements in an aggregate notional amount of
$85.0 million. Under the terms of the agreements, the Company received a fixed
interest rate averaging 5.8% and paid a variable interest rate equal to the six
months London inter-bank offered rate (LIBOR). In October 1997, the Company
paid $0.5 million to terminate the swap agreements upon completion of the
coupon periods, which ended in December 1997 and January 1998. The termination
payment will be amortized over the remaining original term of the swap
agreements.
The Company funded working capital requirements, capital expenditures
and debt service requirements through cash flows from operations and borrowings
under the Credit Agreement through February 1998. As of December 31, 1997,
there was approximately $23.4 million unused and available under the Credit
Agreement, after taking into account approximately $0.7 million utilized to
support letters of credit.
On March 2, 1998 the Company entered into a new credit agreement (the
"New Credit Agreement") with Chase Manhattan Bank ("Chase") as administrative
agent for the lenders. The New Credit Agreement provides for an unsecured
revolving credit facility in an aggregate principal amount not to exceed $140.0
million. The New Credit Agreement was used to satisfy obligations under the
Credit Agreement as of March 2, 1998, and will replace it as the source for
working capital needs and other general corporate purposes. The Senior
Subordinated Notes were redeemed with borrowings under the New Credit
Agreement. As of March 2, 1998, there was approximately $13.1 million unused
and available under the New Credit Agreement, after taking into account $0.4
million utilized to support letters of credit. The New Credit Agreement
requires the Company to maintain certain financial tests including maximum
leverage ratios and minimum interest coverage ratios. The New Credit Agreement
also contains customary events of default and permits Consolidated Cigar to pay
dividends to the Company which include amounts required for the Company to
satisfy the payment terms of the Promissory Note.
On February 11, 1998 the Company's Board of Directors authorized the
Company to repurchase from time to time up to 4.0 million shares of the
Company's Common Stock at prices deemed by the Company's officers to be
advantageous. The Board specified that any such purchase be subject to
compliance with applicable law and any credit or other agreements by which the
Company may be bound.
The Company intends to fund working capital requirements, capital
expenditures and debt service requirements for the forseeable future through
cash flows from operations and borrowings under the New Credit Agreement. See
Note G of the Notes to Consolidated Financial Statements of the Company
included elsewhere in this report.
YEAR 2000 ISSUE
The Company is currently working to resolve the potential impact of
the Year 2000 on the processing of date-sensitive information by the Company's
computerized information systems. The Year 2000 issue is the result of computer
programs being written using two digits (rather than four) to define the
applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the Year
2000, which could result in miscalculations or system failures. Based on a
recent assessment, the Company currently believes that with modifications to
existing software and conversions to new software, the Year 2000 issue will not
pose significant operational problems. If such modifications and conversions
are not made, or are not completed in a timely way, the Year 2000 issue could
have a material impact on operations. In addition, formal communications with
all significant suppliers and customers have been initiated to determine the
extent to which related interfaces with company systems are vulnerable if these
third parties fail to remediate their own Year 2000 issues. There can be no
assurance that these third-party systems will be converted on a timely basis
and that they will not adversely affect the Company's systems.
The Company will utilize both internal and external resources to
complete and test Year 2000 modifications and expects to substantially complete
this process by the early part of 1999. Based on preliminary information, costs
of
21
<PAGE>
addressing potential problems are not currently expected to have a material
adverse impact on the Company's financial position, results of operations or
cash flows in future periods. However, if the Company, its customers or vendors
are unable to resolve such processing issues in a timely manner, it could
result in a material financial risk. Accordingly, the Company plans to devote
the necessary resources to resolve all significant Year 2000 issues in a timely
manner.
INFLATION
The Company has historically been able to pass inflationary increases
for raw materials and other costs onto its customers through price increases
and anticipates that it will be able to do so in the future.
TAXATION AND REGULATION
EXCISE TAXES
Cigars and pipe tobacco have long been subject to federal, state and
local excise taxes, and such taxes have frequently been increased or proposed
to be increased, in some cases significantly, to fund various legislative
initiatives. In particular, there have been proposals by the federal government
in the past to reform health care through a national program to be funded
principally through increases in federal excise taxes on tobacco products.
Enactment of significant increases in or new federal, state or local excise
taxes would result in decreased unit sales of cigars and pipe tobacco, which
would have a material adverse effect on the Company's business. In 1997
Congress passed federal excise tax increases amounting to 41.7% effective
January 1, 2000 with an additional increase of 14.7% scheduled for January 1,
2002. The Company does not believe these increases will have a material adverse
effect on the business.
POSSESSIONS TAX CREDIT
Prior to December 31, 1993, income earned by the Company from its
Puerto Rico operations was subject to the provisions of Section 936 of the
Internal Revenue Code of 1986, as amended (the "Code"). Section 936 of the Code
allowed for a "possessions tax credit" against United States federal income tax
for the amount of United States federal income tax attributable to the Puerto
Rico taxable earnings. As part of the Omnibus Budget Reconciliation Act of
1993, for the years after December 31, 1993, the possessions tax credit has
been limited based upon a percentage of qualified wages in Puerto Rico, plus
certain amounts of depreciation (the "Current Limitation"). The Company
believes that it qualified for the possessions tax credit during 1997 and all
prior years. The Company expects that it will continue to qualify for the
possessions tax credit for every year that such credit is available in such
amounts to offset the majority of any United States federal income tax related
thereto, but eligibility and the amounts of the credit will depend on the facts
and circumstances of the Company's Puerto Rico operations during each of the
taxable years subsequent to 1997. Failure to receive the possessions tax credit
attributable to the Company's Puerto Rico operations would have a material
adverse effect on the Company.
On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"SBJPA") was enacted into law. Under the SBJPA, the possessions tax credit
allowed by Section 936 of the Code, was repealed subject to special grandfather
rules for which the Company would be eligible, provided that the Company does
not add a "substantial new line of business." Under the grandfather rules, for
the Company's taxable years beginning after December 31, 2001 and before
January 1, 2006, the Company's business income from its Puerto Rico operations
eligible for the possessions tax credit would, in addition to the Current
Limitation, generally be limited to its average annual income from its Puerto
Rico operations, adjusted for inflation, computed during the Company's five
most recent taxable years ending before October 14, 1995 and excluding the
highest and lowest years (the "Income Limitation"). Alternatively, the Company
may elect to use as its Income Limitation, the annualized amount of its
possession business income for the first 10 months of calendar year 1995. For
taxable years after December 31, 2005, the possessions tax credit would be
eliminated. The repeal of the possessions tax credit could have a material
adverse effect on the Company for taxable years beginning after December 31,
2001 and before January 1, 2006, to the extent that the Company's annual income
from its Puerto Rico operations exceeds its average annual income from its
Puerto Rico operations (as computed in the manner described in the preceding
sentence), and for taxable years after December 31, 2005. Although it does not
currently have any definitive plans with respect thereto, the Company expects
to evaluate alternatives that may be available to it in order to mitigate the
effects of the SBJPA. On February 6, 1997, President Clinton proposed certain
tax law changes which, if enacted, would eliminate the Income Limitation,
extend the possession tax credit indefinitely and make the credit available to
newly established business operations.
22
<PAGE>
PUERTO RICO TAX EXEMPTION
Pursuant to a grant of industrial tax exemption which expires in 2002,
income earned by Congar International Corporation from the manufacture of
cigars in Puerto Rico enjoys a 90% income tax exemption from Puerto Rican
income taxes. The remaining 10% of such income is taxed at a maximum surtax
rate of 45%, resulting in an effective income tax rate for such income of
approximately 4.5% under current tax rates. Funds repatriated to the Company
are subject to a maximum Puerto Rican tollgate tax of 10%. Legislation enacted
in Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods. There
can be no assurance that the Puerto Rico tax exemption will not be limited or
eliminated in the future. Any significant limitation on or elimination of the
Puerto Rico tax exemption would have a material adverse effect on the Company.
See Note I of the Notes to Consolidated Financial Statements of the Company
included elsewhere in this report.
REGULATION
Cigar manufacturers, like other producers of tobacco products, are
subject to regulation in the United States at the federal, state and local
levels. The recent trend is toward increasing regulation of the tobacco
industry. There can be no assurance as to the ultimate content, timing or
effect of any additional regulation of tobacco products by any federal, state,
local or regulatory body, and there can be no assurance that any such
legislation or regulation would not have a material adverse effect on the
Company's business.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Form 10-K are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. Among the
factors that could affect the Company's actual results and could cause results
to differ from those contained in the forward-looking statements contained
herein is the Company's ability to implement its business strategy
successfully, which will be dependent on business, financial, and other factors
beyond the Company's control, including, among others, prevailing changes in
consumer preferences, access to sufficient quantities of raw materials,
availability of trained laborers and changes in tobacco products regulation.
There can be no assurance that the Company will continue to be successful in
implementing its business strategy. Other factors could also cause actual
results to vary materially from the future results covered in such
forward-looking statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Registrant's Consolidated Financial Statements and Notes to
Consolidated Financial Statements, and the report of Ernst & Young LLP,
independent certified public accountants, with respect thereto, referred to in
the Index to Consolidated Financial Statements and Financial Statement
Schedules of the Registrant contained in Item 14(a), appear on pages F-1
through F-26 of this Form 10-K and are incorporated herein by reference
thereto. Information required by schedules called for under Regulation S-X is
either not applicable or is included in the Consolidated Financial Statements
or Notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
The information required by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the registrant's definitive proxy
statement for its 1998 annual meeting of stockholders, which is to be filed
pursuant to Regulation 14A no later than 120 days following the end of the
fiscal year reported upon.
23
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) and (2) Financial Statements and Schedules
See List of Financial Statements and Schedules which appears
on page F-1 herein.
3) Exhibits
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference from Exhibit 3.1 to
Registrant's Registration Statement on Form S-1 (Registration
No. 333-20743)).
3.2 Amended and Restated By-laws of Registrant (incorporated by
reference from Exhibit 3.2 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-20743)).
4.1 Specimen Certificate of Class A Common Stock (incorporated by
reference from Exhibit 4.1 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.1(a) Guarantee and Security Agreement, dated as of March 3, 1993,
between the Registrant and The Chase Manhattan Bank, N.A.
(incorporated by reference from Exhibit 10.16(a) to
Registrant's Registration Statement on Form S-1 (Registration
No. 333-6819)).
10.1(b) First Amendment to Guarantee and Security Agreement, dated as
of July 31, 1996 (incorporated by reference from Exhibit
10.16(b) to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
10.3 Reimbursement Agreement, dated as of March 3, 1993, between
Consolidated Cigar Corporation and Mafco Holdings Inc.
(incorporated by reference from Exhibit 10.10 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-6819)).
10.4 Amended and Restated Tax Sharing Agreement entered into as of
June 15, 1995 by and among Mafco Holdings Inc., Mafco
Consolidated Group Inc., the Registrant and Consolidated Cigar
Corporation and its subsidiaries (incorporated by reference
from Exhibit 10.10(a) to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
10.5 Registration Rights Agreement, dated as of August 21, 1996,
between the Registrant and Mafco Consolidated Group Inc.
(incorporated by reference from Exhibit 10.22 to Amendment No.
1 to Mafco Consolidated Group Inc.'s Registration Statement on
Form S-1 (Registration No. 333-15257)).
10.6 Registrant's Promissory Note (incorporated by reference from
Exhibit 10.5 to Amendment No. 1 to Mafco Consolidated Group
Inc.'s Registration Statement on Form S-1 (Registration No.
333-15257)).
10.8 Executive Employment Agreement, dated as of August 1, 1996,
between Consolidated Cigar Corporation and Theo W. Folz
(incorporated by reference from Exhibit 10.17 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-6819)).
10.9 Employment Agreement, dated August 1, 1996, between
Consolidated Cigar Corporation and Richard L. DiMeola
(incorporated by reference from Exhibit 10.3 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-20743)).
10.10 Employment Agreement, dated August 1, 1996, between
Consolidated Cigar Corporation and Gary R. Ellis (incorporated
by reference from Exhibit 10.9 to Amendment No. 1 of Mafco
Consolidated Group Inc.'s Registration Statement on Form S-1
(Registration No. 333-15257)).
24
<PAGE>
10.11 Employment Agreement, dated July 1, 1996, between Consolidated
Cigar Corporation and James L. Colucci (incorporated by
reference from Exhibit 10.5 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-20743)).
10.12 Employment Agreement, dated August 1, 1996, between
Consolidated Cigar Corporation and George F. Gershel, Jr.
(incorporated by reference from Exhibit 10.6 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-20743)).
10.13 Employment Agreement, dated July 1, 1995, Consolidated Cigar
Corporation and Denis F. McQuillen (incorporated by reference
from Exhibit 10.7 to Consolidated Cigar Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.14 Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated
by reference from Exhibit 10.12 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.15 Pension Plan Merger Agreement into Abex Retirement Plan
(incorporated by reference from Exhibit 10.1 to Consolidated
Cigar Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
*10.16 Credit Agreement between Consolidated Cigar Corporation and
The Chase Manhattan Bank, as Administrative Agent, Chase
Securities Inc., as Arranger, Nationsbank, N.A., as
Documentation Agent and Credit Suisse First Boston, as
Syndication Agent, dated as of March 2, 1998.
*10.17 Preamble to the Consolidated Cigar Corporation Retirement
Plan, dated as of December 19, 1997.
*21.1 Subsidiaries of the Registrant.
*24.1 Powers of Attorney
*27.0 Financial Data Schedule
- -------------------
* Filed herewith
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December
31, 1997.
25
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CONSOLIDATED CIGAR HOLDINGS INC.
March 26, 1998 By: /s/ Gary R. Ellis
-------------- -------------------------------
Date Gary R. Ellis
Senior Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name TITLE DATE
---- ----- ----
<S> <C> <C>
* Director March 26, 1998
- -------------------------------------
Ronald O. Perelman
* Director March 26, 1998
- -------------------------------------
Howard Gittis
* Director March 26, 1998
- -------------------------------------
Philip E. Beekman
* Director March 26, 1998
- -------------------------------------
Michael J. Fuchs
* Director March 26, 1998
- -------------------------------------
Robert Sargent Shriver III
/s/ Theo W. Folz Chairman of the Board of Directors, President and March 26, 1998
- ------------------------------------ Chief Executive Officer (Principal Executive Officer)
Theo W. Folz
/s/ Gary R. Ellis
- ------------------------------------ Senior Vice President and Chief Financial Officer March 26, 1998
Gary R. Ellis (Principal Financial Officer)
/s/ James M. Parnofiello Vice President and Controller March 26, 1998
- ------------------------------------ (Principal Accounting Officer)
James M. Parnofiello
</TABLE>
*Gary R. Ellis, by signing his name hereto, does hereby execute this
report on behalf of the directors and officers of the Registrant indicated
above by asterisks, pursuant to powers of attorney duly executed by such
directors and officers and filed as exhibits to this report.
By: /s/ Gary R. Ellis
--------------------
Gary R. Ellis
Attorney-in-fact
26
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
AUDITED CONSOLIDATED FINANCIAL STATEMENTS -----
Report of Independent Certified Public Accountants................... F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997......... F-3
Consolidated Statements of Operations
for the years ended December 31, 1995, 1996 and 1997............. F-5
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995, 1996 and 1997............. F-6
Consolidated Statements of Cash Flows
for the years ended December 31, 1995, 1996 and 1997............. F-7
Notes to Consolidated Financial Statements........................... F-9
The following financial statements schedules of
Consolidated Cigar Holdings Inc. are included in Item 14(d):
Schedule I - Condensed Financial Information of Registrant....... F-23
Schedule II - Valuation and Qualifying Accounts.................. F-26
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
Consolidated Cigar Holdings Inc.
We have audited the accompanying consolidated balance sheets of
Consolidated Cigar Holdings Inc. and subsidiaries (the "Company") as of
December 31, 1996 and 1997 and the related consolidated statements of
operations, stockholders' equity, and cash flows for each of the three years in
the period ended December 31, 1997. Our audits also included the financial
statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of the Company at December 31, 1996 and 1997, and the consolidated
results of its operations and cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
herein.
Miami, Florida
February 4, 1998, except for Note G (e),
as to which the date is March 2, 1998
/S/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
F-2
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------------- --------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,906 $ 3,231
Accounts receivable, less allowances
of $5,604 and $6,008, respectively 19,498 24,969
Inventories 45,957 88,945
Deferred taxes 3,914 4,187
Prepaid and other 1,677 13,220
------------------- --------------------
Total current assets 72,952 134,552
Property, plant and equipment, net 37,224 39,511
Trademarks, less accumulated amortization
of $3,319 and $4,190, respectively 31,155 30,876
Goodwill, less accumulated amortization
of $6,593 and $8,295, respectively 59,723 70,590
Other intangibles and assets, less accumulated
amortization of $3,406 and $4,359, respectively 4,457 3,904
------------------- --------------------
Total assets $ 205,511 $ 279,433
=================== ====================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1996 1997
------------------- --------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Current portion of promissory note due to affiliate $ 10,000 $ 10,000
Current portion of long-term debt - 657
Accounts payable 7,197 13,704
Accrued expenses and other 21,812 18,440
------------------- --------------------
Total current liabilities 39,009 42,801
Long-term debt due to third parties 97,500 112,900
Promissory note due to affiliate 60,000 50,000
Deferred taxes 5,851 13,810
Other liabilities 1,796 4,785
------------------- --------------------
Total liabilities 204,156 224,296
------------------- --------------------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $0.01 per share, 20,000,000 shares
authorized, no shares issued and outstanding - -
Class A Common Stock, par value $0.01 per share; 300,000,000
shares authorized, 6,075,000 and 11,093,332 shares issued and -
outstanding, respectively 61 111
Class B Common Stock, par value $0.01 per share; 250,000,000 shares
authorized, 24,600,000 and 19,600,000 shares issued and
outstanding, respectively 246 196
Capital deficiency (13,314) (13,123)
Retained earnings 14,362 67,953
------------------- --------------------
Total stockholders' equity 1,355 55,137
------------------- --------------------
Total liabilities and stockholders' equity $ 205,511 $ 279,433
=================== ====================
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
-------------------- ------------------- ---------------------
<S> <C> <C> <C>
Net sales $ 158,166 $ 216,868 $ 299,067
Cost of sales 94,347 126,013 167,285
-------------------- ------------------- --------------------
Gross profit 63,819 90,855 131,782
Selling, general
and administrative expenses 32,393 36,776 39,468
-------------------- ------------------- --------------------
Operating income 31,426 54,079 92,314
-------------------- ------------------- --------------------
Other expenses:
Interest expense, net (12,635) (10,619) (10,551)
Minority interest (262) (310) (1,598)
Miscellaneous, net (1,000) (906) (1,355)
-------------------- ------------------- --------------------
(13,897) (11,835) (13,504)
-------------------- ------------------- --------------------
Income before provision
for income taxes 17,529 42,244 78,810
Provision for income taxes 3,599 12,449 25,219
-------------------- ------------------- --------------------
Net income $ 13,930 $ 29,795 $ 53,591
==================== =================== ====================
Basic net income per common share $ 0.57 $ 1.11 $ 1.75
==================== =================== ====================
Basic weighted average common
shares outstanding 24,600,000 26,890,574 30,681,926
==================== =================== ====================
Diluted net income per common share $ 0.57 $ 1.11 $ 1.73
==================== =================== ====================
Diluted weighted average common
shares outstanding 24,600,000 26,963,752 31,018,727
==================== =================== ====================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Additional
Paid-in
Class A Class B Capital
Common Common Common (Capital Retained
Stock Stock Stock Deficiency) Earnings Total
---------- ------------ ------------- ---------------- ------------- --------------
<S> <S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 $ 1 $ - $ - $ 29,999 $ 10,563 $ 40,563
Net income for the year 13,930 13,930
Cash dividends paid - - - - (5,000) (5,000)
Contribution to capital by parent - - - 4,835 - 4,835
---------- ------------ ------------- ---------------- ------------- --------------
Balance at December 31, 1995 1 - - 34,834 19,493 54,328
---------- ------------ ------------- ---------------- ------------- --------------
Net income for the year 29,795 29,795
Promissory note dividend - - - (47,842) (22,158) (70,000)
Net proceeds from initial public offering (1) 61 246 127,503 - 127,809
Cash dividends paid - - - (127,809) (12,768) (140,577)
---------- ------------ ------------- ---------------- ------------- --------------
Balance at December 31, 1996 - 61 246 (13,314) 14,362 1,355
---------- ------------ ------------- ---------------- ------------- --------------
Net income for the year - - - - 53,591 53,591
Exercise of stock options - - - 480 - 480
Secondary public offering and retirement
of Class B Common Stock sold - 50 (50) - - -
Assumption of pension
liability from parent - - - (289) - (289)
---------- ------------ ------------- ---------------- ------------- --------------
Balance at December 31, 1997 $ - $111 $196 $ (13,123) $ 67,953 $ 55,137
========== ============ ============= ================ ============= ==============
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 13,930 $ 29,795 $ 53,591
Adjustments to reconcile net income
to net cash provided by
operating activities:
Depreciation and amortization 7,699 7,357 7,906
Deferred income (205) (177) (160)
Changes in assets and liabilities
net of acquisitions:
Increase in:
Accounts receivable (1,971) (4,615) (4,597)
Inventories (1,148) (6,935) (39,588)
Deferred taxes and other (1,367) (1,762) (11,931)
Increase (decrease) in:
Accounts payable (276) 3,400 5,841
Accrued expenses and
other liabilities 3,139 5,520 6,188
-------------------- ------------------- --------------------
Net cash provided by operating activities 19,801 32,583 17,250
-------------------- ------------------- --------------------
Cash flows used for investing activities:
Capital expenditures (983) (5,278) (6,176)
Acquisition, net of cash acquired - - (14,420)
Investment in joint venture - (482) -
Decrease (increase) in other assets (6) (115) 306
-------------------- ------------------- --------------------
Net cash used for investing activities (989) (5,875) (20,290)
-------------------- ------------------- --------------------
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS - (Continued)
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1995 1996 1997
-------------------- ------------------- --------------------
<S> <C> <C> <C>
Cash flows provided by (used for) financing activities:
Net proceeds from initial public offering $ - $ 127,809 $ -
Exercise of stock options - - 480
Borrowings (repayment) of revolving loan, net (15,600) (13,100) 15,565
Cash dividends paid (5,000) (140,577) -
Due to affiliates and other borrowings, net 1,233 (79) (11,680)
-------------------- ------------------- --------------------
Net cash provided by
(used for) financing activities (19,367) (25,947) 4,365
-------------------- ------------------- --------------------
Increase (decrease) in cash and
cash equivalents (555) 761 1,325
Cash and cash equivalents,
beginning of period 1,700 1,145 1,906
-------------------- ------------------- --------------------
Cash and cash equivalents, end of period $ 1,145 $ 1,906 $ 3,231
==================== =================== ====================
Supplemental disclosures of cash flow information:
Interest paid during the period $ 13,067 $ 10,927 $ 10,818
Income taxes paid during the period 1,477 12,676 26,515
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- BASIS OF PRESENTATION
Consolidated Cigar Holdings Inc. (formerly Consolidated Cigar (Parent)
Holdings Inc.) (the "Company") is a holding company with no business operations
of its own and was formed as a Delaware corporation on January 6, 1993 to hold
all of the outstanding capital stock of Consolidated Cigar Corporation
("Consolidated Cigar"), through which the Company conducts its business
operations. The results of operations and financial position of the Company
therefore reflect the consolidated results of operations and financial position
of Consolidated Cigar. Unless the context otherwise requires, all references in
these notes to the consolidated financial statements of the Company shall mean
Consolidated Cigar Holdings Inc. and its subsidiaries.
On August 21, 1996, the Company completed an initial public offering
(the "IPO") in which it issued and sold 6,075,000 shares of its Class A Common
Stock for $23.00 per share. The proceeds, net of underwriters' discount and
related fees and expenses, of $127.8 million, were paid as a dividend to Mafco
Consolidated Group Inc. ("Mafco Consolidated Group"). Simultaneously with the
IPO each of the Company's then outstanding shares of common stock was converted
into 24,600 shares of the newly created Class B Common Stock which totaled
24,600,000 shares. On March 20, 1997 the Company completed a secondary offering
(the "Offering"), of 5,000,000 shares of Class A Common Stock sold by Mafco
Consolidated Group, reducing its ownership in the Company to approximately
63.9%. The Company did not receive any of the proceeds from the Offering. As a
result of Mafco Consolidated Group's ownership decreasing below 80%, the
Company is no longer subject to the consolidated tax return provisions of the
Tax Sharing Agreement with Mafco Consolidated Group and as such, has begun
paying taxes directly to the federal government and will be filing tax returns
on a separate company basis.
Since July 9, 1997 Mafco Consolidated Group has been a wholly owned
subsidiary of Mafco Holdings Inc. ("Mafco Holdings") which is owned by Ronald
O. Perelman. Prior to that date Mafco Holdings held an 85% ownership interest
in Mafco Consolidated Group.
NOTE B -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
The Company operates principally in one segment, manufacturing,
distributing, and selling cigars in all sections of the industry. The Company
also manufactures smoking tobaccos for sale under its own brand names, in bulk
to tobacconists as well as private label brands for chain stores and wholesale
distributors.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its majority and wholly owned subsidiaries. All significant
inter-company accounts and transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
Cash equivalents are considered to be all highly liquid investments
with maturities of three months or less when acquired and exclude restricted
cash.
INVENTORIES
Leaf tobacco is carried at the lower of average cost or market. In
accordance with generally recognized industry practice, all leaf tobacco
inventory is classified as current although portions of such inventory, because
of the duration of the aging process, ordinarily would not be utilized within
one year. Cigars and other inventories are generally valued at the lower of
cost (using the first-in, first-out method) or market.
F-9
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost and depreciated on a
straight-line basis over the estimated useful lives of the assets which range
from 5 years to 20 years. Leasehold improvements are amortized over their
estimated useful lives or the term of the lease, whichever is shorter. Repairs
and maintenance are charged to operations as incurred and expenditures for
additions and improvements are capitalized.
TRADEMARKS
Trademarks consist of registered and unregistered tradenames of cigars
or other tobacco brands which are being amortized on a straight-line basis over
40 years.
GOODWILL
Goodwill represents the excess of cost over fair value of net assets
acquired resulting from the Mafco Holdings acquisition of Consolidated Cigar in
1993 (the "1993 Acquisition") and all subsequent acquisitions. Goodwill is
amortized over 40 years on a straight-line basis which is consistent with
industry practice. The Company's accounting policy regarding the assessment of
the recoverability of the carrying value of goodwill and other intangibles is
to review the carrying value of goodwill and other intangibles if the facts and
circumstances suggest that they may be impaired. If this review indicates that
goodwill and other intangibles will not be recoverable, as determined based on
the undiscounted future cash flows of the Company, the carrying value of
goodwill and other intangibles will be reduced to their estimated fair value.
IMPAIRMENT OF LONG-LIVED ASSETS
In 1996 the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121 requires impairment
losses to be recorded on long-lived assets used in operations when indicators
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. The
adoption of SFAS 121 has not impacted the operating results of the Company.
REVENUE RECOGNITION
Revenue is recognized from product sales upon shipment. Allowances for
sales returns, customer incentive programs and promotions are recorded at the
time of sale.
ADVERTISING
The Company expenses advertising costs as incurred. Amounts charged to
advertising expense were $1.2 million, $2.5 million, and $3.7 million for the
years ended December 31, 1995, 1996 and 1997, respectively.
NET INCOME PER COMMON SHARE
In 1997, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS 128 replaced the
calculation of primary and fully diluted earnings per share ("EPS") with basic
and diluted EPS. Unlike primary EPS, basic EPS will typically be higher than
primary EPS due to the exclusion of any dilutive effects of stock options from
the calculation. Diluted EPS is very similar to the previously reported fully
diluted EPS. EPS amounts for all periods presented have been restated to
conform with SFAS 128. For the years ended December 31, 1996 and 1997, the only
difference between the basic and diluted EPS calculation is the dilutive impact
of stock options which are included in the diluted EPS calculations. For the
year ended December 31, 1995, there is no difference between the basic and
diluted EPS calculation.
F-10
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTEREST RATE SWAPS
The Company entered into interest rate swap agreements to modify the
interest characteristics of its outstanding debt from a fixed to a floating
rate basis. These agreements involve the receipt of fixed rate amounts in
exchange for floating rate interest payments over the life of the agreement
without an exchange of the underlying principal amount. The differential to be
paid or received is accrued as interest rates change and recognized as an
adjustment to interest expense related to the debt. The related amount payable
to or receivable from counterparties is included in accrued expenses. The swap
agreements were terminated in October 1997 and the termination payment is being
amortized over the remaining original term of the swap agreement, (see Note G).
To the extent previous interest rate swap agreements have been terminated, the
resulting gain is being recognized over the remaining original life of the
terminated agreements.
STOCK-BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"). SFAS 123 encourages, but does not
require, companies to record compensation plans at fair value. The Company has
chosen, in accordance with provisions of SFAS 123, to apply Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued Employees" ("APB
25") for its stock plan. Under APB 25, because the exercise price of the
Company's stock options were not less than the market price of the underlying
stock on the date of grant, no compensation expense was recognized.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of accounts receivable. The
Company's customers are geographically dispersed but are concentrated in the
tobacco industry. The Company historically has had no material losses on its
accounts receivable from customers in the tobacco industry in excess of
allowances provided.
USE OF ESTIMATES
Preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from these estimates.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS No. 131"). SFAS No.
131 establishes standards for the way that public business enterprises report
information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. The Company is
in the process of evaluating the disclosure requirements but believes that it
operates solely in one segment. The adoption of SFAS No. 131 will have no
impact on the Company's consolidated statement of income, financial condition
or cash flows.
F-11
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain reclassifications of prior year amounts have been made to
conform to the 1997 financial statement presentation.
NOTE C - ACQUISITION
On August 26, 1997, the Company entered into a stock purchase
agreement with certain shareholders of Fabrica de Tabacos La Flor de Copan,
S.A., a Honduran corporation ("La Flor"), to acquire 75% of La Flor's
outstanding capital stock for $14.4 million, net of cash acquired. La Flor is a
manufacturer of handmade premium cigars located in Santa Rosa, Honduras. The
acquisition was accounted for utilizing the purchase method with the purchase
price allocated to tangible and intangible assets acquired and liabilities
assumed based upon initial fair value estimates. The excess cost over the fair
value of the net assets acquired resulted in $12.6 million recorded as
goodwill. The consolidated financial statements include the operating results
of La Flor from the date of the acquisition. Pro forma results of operations
reflecting the La Flor acquisition have not been presented because the effect
of this acquisition was not significant.
NOTE D - INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies.................... $34,469 $61,764
Work in process............................... 1,974 3,977
Finished goods................................ 9,514 23,204
------- -------
$45,957 $88,945
======= =======
</TABLE>
NOTE E -- PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Land.......................................... $ 1,884 $ 1,958
Buildings..................................... 14,140 15,172
Machinery and equipment....................... 33,188 37,565
Leasehold improvements........................ 361 1,096
Furniture and fixtures........................ 1,573 1,921
----- -----
51,146 57,712
Accumulated depreciation...................... ( 13,922) ( 18,201)
------- --------
$37,224 $ 39,511
======= ========
</TABLE>
Depreciation expense was $3.6 million for 1995, $3.9 million for 1996
and $4.4 million for 1997.
F-12
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F - ACCRUED EXPENSES
Included in accrued expenses are the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Employee benefits and other compensation......... $10,126 $ 9,403
Interest......................................... 3,388 3,175
Promotional...................................... 1,281 1,257
Taxes............................................ 1,849 1,734
Other............................................ 5,168 2,871
------- -------
$21,812 $18,440
======= =======
</TABLE>
NOTE G - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------- ----------------------
(IN THOUSANDS)
<S> <C> <C>
Bank borrowings (a).............................. $ 7,500 $ 25,800
Senior Subordinated Notes (b).................... 90,000 87,100
Promissory note (c).............................. 70,000 60,000
Other long term indebtedness (d)................. - 657
---------- ---------
167,500 173,557
Less amounts payable within one year............. ( 10,000) ( 10,657)
--------- ---------
$157,500 $162,900
======== ========
</TABLE>
(a) Represents borrowings under a credit agreement (the "Credit
Agreement") with The Chase Manhattan Bank, N.A. The maximum
borrowings under the Credit Agreement, as amended, at the end of
December 31, 1997 and through maturity were $49.9 million.
Outstanding letters of credit of approximately $0.7 million
reduced the available borrowings under the Credit Agreement at
December 31, 1997. The Credit Agreement was replaced by the New
Credit Agreement (herein after defined) as described in (e) of
this Note.
(b) Represents the balance of $90.0 million in principal amount of
10 1/2% Senior Subordinated Notes Due 2003 (the "Senior
Subordinated Notes") issued in connection with the 1993
Acquisition. On January 30, 1998, holders were notified that all
of the outstanding Senior Subordinated Notes have been called for
redemption on March 2, 1998 at a price of 103% of the principal
amount thereof together with accrued interest. The redemption of
the Senior Subordinated Notes was financed by the New Credit
Agreement as described in (e) of this Note. In connection with
the redemption of the Senior Subordinated Notes, a $3.2 million
extraordinary loss, net of tax, was recorded in the first quarter
of 1998.
(c) Represents a non-interest bearing promissory note issued in
connection with the IPO as a dividend in an original principal
amount of $70.0 million (the "Promissory Note") to Mafco
Consolidated Group. The Promissory Note is payable in quarterly
installments of $2.5 million, beginning March 31, 1997 with the
final installment payable on December 31, 2003.
F-13
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE G -- LONG-TERM DEBT (CONTINUED)
(d) Represents unsecured borrowings with a Honduran bank. The
average interest rate for the borrowings was 13.4% at December
31, 1997 and have maturity dates through December, 1998.
(e) The Company entered into a credit agreement (the "New Credit
Agreement") dated March 2, 1998 among several financial
institutions, with Chase as administrative agent. The New Credit
Agreement provides for an unsecured revolving credit facility in
an aggregate principal amount outstanding at any time not to
exceed $140.0 million. The New Credit Agreement financed the
redemption of the Senior Subordinated Notes and will finance the
working capital needs of the Company and its subsidiaries as
well as for other general corporate purposes. The closing date
of the New Credit Agreement was concurrent with the redemption
of the Senior Subordinated Notes on March 2, 1998. The New
Credit Agreement matures on March 3, 2003 and has no
amortization requirements. The New Credit Agreement is
guaranteed by the Company and by all of the domestic
subsidiaries of Consolidated Cigar. The guarantee by the Company
is secured by a pledge of all the outstanding stock of
Consolidated Cigar.
The New Credit Agreement's initial interest payment rates
available at the option of Consolidated Cigar are Base Rate
Loans at the Prime rate and Eurodollar Loans at the Eurodollar
rate plus 3/4%. The Eurodollar rate is subject to change
resulting from changes in the leverage ratio, as defined in the
New Credit Agreement. The average interest rate under the New
Credit Agreement was approximately 6.5% at March 2, 1998.
The New Credit Agreement contains covenants which govern, among
other things, the ability to incur indebtedness, pay dividends,
incur lease rental obligations, dispose of assets and to make
investments, loans and advances. The New Credit Agreement also
requires Consolidated Cigar to satisfy certain financial tests
related to maximum leverage ratios and minimum interest coverage
ratios. The New Credit Agreement also contains customary events
of default and permits Consolidated Cigar to pay dividends and
make distributions to the Company which include amounts required
for the Company to satisfy principal payments of the Promissory
Note as well as pay franchise and similar taxes to maintain its
corporate existence and other expenses incidental to being a
public reporting, but non-operating company.
The scheduled repayments of long-term debt for the next five years
based on the outstanding balances at March 2, 1998 would only include the
$10.0 million annual installments owed under the terms of the Promissory Note
and $0.7 million in 1998 which represents short-term unsecured borrowings.
The fair value of the Company's long-term debt at December 31, 1997
is estimated based on the quoted market prices for the same issues or on the
current rates offered to the Company for debt of the same remaining
maturities. The estimated fair value of long-term debt was approximately $2.6
million more than the carrying value of $173.6 million, which represented the
market price on the Senior Subordinated Notes which have been redeemed. The
estimated fair value of the bank borrowings under the Credit Agreement
approximated its carrying value.
Because judgment is required in interpreting market data to develop
estimates of fair value, the estimates are not necessarily indicative of the
amounts that could be realized or would be paid in a current market exchange.
The effect of using different market assumptions or estimation methodologies
may be material to the estimated fair value amounts.
In December 1993 and January 1994, the Company entered into two
five-year interest rate swap agreements in an aggregate notional amount of
$85.0 million. Under the terms of the agreements, the Company received a fixed
interest rate averaging 5.8% and paid a variable interest rate equal to the
six month London inter-bank offered rate (LIBOR). In October 1997, the Company
paid $0.5 million to terminate the swap agreements upon completion of their
coupon periods, which ended in December 1997 and January 1998. The termination
payment will be amortized over the remaining original term of the swap
agreements.
F-14
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE H -- COMMITMENTS AND CONTINGENCIES
The Company rents facilities and equipment under operating lease
agreements which expire at various dates through 2008. Net rental expense
under operating leases was $1.8 million for the year ended December 31, 1995,
$1.9 million for the year ended December 31, 1996, and $2.5 million for the
year ended December 31, 1997.
Future minimum rental commitments on a cash basis for all noncancellable
operating leases are as follows:
YEAR ENDING
DECEMBER 31, (IN THOUSANDS)
------------ --------------
1998................................................ $1,292
1999................................................ 1,121
2000................................................ 544
2001................................................ 178
2002................................................ 178
2003 and thereafter................................. 171
Additional commitments exist resulting from contracts to purchase
tobacco from various suppliers. At the end of fiscal 1997, outstanding
contracts to purchase tobacco amounted to $4.5 million which were all U.S.
dollar obligations.
The Company is a party to various pending legal actions. In the
opinion of management, based upon the advice of its outside counsel, the
liability, if any, from all pending litigation will not materially affect the
Company's consolidated financial position or results of operations.
NOTE I -- INCOME TAXES
The Company, Consolidated Cigar and Mafco Consolidated Group have
been, for federal income tax purposes, members of an affiliated group of
corporations of which Mafco Holdings is the common parent (the "Tax Group"). As
a result of such affiliation, the Company, Consolidated Cigar, and Mafco
Consolidated Group have been included in the consolidated federal income tax
returns and, to the extent permitted by applicable law, included in combined
state or local income tax returns filed on behalf of the Tax Group. Pursuant to
a tax sharing agreement among the Company, Consolidated Cigar, and Mafco
Consolidated Group and a tax sharing agreement between Mafco Consolidated Group
and Mafco Holdings (collectively, the "Tax Sharing Agreements"), the Company
has been required to pay to Mafco Holdings or Mafco Consolidated Group with
respect to each taxable year an amount equal to the consolidated federal and
state and local income taxes that would have been incurred by the Company had
it not been included in the consolidated federal and any combined state or
local income tax returns filed by the Tax Group. Pursuant to the Tax Sharing
Agreements, tax carry-forward losses that arose prior to the 1993 Acquisition
were not available to the Company on a go-forward basis. The Company had
generated U.S. tax net operating loss carry-forwards of $2.9 million subsequent
to the 1993 Acquisition, which were completely utilized during 1994 and 1995.
The net amounts paid by the Company under the Tax Sharing Agreement during the
years ended December 31, 1995, 1996, and 1997 were approximately $0.4 million,
$9.8 million and $4.4 million, respectively. As a result of the completion of
the Offering, the Company will no longer be included in the Tax Group's
consolidated tax returns and will instead, file its own tax returns and pay its
own taxes on a separate company basis beginning with fiscal 1997.
F-15
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I -- INCOME TAXES (CONTINUED)
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal................................... $ 1,880 $ 9,286 $14,474
State..................................... 423 1,547 2,182
Foreign................................... 1,292 1,826 2,191
------- -------- -------
3,595 12,659 18,847
------- -------- -------
Deferred:
Federal................................... (600) (986) 5,325
State..................................... -- (165) (43)
Foreign................................... 604 941 1,090
------- -------- -------
4 (210) 6,372
------- -------- -------
$3,599 $12,449 $25,219
====== ======= =======
</TABLE>
The approximate effect of the temporary differences that gave rise to
deferred tax balances were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1996 1997
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accounts receivable..................... $1,930 $ 2,086
Accrued expenses........................ 1,875 2,112
Other................................... 1,365 1,534
------ --------
Total deferred tax asset............ 5,170 5,732
------ --------
Deferred tax liabilities:
Property, plant and equipment........... 3,318 3,296
Unremitted earnings..................... 2,520 10,368
Other................................... 13 146
------- ---------
Total deferred tax liability........ 5,851 13,810
------- ---------
Net deferred tax liability.......... $ 681 $ 8,078
======= =========
</TABLE>
The net deferred tax liability as of the year ended December 31, 1997
relates mainly to temporary differences attributable to the Company's foreign
subsidiaries. In connection with the La Flor acquisition, a net deferred tax
liability of $1.2 million was recorded with a charge to goodwill primarily
relating to undistributed retained earnings at the acquisition date. The net
deferred tax liability as of December 31, 1997 and 1996, respectively, also
includes temporary differences of the Company's Puerto Rico subsidiary, which
is not consolidated for federal income tax purposes. This represents the
temporary difference attributable to property, plant and equipment at Puerto
Rico's effective local tax and toll gate tax rate. The net deferred tax
liability as of the year ended December 31, 1996 mainly represents the
temporary difference attributable to the Company's Puerto Rico subsidiary.
F-16
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I -- INCOME TAXES (CONTINUED)
A reconciliation of the statutory U.S. income tax rate and the
effective income tax rate is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Statutory rate................................ $6,135 $14,785 $27,584
Realization of valuation reserve.............. (600) -- --
Foreign income not subject
to statutory tax rate....................... (2,765) (3,818) (4,351)
State income taxes, net....................... 275 898 1,390
Non-deductible amortization................... 620 578 596
Other......................................... (66) 6 --
------ ------- -------
$3,599 $12,449 $25,219
====== ======= =======
</TABLE>
The domestic and foreign components of income before income taxes are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
United States................................ $ 66 $16,132 $35,651
Foreign...................................... 17,463 26,112 43,159
------- ------- -------
$17,529 $42,244 $78,810
======= ======= =======
</TABLE>
Foreign income primarily consists of Puerto Rico and Dominican
Republic income. Pursuant to a grant of industrial tax exemption which expires
in 2002, 90% of the income earned from the manufacture of cigars in Puerto
Rico is tax exempt from Puerto Rican income taxes. The remaining 10% of such
income is taxed at a maximum surtax rate of 45%, resulting in an effective
income tax rate of approximately 4.5%. The benefit to the Company amounted to
approximately $5.1 million for the year ended December 31, 1995, $7.4 million
for the year ended December 31, 1996, and $9.2 million for the year ended
December 31, 1997.
Funds repatriated to the Company from its Puerto Rico subsidiary are
subject to a maximum Puerto Rico tollgate tax of 10%. Legislation enacted in
Puerto Rico in 1993 included a provision for prepaying a portion of these
tollgate taxes effective for the 1993 fiscal year and subsequent periods.
The Company manufactures cigars in the Dominican Republic pursuant to
a 100% exemption from Dominican Republic income taxes which expires in 2010.
Income earned from Puerto Rico operations is generally exempt from
federal income tax. Section 936 of the Internal Revenue Code allows a
"possessions tax credit" against U.S. income tax attributable to the Puerto
Rico taxable earnings. As part of OBRA 1993, the Internal Revenue Service has
limited this exemption based upon a percentage of qualified wages in Puerto
Rico, plus certain amounts of depreciation. The Company believes that it
qualified for the possessions tax credit during each of the fiscal years ended
1995, 1996 and 1997.
F-17
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I -- INCOME TAXES (CONTINUED)
On August 20, 1996, the Small Business Job Protection Act of 1996 (the
"SBJPA") was enacted into law. Under the SBJPA, the possessions tax credit
allowed by Section 936 of the Internal Revenue Code was repealed, subject to
special grandfather rules for which the Company would be eligible, provided
that the Company does not add a "substantial new line of business." Under the
grandfather rules, for the Company's taxable years beginning December 31, 2001
and before January 1, 2006, the Company's business income from its Puerto Rico
operations eligible for the possessions tax credit would, in addition to the
current limitation based upon a percentage of qualified wages in Puerto Rico,
plus certain amounts of depreciation, generally be limited to its average
annual income from its Puerto Rico operations, adjusted for inflation, computed
during the Company's five most recent taxable years ending before October 14,
1995 and excluding the highest and lowest years (the "Income Limitation").
Alternatively, the Company may elect to use as its Income Limitation, the
annualized amount of its possession business income for the first 10 months of
calendar year 1995. For taxable years after December 31, 2005, the possessions
tax credit would be eliminated. The repeal of the possessions tax credit could
have a material adverse effect on the Company for taxable years beginning after
December 31, 2001 and before January 2006 to the extent that the Company's
annual income from its Puerto Rico operations exceeds its average annual income
from its Puerto Rico operations (as computed in the manner described in the
preceding sentence), and for taxable years after December 31, 2005. Although it
does not currently have any definitive plans with respect thereto, the Company
expects to evaluate alternatives that may be available to it in order to
mitigate the effects of the SBJPA. On February 6, 1997, President Clinton
proposed certain tax law changes which, if enacted, would eliminate the Income
Limitation, extend the possession tax credit indefinitely and make the credit
available to newly established business operations.
NOTE J -- PENSION PLANS
The Company maintains tax qualified non-contributory defined benefit
pension plans covering substantially all hourly and salaried employees in the
U.S. and Puerto Rico (the "Pension Plans"). In accordance with an agreement
between the Company and MCG Intermediate Holdings Inc. ("MCG"), which is a
wholly owned subsidiary of Mafco Consolidated Group who maintains the Abex
Retirement Plan, the Pension Plans were merged with and into the Abex
Retirement Plan, effective December 31, 1995. The Abex Retirement Plan was the
surviving plan with all the assets and liabilities of the merged Pension Plans
becoming assets and liabilities of the surviving Abex Retirement Plan. The
effect of the merger of the Pension Plans was recorded as a contribution to
capital of $4.8 million by Mafco Consolidated Group. The capital contribution
was net of a $2.4 million deferred tax asset.
In accordance with an amendment to the Abex Retirement Plan, the
Company's assets and liabilities were spun-off to the Company in the form of a
new combined pension plan (the "New Pension Plan"), effective September 30,
1997. The effect of the assumption of the net accrued pension liability of the
New Pension Plan was recorded as a reduction of capital of $0.3 million from
Mafco Consolidated Group. The Company has recorded service cost, interest and
return on plan assets in 1996 and 1997 based upon a fully funded plan.
The Company also provides a separate non-contributory defined benefit
pension plan for hourly employees in its Richmond, Virginia location and a
benefit restoration plan (BRP) for certain officers.
The pension plans' benefit formulas generally based payments to
retired employees upon their length of service and a percentage of qualifying
compensation during the 60 consecutive months in which compensation was
highest, in the ten years prior to retirement. Pension benefits are limited to
33 years of credited service and are reduced by the actuarial equivalent of
any benefits received under the Company's 401(k) Plans.
The following table sets forth the Company's pension plans' funded
status. The status as of December 31, 1996 reflects the Company's remaining
pension plan's funded status after the merger with the Abex Retirement Plan.
The status as of December 31, 1997 reflects the Company's pension plans'
funded status subsequent to the September 30, 1997 spin-off of the Company's
pension assets and liabilities. These amounts are recognized in the
consolidated financial statements under the captions "Other Liabilities" and
"Accrued Expenses" as unfunded liabilities with the 1997 data based upon
actuarial projections:
F-18
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J -- PENSION PLANS (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 1997
--------------------------------------- ----------------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
-------- ------------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Plan assets at fair value $ 452 $ -- $ 33,211 $ --
Actuarial present value of benefit obligation:
Vested benefits............................. 358 757 24,041 921
Non-vested benefits......................... 24 64 524 30
--------- ---------
Accumulated benefit obligations................ 382 821 24,565 951
Effect of projected future salary increases.... -- 321 6,547 618
--------- --------- -------- -------
382 1,142 31,112 1,569
--------- --------- -------- -------
Funded status-over (under)..................... 70 (1,142) 2,099 (1,569)
Unrecognized net loss (gain)................... (16) (22) (2,277) 211
Prior service cost not yet recognized in
net periodic pension cost................... 35 541 (160) 443
Unrecognized net transition asset.............. (62) -- (57) --
Adjustment required to recognize minimum
Liability................................... -- (198) -- (36)
--------- --------- -------- -------
Net Pension asset (liability).................. $ 27 $ (821) $ (395) $ (951)
========= ========= ======== =======
</TABLE>
The discount rate used in determining the actuarial present value of
the projected benefit obligation was 7 1/4% in 1996 and 1997. The rate of
increase in future compensation levels reflected in such determinations was
4 1/2 % in 1996 and 5 1/2% in 1997. The assumed long-term rate of return on
assets was 8% in 1996 and 9% in 1997. The Company's funding policy is to
contribute annually an amount necessary to satisfy the Internal Revenue
Service's minimum funding standards. Plan assets consist principally of
equity, fixed income and money market funds.
The following table sets forth the periodic pension expense as
follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost--benefits earned during the period.. $ 490 $ 716 $ 703
Interest cost on projected benefit obligation.... 1,644 1,934 1,666
Actual return on plan assets..................... (2,598) (4,087) (2,029)
Net amortizations and deferrals.................. 1,661 1,977 103
------ ------- -------
Net pension expense.............................. $1,197 $ 540 $ 443
====== ======= =======
</TABLE>
F-19
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J -- PENSION PLANS (CONTINUED)
The Company has adopted two deferred compensation plans pursuant to
Section 401(k) of the Internal Revenue Code for all domestic salaried
employees and certain union employees who have a minimum of six months of
service (the "401(k) Plans"). It has been the Company's policy to contribute
2%, up to a maximum of $3,200, of each eligible employee's compensation into
their 401(k) Plan.
Amounts expensed under the 401(k) Plans amounted to $202,000,
$368,000 and $322,000, for the years ended December 31, 1995, 1996 and 1997,
respectively.
NOTE K - STOCK PLAN
The Company adopted the Consolidated Cigar Holdings Inc. Stock Plan
(the "Stock Plan") prior to the effectiveness of the IPO. Under the Stock
Plan, incentive stock options, non-qualified stock options, stock appreciation
rights, restricted and unrestricted stock (collectively "Awards"), may be
granted to selected employees, consultants and directors of the Company, and
any of its affiliates, from time to time. The aggregate number of shares of
Class A Common Stock as to which options and rights may be granted under the
Stock Plan may not exceed 3,000,000, and at December 31, 1997, 1,137,500
shares remained available for future grants. 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 except 500,000 shares which
become exerciseable on the fifth anniversary of the date of the grant.
A summary of information relative to the Company's Stock Option Plan
as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------
WEIGHTED-
NUMBER OF AVERAGE EXERCISE
SHARES PRICE PER SHARE
--------- ---------------
<S> <C> <C>
Balance as of December 31, 1995.............. -- $ --
Granted...................................... 1,237,500 23.14
Exercised.................................... -- --
Canceled/Forfeited........................... -- --
--------- ---------
Balances as of December 31, 1996............. 1,237,500 $ 23.14
Granted...................................... 625,000 23.68
Exercised.................................... (18,332) 23.00
Canceled/Forfeited........................... -- --
--------- ---------
--
Balance as of December 31, 1997.............. 1,844,168 $ 23.33
========= =========
</TABLE>
The Company has adopted the disclosure-only provisions of SFAS 123.
Accordingly, no compensation cost has been recognized for the Stock Plan. Had
compensation cost for the Company's Stock Plan been determined based on the
fair value at grant date for awards in 1996 and 1997 consistent with the
provisions of SFAS 123, the Company's net earnings and earnings per share would
have been reduced on a pro forma basis.
The fair value of each stock option grant is estimated on the date of
grant using the Black-Scholes option-pricing method with the following
weighted-average assumptions used for grants in 1996 and 1997:
F-20
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE K - STOCK PLAN (CONTINUED)
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
<S> <C> <C>
Risk-free interest rate..................... 6.13% 5.63%
Average life of option (years).............. 5.00 5.00
Volatility.................................. 90.00% 52.00%
Dividend yield.............................. -- --
</TABLE>
The weighted average fair value of options granted in 1996 and 1997
was $16.91 and $12.21 per share, respectively.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of the traded stock options that have no restrictions
and are fully transferable. In addition, stock option valuation models require
the input of highly subjective assumptions, including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, the
existing models, in management's opinion, do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
stock options has been amortized to expense over the options' vesting period.
The Company's net earnings and EPS would have been reduced to the pro forma
amounts indicated below:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1997
----------------- -----------------
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
Net earnings-pro forma...................... $28,127 $47,443
Basic earnings per share-pro forma.......... 1.05 1.55
Diluted earnings per share-pro forma........ 1.04 1.53
</TABLE>
At December 31, 1997 the Company has 227,502 stock options
exerciseable at a weighted average exercise price per share of $23.26. At
December 31, 1997 the weighted average exercise price of the stock options
outstanding is $23.33 and range in price between $22.00 and $25.00 per share.
The weighted average remaining contractual life of these options is 8.82
years.
F-21
<PAGE>
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L -- RELATED PARTY TRANSACTIONS
Pursuant to a Reimbursement Agreement between Mafco Holdings and the
Company, Mafco Holdings provides the Company with certain allocated services
upon request. In addition, as discussed in Note I, the Company has agreed to
pay Mafco Holdings and Mafco Consolidated Group certain amounts pursuant to
the Tax Sharing Agreements. Amounts due to affiliates totaled $1.6 million at
December 31, 1996, principally relating to income taxes and were not
significant at December 31, 1997.
The Company purchases certain raw materials from Mafco Worldwide
Corporation ("Mafco Worldwide") which amounted to $269,000, $211,000 and
$239,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
The Company sells certain raw materials to Mafco Worldwide which amounted to
$152,000 for the year ended December 31, 1997. The Company did not sell any
raw materials to Mafco Worldwide for the years ended December 31, 1995 and
1996. The Company also provides services for Revlon, Inc., a subsidiary of
Mafco Holdings which amounted to $874,000, $958,000 and $843,000 for the years
ended December 31, 1995, 1996 and 1997, respectively. Amounts due to and from
these affiliates were not significant at December 31, 1996 and 1997.
NOTE M - QUARTERLY FINANCIAL SUMMARIES (UNAUDITED)
Summarized quarterly financial data for 1996 and 1997 are as follows
(in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MARCH 30, JUNE 29, SEPTEMBER 28, DECEMBER 31,
--------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
1996
Net sales................................. $40,225 $51,975 $60,620 $64,048
Gross profit.............................. 16,912 21,872 25,645 26,426
Net income................................ 4,334 6,843 9,577 9,041
Basic net income per common share......... $0.18 $0.28 $0.35 $0.29
Diluted net income per common share....... $0.18 $0.28 $0.35 $0.29
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------
MARCH 29, JUNE 28, SEPTEMBER 27, DECEMBER 31,
--------------- ------------- ---------------- ---------------
<S> <C> <C> <C> <C>
1997
Net sales................................. $55,888 $76,377 $82,642 $84,160
Gross profit.............................. 24,630 33,442 36,906 36,804
Net income................................ 8,395 13,204 16,792 15,200
Basic net income per common share......... $0.27 $0.43 $0.55 $0.50
Diluted net income per common share....... $0.27 $0.43 $0.54 $0.49
</TABLE>
F-22
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS (PARENT ONLY)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1997
--------- ---------
<S. <C> <C>
ASSETS
Investment in subsidiary including cumulative income and net
of distribution .............................................. $ 71,355 $ 115,137
--------- ---------
$ 71,355 $ 115,137
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Promissory note due to affiliate ............................... $ 70,000 $ 60,000
Class A Common Stock, par value $0.01 per share; 300,000,000
shares authorized, 6,075,000 and 11,093,332 shares issued
and outstanding, respectively ................................ 61 111
Class B Common Stock, par value $0.01 per share; 250,000,000
shares authorized, 24,600,000 and 19,600,000 shares issued and
outstanding, respectively .................................... 246 196
Capital deficiency ............................................. (13,314) (13,123)
Retained earnings .............................................. 14,362 67,953
--------- ---------
Total stockholders' equity ................... 1,355 55,137
--------- ---------
$ 71,355 $ 115,137
========= =========
</TABLE>
F-23
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS (PARENT ONLY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Other income (expenses):
Equity in earnings of subsidiary................... $ 13,930 $ 29,795 $ 53,878
Miscellaneous, net................................. ( 422)
-------- -------- --------
Income before income
tax benefit........................................ 13,930 29,795 53,456
Income tax benefit.................................... 135
-------- -------- --------
Net income............................................ $ 13,930 $ 29,795 $ 53,591
======== ======== ========
</TABLE>
F-24
<PAGE>
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS (PARENT ONLY)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
1995 1996 1997
---------------- ---------------- ----------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 13,930 $ 29,795 $ 53,591
Adjustments to reconcile net income to net
cash flows from operating activities:
Equity in earnings of subsidiary in
excess of cash distributions............ (8,930) (17,027) (44,071)
-------- -------- --------
(8,930) (17,027) (44,071)
-------- -------- --------
Net cash flows from operating activities......... 5,000 12,768 9,520
-------- -------- --------
Cash flows from financing activities:
Net proceeds from initial public offering........ -- 127,809 --
Exercise of stock options........................ -- -- 480
Cash dividends paid.............................. (5,000) (140,577) --
Repayment of promissory note due to affiliate (10,000)
-------- --------- --------
Net cash flows from financing activities......... (5,000) (12,768) (9,520)
-------- --------- --------
Net increase in cash and cash equivalents........ -- -- --
Cash and cash equivalents at beginning of
year.................................... -- -- --
-------- -------- --------
Cash and cash equivalents at end of year......... $ -- $ -- $ --
======== ======== ========
Supplemental disclosure of non cash financing activity:
Promissory note dividend......................... $ -- $ 70,000 $ --
Contribution (reduction) to capital by parent.... $ 4,835 $ -- $ (289)
</TABLE>
F-25
<PAGE>
SCHEDULE II
CONSOLIDATED CIGAR HOLDINGS INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS (1) OF PERIOD
----------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C>
DECEMBER 31, 1995:
Allowance for doubtful accounts
(deducted from Accounts receivable)................. $ 868 $ 150 $ 80 $ 938
====== ====== ======= ======
Allowance for cash discounts and sales return
(deducted from Accounts receivable)................. $2,734 $ 650 $ --- $3,384
====== ====== ======= ======
Inventory Reserves (deducted from Inventory)........... $ 761 $ 198 $ 137 $ 822
====== ====== ======= ======
DECEMBER 31, 1996:
Allowance for doubtful accounts
(deducted from Accounts receivable)................. $ 938 $ 150 $ 425 $ 663
====== ====== ======= ======
Allowance for cash discounts and sales return
(deducted from Accounts receivable)................. $3,384 $1,557 $ --- $4,941
====== ====== ======= ======
Inventory Reserves (deducted from Inventory)........... $ 822 $ 818 $ 339 $1,301
====== ====== ======= ======
DECEMBER 31, 1997:
Allowance for doubtful accounts
(deducted from Accounts receivable)................. $ 663 $ 150 $ 46 $ 767
====== ====== ======= ======
Allowance for cash discounts and sales return
(deducted from Accounts receivable)................. $4,941 $ 300 $ --- $5,241
====== ====== ======= ======
Inventory Reserves (deducted from Inventory)........... $1,301 $ 233 $ 326 $1,208
====== ====== ======= ======
</TABLE>
- -------------------
(1)Write-off against reserve
F-26
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT
NO. DESCRIPTION
--- -----------
3.1 Amended and Restated Certificate of Incorporation of
Registrant (incorporated by reference from Exhibit 3.1 to
Registrant's Registration Statement on Form S-1 (Registration
No. 333-20743)).
3.2 Amended and Restated By-laws of Registrant (incorporated by
reference from Exhibit 3.2 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-20743)).
4.1 Specimen Certificate of Class A Common Stock (incorporated by
reference from Exhibit 4.1 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.1(a) Guarantee and Security Agreement, dated as of March 3, 1993,
between the Registrant and The Chase Manhattan Bank, N.A.
(incorporated by reference from Exhibit 10.16(a) to
Registrant's Registration Statement on Form S-1 (Registration
No. 333-6819)).
10.1(b) First Amendment to Guarantee and Security Agreement, dated as
of July 31, 1996 (incorporated by reference from Exhibit
10.16(b) to Registrant's Registration Statement on Form S-1
(Registration No. 333-6819)).
10.3 Reimbursement Agreement, dated as of March 3, 1993, between
Consolidated Cigar Corporation and Mafco Holdings Inc.
(incorporated by reference from Exhibit 10.10 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-6819)).
10.4 Amended and Restated Tax Sharing Agreement entered into as of
June 15, 1995 by and among Mafco Holdings Inc., Mafco
Consolidated Group Inc., the Registrant and Consolidated Cigar
Corporation and its subsidiaries (incorporated by reference
from Exhibit 10.10(a) to Consolidated Cigar Corporation's
Annual Report on Form 10-K for the fiscal year ended December
31, 1995).
10.5 Registration Rights Agreement, dated as of August 21, 1996,
between the Registrant and Mafco Consolidated Group Inc.
(incorporated by reference from Exhibit 10.22 to Amendment No.
1 to Mafco Consolidated Group Inc.'s Registration Statement on
Form S-1 (Registration No. 333-15257)).
10.6 Registrant's Promissory Note (incorporated by reference from
Exhibit 10.5 to Amendment No. 1 to Mafco Consolidated Group
Inc.'s Registration Statement on Form S-1 (Registration No.
333-15257)).
10.8 Executive Employment Agreement, dated as of August 1, 1996,
between Consolidated Cigar Corporation and Theo W. Folz
(incorporated by reference from Exhibit 10.17 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-6819)).
10.9 Employment Agreement, dated August 1, 1996, between
Consolidated Cigar Corporation and Richard L. DiMeola
(incorporated by reference from Exhibit 10.3 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-20743)).
10.10 Employment Agreement, dated August 1, 1996, between
Consolidated Cigar Corporation and Gary R. Ellis (incorporated
by reference from Exhibit 10.9 to Amendment No. 1 of Mafco
Consolidated Group Inc.'s Registration Statement on Form S-1
(Registration No. 333-15257)).
<PAGE>
EXHIBIT
NO. DESCRIPTION
--- -----------
10.11 Employment Agreement, dated July 1, 1996, between Consolidated
Cigar Corporation and James L. Colucci (incorporated by
reference from Exhibit 10.5 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-20743)).
10.12 Employment Agreement, dated August 1, 1996, between
Consolidated Cigar Corporation and George F. Gershel, Jr.
(incorporated by reference from Exhibit 10.6 to Registrant's
Registration Statement on Form S-1 (Registration No.
333-20743)).
10.13 Employment Agreement, dated July 1, 1995, Consolidated Cigar
Corporation and Denis F. McQuillen (incorporated by reference
from Exhibit 10.7 to Consolidated Cigar Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31,
1995).
10.14 Consolidated Cigar Holdings Inc. 1996 Stock Plan (incorporated
by reference from Exhibit 10.12 to Registrant's Registration
Statement on Form S-1 (Registration No. 333-6819)).
10.15 Pension Plan Merger Agreement into Abex Retirement Plan
(incorporated by reference from Exhibit 10.1 to Consolidated
Cigar Corporation's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
*10.16 Credit Agreement between Consolidated Cigar Corporation and
The Chase Manhattan Bank, as Administrative Agent, Chase
Securities Inc., as Arranger, Nationsbank, N.A., as
Documentation Agent and Credit Suisse First Boston, as
Syndication Agent, dated as of March 2, 1998.
*10.17 Preamble to the Consolidated Cigar Corporation Retirement
Plan, dated as of December 19, 1997.
*21.1 Subsidiaries of the Registrant.
*24.1 Powers of Attorney
*27.0 Financial Data Schedule
- -------------------
* Filed herewith
<PAGE>
CONFORMED COPY
CONSOLIDATED CIGAR CORPORATION
CREDIT AGREEMENT
dated as of March 2, 1998
CHASE SECURITIES INC.,
AS ARRANGER
THE CHASE MANHATTAN BANK,
AS ADMINISTRATIVE AGENT
NATIONSBANK, N.A.,
AS DOCUMENTATION AGENT
CREDIT SUISSE FIRST BOSTON,
AS SYNDICATION AGENT
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
- -------------------------------------------------------------------
Page
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
SECTION 1. DEFINITIONS............................................................................ 1
- -------------------------------------------------------------------------------------------------------------------
1.1 Defined Terms.......................................................................... 1
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1.2 Other Definitional Provisions.......................................................... 19
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SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS....................................................... 20
- -------------------------------------------------------------------------------------------------------------------
2.1 Commitments............................................................................ 20
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2.2 Obligations of the Company............................................................. 20
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2.3 Procedure for Borrowing Loans.......................................................... 20
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2.4 Use of Proceeds of Loans............................................................... 21
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SECTION 3. AMOUNT AND TERMS OF LETTERS OF CREDIT.................................................. 21
- -------------------------------------------------------------------------------------------------------------------
3.1 L/C Facility........................................................................... 21
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3.2 Procedure for Issuance of Letters of Credit............................................ 22
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3.3 Fees, Commissions and Other Charges.................................................... 22
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3.4 L/C Participations..................................................................... 23
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3.5 Reimbursement Obligation of the Company................................................ 24
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3.6 Obligations Absolute................................................................... 24
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3.7 Letter of Credit Payments.............................................................. 25
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3.8 Application............................................................................ 25
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3.9 Existing Letters of Credit............................................................. 25
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SECTION 4. PROVISIONS RELATING TO THE LOANS; FEES AND PAYMENTS.................................... 26
- -------------------------------------------------------------------------------------------------------------------
4.1 Voluntary Termination or Reduction of Commitments...................................... 26
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4.2 Optional Prepayments................................................................... 26
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4.3 Mandatory Prepayments.................................................................. 27
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4.4 Interest Rate and Payment Dates........................................................ 27
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4.5 Conversion Options, Minimum Tranches and Maximum Interest Periods...................... 27
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4.6 Inability to Determine Interest Rate................................................... 28
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4.7 Illegality............................................................................. 29
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4.8 Requirements of Law; Changes of Law.................................................... 29
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4.9 Indemnity.............................................................................. 31
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4.10 Taxes.................................................................................. 31
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4.11 Commitment Fees; Other Fees............................................................ 33
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4.12 Computation of Interest and Fees....................................................... 34
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4.13 Pro Rata Treatment and Payments........................................................ 34
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-i-
<PAGE>
4.14 Payments on Account of Loans and Fees.................................................. 36
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SECTION 5. REPRESENTATIONS AND WARRANTIES......................................................... 36
- -------------------------------------------------------------------------------------------------------------------
5.1 Corporate Existence.................................................................... 36
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5.2 Corporate Power........................................................................ 37
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5.3 No Legal Bar to Loans.................................................................. 37
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5.4 No Material Litigation................................................................. 37
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5.5 No Default............................................................................. 38
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5.6 Ownership of Properties; Liens......................................................... 38
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5.7 Taxes.................................................................................. 38
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5.8 ERISA.................................................................................. 38
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5.9 Financial Condition.................................................................... 39
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5.10 No Change.............................................................................. 39
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5.11 Federal Regulations.................................................................... 39
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5.12 Not an "Investment Company"............................................................ 40
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5.13 Intellectual Property.................................................................. 40
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5.14 Environmental Matters.................................................................. 40
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5.15 Models and Pro Forma Balance Sheet..................................................... 41
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5.16 Disclosure............................................................................. 41
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5.17 Solvency............................................................................... 41
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5.18 Guarantees............................................................................. 42
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5.19 Matters Relating to Subsidiaries....................................................... 42
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5.20 Labor Matters.......................................................................... 42
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5.21 Tax Allocation Agreement............................................................... 42
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SECTION 6. CONDITIONS PRECEDENT................................................................... 42
- -------------------------------------------------------------------------------------------------------------------
6.1 Conditions to Initial Extensions of Credit............................................. 42
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6.2 Conditions to Each Extension of Credit................................................. 46
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SECTION 7. AFFIRMATIVE COVENANTS.................................................................. 46
- -------------------------------------------------------------------------------------------------------------------
7.1 Financial Statements................................................................... 46
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7.2 Certificates; Other Information........................................................ 47
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7.3 Payment of Obligations................................................................. 48
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7.4 Conduct of Business and Maintenance of Existence....................................... 48
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7.5 Maintenance of Property; Insurance..................................................... 49
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7.6 Inspection of Property; Books and Records; Discussions................................. 49
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7.7 Notices................................................................................ 49
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7.8 Maintenance of Corporate Identity...................................................... 50
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7.9 Environmental Laws..................................................................... 50
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7.10 Intellectual Property.................................................................. 51
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-ii-
<PAGE>
SECTION 8. NEGATIVE COVENANTS..................................................................... 52
- -------------------------------------------------------------------------------------------------------------------
8.1 Financial Covenants.................................................................... 52
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8.2 Limitation on Liens.................................................................... 52
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8.3 Limitation on Contingent Obligations................................................... 54
-------------------------------------------------------------------------------------------------------
8.4 Limitation on Fundamental Changes...................................................... 55
-------------------------------------------------------------------------------------------------------
8.5 Limitation on Sale of Assets........................................................... 56
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8.6 Limitation on Restricted Payments...................................................... 56
-------------------------------------------------------------------------------------------------------
8.7 Limitation on Investments, Loans and Advances.......................................... 57
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8.8 Sale and Leaseback..................................................................... 58
-------------------------------------------------------------------------------------------------------
8.9 Limitation on Transactions with Affiliates............................................. 58
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8.10 Accounting Changes..................................................................... 58
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8.11 Indebtedness........................................................................... 59
-------------------------------------------------------------------------------------------------------
8.12 Limitation on Modifications of Tax Allocation Agreement................................ 59
-------------------------------------------------------------------------------------------------------
8.13 Limitation on Negative Pledge Clauses.................................................. 60
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8.14 Limitation on Lines of Business........................................................ 60
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8.15 Limitation on Restrictions on Subsidiary Distributions................................. 60
-------------------------------------------------------------------------------------------------------
8.16 Limitation on Subsidiaries............................................................. 60
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SECTION 9. EVENTS OF DEFAULT...................................................................... 61
- -------------------------------------------------------------------------------------------------------------------
SECTION 10. THE ADMINISTRATIVE AGENT............................................................... 64
- -------------------------------------------------------------------------------------------------------------------
10.1 Appointment............................................................................ 64
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10.2 Delegation of Duties................................................................... 64
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10.3 Exculpatory Provisions................................................................. 64
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10.4 Reliance by the Administrative Agent................................................... 65
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10.5 Notice of Default...................................................................... 65
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10.6 Non-Reliance on the Administrative Agent and the Other Lenders......................... 65
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10.7 Indemnification........................................................................ 66
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10.8 The Administrative Agent in Its Individual Capacity.................................... 67
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10.9 Successor Administrative Agent......................................................... 67
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10.10 Issuing Lender as Issuer of Letters of Credit.......................................... 67
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10.11 Documentation Agent.................................................................... 67
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10.12 Syndication Agent...................................................................... 67
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SECTION 11. MISCELLANEOUS.......................................................................... 68
- -------------------------------------------------------------------------------------------------------------------
11.1 Amendments and Waivers................................................................. 68
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11.2 Notices................................................................................ 69
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11.3 No Waiver; Cumulative Remedies......................................................... 70
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11.4 Survival of Representations and Warranties............................................. 70
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11.5 Payment of Expenses and Taxes.......................................................... 70
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-iii-
<PAGE>
11.6 Successors and Assigns; Loan Participations............................................ 71
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11.7 Adjustments; Set-off................................................................... 74
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11.8 Severability........................................................................... 75
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11.9 Releases of Guarantee Obligations...................................................... 75
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11.10 Effectiveness; Counterparts............................................................ 75
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11.11 SUBMISSION TO JURISDICTION; WAIVERS.................................................... 75
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11.12 GOVERNING LAW.......................................................................... 76
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</TABLE>
-iv-
<PAGE>
SCHEDULES
- ---------
Schedule 1.1(A) Lenders; Addresses for Notices
- ------------------------------------------------
Schedule 1.1(B) Commitments
- -----------------------------
Schedule 3.9 Existing Letters of Credit
- --------------------------------------------
Schedule 5.19 Subsidiaries
- ------------------------------
Schedule 8.2(j) Existing Liens
- --------------------------------
Schedule 8.11(b) Existing Indebtedness
- ---------------------------------------
EXHIBITS
- --------
Exhibit A Form of Note
- ------------------------------
Exhibit B-1 Form of Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
- -----------------------------------------------------------------------------
Exhibit B-2 Form of Opinion of General Counsel
- ----------------------------------------------------
Exhibit C Form of Assignment and Acceptance
- ---------------------------------------------------
Exhibit D-1 Form of Holdings Guarantee
- --------------------------------------------
Exhibit D-2 Form of Subsidiaries Guarantee
- ------------------------------------------------
-v-
<PAGE>
CREDIT AGREEMENT, dated as of March 2, 1998, among:
(a) CONSOLIDATED CIGAR CORPORATION, a Delaware corporation (the
"Company");
(b) the financial institutions from time to time parties hereto
(the "Lenders");
(c) THE CHASE MANHATTAN BANK, a New York banking corporation, as
administrative agent (in such capacity, the "Administrative
Agent") for the Lenders;
(d) CHASE SECURITIES INC., as arranger;
(e) NATIONSBANK, N.A., a national banking association, as
documentation agent (in such capacity, the "Documentation
Agent") for the Lenders; and
(f) CREDIT SUISSE FIRST BOSTON, as syndication agent (in such
capacity, the "Syndication Agent") for the Lenders.
W I T N E S S E T H :
WHEREAS, the Company has requested the Lenders to make
revolving extensions of credit to it on the terms and conditions set forth
herein in an aggregate principal amount outstanding at any time not to exceed
$140,000,000 to finance the redemption (the "Note Redemption") of all of the
Company's outstanding 10-1/2% Senior Subordinated Notes due 2003 (the "Senior
Subordinated Notes"), and to finance the working capital needs of the Company
and its Subsidiaries and for other general corporate purposes; and
WHEREAS, the Lenders are willing to make revolving credit
extensions to the Company, but only on and subject to the terms and conditions
hereof;
NOW, THEREFORE in consideration of the premises and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the Company, the Lenders and the Administrative Agent
hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following
terms shall have the following respective meanings (such definitions to be
equally applicable to the singular and plural forms thereof):
<PAGE>
"Adjustment Date" shall have the meaning assigned to such
term in the definition of Pricing Grid;
"Administrative Agent" shall have the meaning assigned to
such term in the preamble hereto;
"Affected Loan" shall have the meaning assigned to such term
in subsection 4.6(a);
"Affiliate" of any Person shall mean any other Person (other
than a Subsidiary) which, directly or indirectly, is in control of, is
controlled by, or is under common control with, the first Person. For purposes
of this definition, a Person shall be deemed to be "controlled by" another
Person if such other Person possesses, directly or indirectly, power either to
(a) vote 10% or more of the securities having ordinary voting power for the
election of directors of such first Person or (b) direct or cause the
direction of the management and policies of such first Person whether by
contract or otherwise;
"Aggregate Commitment" shall mean the aggregate Commitments
of the Lenders, the original amount of which totals $140,000,000, as such
amount may be reduced from time to time pursuant to the terms of this
Agreement;
"Aggregate Outstanding Extensions of Credit" shall mean, at
any time, the amount equal to the sum of (a) the aggregate principal amount of
all Loans then outstanding and (b) the aggregate amount of all L/C Obligations
then outstanding;
"Agreement" shall mean this Credit Agreement, as the same
may be amended, supplemented or otherwise modified from time to time;
"Alternate Base Rate" for any day, shall mean a rate per
annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate in
effect on such day plus 1% and (c) the Federal Funds Effective Rate in effect
on such day plus 1/2 of 1%. If for any reason the Administrative Agent shall
have determined (which determination shall be conclusive absent manifest
error) that it is unable to ascertain the Base CD Rate or the Federal Funds
Effective Rate, or both, for any reason, including the inability or failure of
the Administrative Agent to obtain sufficient quotations in accordance with
the terms thereof, the Alternate Base Rate shall be determined without regard
to clause (b) or (c), or both, of the first sentence of this definition, as
appropriate, until the circumstances giving rise to such inability no longer
exist;
"Alternate Base Rate Loans" shall mean Loans hereunder at
such
<PAGE>
3
time as such Loans are made and/or being maintained at a rate of interest
based upon the Alternate Base Rate;
"Applicable Margin" shall mean 0.750% per annum; provided,
that on and after the first Adjustment Date, occurring upon the delivery of
the consolidated financial statements of the Company and the Subsidiaries for
the fiscal quarter ended June 30, 1998, the Applicable Margin with respect to
Loans, will be determined pursuant to the definition of Pricing Grid;
"Application" shall mean an application, in such form as the
Issuing Lender may specify from time to time, requesting the Issuing Lender to
open a Letter of Credit;
"Assignment and Acceptance" shall have the meaning assigned
to such term in subsection 11.6(c);
"Available Commitment" at any date, shall mean the amount
equal to the difference between (a) the Aggregate Commitment at such date and
(b) the Aggregate Outstanding Extensions of Credit at such date;
"Bankruptcy Code" shall mean Title 11, United States Code,
as amended from time to time;
"Base CD Rate" shall mean the sum of (a) the product of (i)
the Three-Month Secondary CD Rate and (ii) a fraction, the numerator of which
is one and the denominator of which is one minus the C/D Reserve Percentage
and (b) the C/D Assessment Rate;
"Benefitted Lender" shall have the meaning assigned to such
term in subsection 11.7(a);
"Business Day" shall mean a day other than a Saturday,
Sunday or other day on which commercial banks in New York, New York are
authorized or required by law to close;
"Capital Expenditures" for any period, shall mean all
amounts (whether paid in cash or accrued as liabilities, including all
obligations in respect of Capital Leases) that would in accordance with GAAP
be set forth as "capital expenditures" on the consolidated statement of cash
flows of the Company and its Subsidiaries for such period;
"Capital Lease" shall mean any lease of property (real,
personal or mixed) which in accordance with GAAP is or should be capitalized
on the lessee's balance sheet;
<PAGE>
4
"Capital Stock" shall mean any and all shares, interests,
participations or other equivalents (however designated) of capital stock of a
corporation, any and all equivalent ownership interests in a Person (other
than a corporation) and any and all warrants, rights or options to purchase
any of the foregoing;
"Cash Equivalents" shall mean (a) securities with maturities
of one year or less from the date of acquisition issued or fully guaranteed or
insured by the United States Government or any agency thereof, (b)
certificates of deposit and eurodollar time deposits with maturities of one
year or less from the date of acquisition and overnight bank deposits of any
Lender or of any commercial bank having capital and surplus in excess of
$500,000,000, (c) repurchase obligations of any Lender or of any commercial
bank satisfying the requirements of clause (b) of this definition having a
term of not more than 30 days with respect to securities issued or fully
guaranteed or insured by the United States Government, (d) commercial paper of
a domestic issuer rated at least A-2 by Standard & Poor's Ratings Group or any
successor ("S&P") or P-2 by Moody's Investors Service, Inc. or any successor
("Moody's"), (e) securities with maturities of one year or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States or by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory, political
subdivision, taxing authority or foreign government (as the case may be) are
rated at least A by S&P or A by Moody's, (f) securities with maturities of one
year or less from the date of acquisition backed by standby letters of credit
issued by any Lender or any commercial bank satisfying the requirements of
clause (b) of this definition or (g) shares of money market mutual or similar
funds sponsored by any registered broker dealer or mutual fund distributor;
"C/D Assessment Rate" shall mean, for any day, the net
annual assessment rate (rounded upward to the nearest 1/100th of 1%)
determined by the Administrative Agent to be payable on such day to the
Federal Deposit Insurance Corporation or any successor ("FDIC") for FDIC's
insuring time deposits made in Dollars at offices of the Administrative Agent
in the United States;
"C/D Reserve Percentage" shall mean, for any day, that
percentage (expressed as a decimal) which is in effect on such day, as
prescribed by the Board of Governors of the Federal Reserve System (or any
successor), for determining the maximum reserve requirement for a member bank
of the Federal Reserve System in New York City with deposits exceeding one
<PAGE>
5
billion Dollars in respect of new non-personal time deposits in Dollars in New
York City having a maturity of three months and in an amount of $100,000 or
more;
"Change of Control" shall have occurred if any "person" (as
such term is used in Section 13(d) or 14(d) of the Exchange Act) other than
one or more Permitted Holders (any such other Person, an "Unrelated Person")
or any Unrelated Persons acting as a "group" (as such term is defined in
Section 13(d)(3) of the Exchange Act), together with any Affiliates thereof
which are Unrelated Persons, (A) shall acquire "beneficial ownership" (as such
term is defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of more than 35% of the total voting power of all classes of Voting Stock of
Holdings then outstanding or (B) shall have elected, or shall have caused to
be elected, a sufficient number of its or their nominees to the board of
directors of Holdings such that the nominees so elected (whether new or
continuing directors) shall constitute a majority of the board of directors of
Holdings;
"Closing Date" shall have the meaning assigned to such term
in subsection 6.1;
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time;
"Commercial Letter of Credit" shall have the meaning
assigned to such term in subsection 3.1;
"Commitment" of any Lender at any date shall mean the
obligation of such Lender at such date to (a) make Loans to the Company or (b)
issue or participate in Letters of Credit on behalf of the Company, in an
aggregate principal amount at any one time outstanding not to exceed the
amount set forth opposite such Lender's name under the caption "Commitment" on
Schedule 1.1(B), as such amount may be reduced from time to time in accordance
with the provisions hereof; collectively, as to all Lenders, the
"Commitments";
"Commitment Fee Rate" shall mean 0.200% per annum; provided
that on and after the first Adjustment Date occurring upon the delivery of the
consolidated financial statements of the Company and the Subsidiaries for the
fiscal quarter ended June 30, 1998 the Commitment Fee Rate will be determined
pursuant to the definition of Pricing Grid;
"Commitment Percentage" for any Lender at any time shall
mean the percentage of the Aggregate Commitment then constituted by such
Lender's Commitment;
<PAGE>
6
"Commitment Period" shall mean the period commencing on the
Closing Date and ending on the Termination Date;
"Commonly Controlled Entity" shall mean an entity, whether
or not incorporated, which is under common control with the Company within the
meaning of Section 4001 of ERISA or is part of a group which includes the
Company and which is treated as a single employer under Section 414(b) or (c)
(or, solely for purposes of Section 412 of the Code and Section 302 of ERISA,
Section 414(m) or (o)) of the Code;
"Company" shall have the meaning assigned to such term in
the preamble hereto;
"Consolidated EBITDA" for any fiscal period of the Company
shall mean the Consolidated Net Income or Consolidated Net Loss, as the case
may be, for such fiscal period, (a) after restoring thereto amounts deducted
for (i) extraordinary losses, (ii) depreciation and amortization (including
write-offs or write-downs of amortizable and depreciable items), (iii)
Consolidated Interest Expense, (iv) "provision for taxes" (or any like
caption) on a consolidated statement of earnings of the Company and its
Subsidiaries for such fiscal period, (v) any losses in respect of currency
fluctuations and (vi) minority interests and (b) after deducting therefrom (i)
extraordinary gains (which extraordinary items of gain shall include, whether
or not so includable in accordance with GAAP, any item of gain resulting from
the sale, lease or other disposition of any principal property of the Company
and its Subsidiaries taken as a whole or the Capital Stock of any material
Subsidiary of the Company), (ii) the portion of net income of the Company and
its Subsidiaries allocable to interests in unconsolidated Persons to the
extent that cash dividends or distributions in respect of such portion of net
income have not actually been received by the Company or any of its domestic
Subsidiaries, (iii) the portion of any extraordinary loss actually paid in
cash, but not including the amount of the premium paid by the Company in
connection with the Note Redemption, and (iv) any gains in respect of currency
fluctuations; provided any such restorations or deductions shall only be
restored or deducted to the extent included in the determination of
Consolidated Net Income or Consolidated Net Loss;
"Consolidated Interest Expense" for any fiscal period of the
Company shall mean the amount which, in conformity with GAAP, would be set
forth opposite the caption "interest expense" (or any like caption) on a
consolidated statement of earnings of the Company and its Subsidiaries for
such fiscal period;
<PAGE>
7
"Consolidated Net Income" or "Consolidated Net Loss" for any
fiscal period of the Company shall mean the amount which, in conformity with
GAAP, would be set forth opposite the caption "net income" (or any like
caption) or "net loss" (or any like caption), as the case may be, on a
consolidated statement of earnings of the Company and its Subsidiaries for
such fiscal period;
"Contingent Obligation" as to any Person shall mean any
obligation of such Person guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends, letters of credit or other obligations
("primary obligations") of any other Person (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
"keep-well" or "make-well" agreement, guarantee of return on equity or other
obligation of such Person, whether or not contingent, (a) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of
any such primary obligation or (ii) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency of the primary obligor, (c) to purchase property, securities or
services primarily for the purpose of assuring the obligee under any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the
obligee under such primary obligation against loss in respect thereof;
"Contractual Obligation" of any Person shall mean any
provision of any material debt security or of any material preferred capital
stock or other equity interest issued by such Person or of any material
indenture, mortgage, agreement, instrument or undertaking to which such Person
is a party or by which it or any of its material property is bound; "Credit
Documents" shall mean this Agreement, the Notes, the Applications and the
Guarantees, each, a "Credit Document";
"Cross Default" of any Person shall mean (a) default in the
payment of any amount when due (whether at maturity or by acceleration) on any
of its Indebtedness (other than any such default in respect of the Loans, the
Notes or the Reimbursement Obligations) or in the payment of any matured
Contingent Obligation in respect of any Indebtedness of any other Person
(except for any such payments on account of any such Indebtedness and
Contingent Obligations in an aggregate principal amount at any one time
outstanding of up to $5,000,000) or (b) default in the observance or
performance of any other agreement or condition relating to any such
Indebtedness (except for any such Indebtedness and Contingent Obligations in
an aggregate principal amount at any one time outstanding of up to $5,000,000)
or contained in
<PAGE>
8
any instrument or agreement evidencing, securing or relating thereto,
or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to permit the holder
or holders of such Indebtedness (or a trustee or agent on behalf of such
holder or holders) to cause, with the giving of notice if required, such
Indebtedness (except for any such Indebtedness in an aggregate principal
amount at any one time outstanding of up to $5,000,000) to become due or to be
required to be redeemed or repurchased prior to its stated maturity;
"Cuban Cigar" shall mean Cuban Cigar Brands, NV, a company
organized under the laws of the Netherlands-Antilles;
"Default" shall mean any of the events specified in Section
9, whether or not any requirement for the giving of notice, the lapse of time,
or both, or any other condition, has been satisfied;
"Disposition" shall mean with respect to any Property, any
sale, lease, sale and leaseback, assignment, conveyance, transfer or other
disposition thereof; and the terms "Dispose" and "Disposed of" shall have
correlative meanings;
"Documentation Agent" shall have the meaning assigned to
such term in the preamble hereto;
"Dollars" and "$" shall mean dollars in lawful currency of
the United States;
"Domestic Subsidiary" shall mean each Subsidiary of the
Company which is organized under the laws of a State within the United States;
"Environmental Laws" shall mean any and all federal,
foreign, state, local or municipal laws, rules, orders, regulations, statutes,
ordinances, codes, decrees, requirements of any Governmental Authority, and
any and all Requirements of Law regulating, relating to or imposing liability
or standards of conduct concerning pollution or protection of human health or
the environment, as now or may at any time hereafter be in effect;
"ERISA" shall mean the Employee Retirement Income Security
Act of 1974, as amended from time to time;
"Eurodollar Base Rate" with respect to each Eurodollar Loan
of each Lender for each Interest Period shall mean the rate per annum equal to
the rate at which the Administrative Agent is offered Dollar deposits two
Working Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the foreign currency and
<PAGE>
9
exchange operations or eurodollar funding operations of the Administrative
Agent are customarily conducted at or about 11:00 A.M. (London time) for
delivery on the first day of such Interest Period for the number of days
contained therein and in an amount equal to a representative amount of such
deposits;
"Eurodollar Loan" shall mean each Loan hereunder at such
time as it is made and/or being maintained at a rate of interest based upon
the Eurodollar Rate;
"Eurodollar Rate" with respect to each Eurodollar Loan for
each day during an Interest Period shall mean the rate per annum determined
for such day (rounded upwards to the nearest whole multiple of 1/100th of one
percent) equal to the following:
Eurodollar Base Rate
---------------------------------------
1.00 - Eurodollar Reserve Requirements;
"Eurodollar Reserve Requirements" with respect to any
Interest Period for any Eurodollar Loan shall mean the aggregate of the rates
(expressed as a decimal) of reserve requirements current on the date two
Working Days prior to the beginning of such Interest Period (including,
without limitation, basic, supplemental, marginal and emergency reserves under
any regulations of the Board of Governors of the Federal Reserve System or
other governmental authority having jurisdiction with respect thereto), as now
and from time to time hereafter in effect, dealing with reserve requirements
prescribed for eurocurrency funding (currently referred to as "Eurocurrency
liabilities" in Regulation D of such Board) required to be maintained by a
member bank of such Federal Reserve System;
"Event of Default" shall mean any of the events specified in
Section 9, provided that any requirement for the giving of notice, the lapse
of time, or both, or any other condition, has been satisfied;
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
"Existing Credit Agreement" shall mean the Credit Agreement,
dated as of February 23, 1993, among the Company, the several financial
institutions parties thereto and The Chase Manhattan Bank, as Agent, as
amended, supplemented or otherwise modified through the Closing Date;
"Fabrica" shall mean Fabrica de Tobacos la Flor de Copan, a
<PAGE>
10
company organized under the laws of Honduras;
"Federal Funds Effective Rate" for any day, shall mean the
weighted average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day which is a Business
Day, the average of the quotations for the day of such transactions received
by the Administrative Agent from three federal funds brokers of recognized
standing selected by it;
"Foreign Subsidiary" shall mean any Subsidiary of the
Company which is not a Domestic Subsidiary;
"Fully Satisfied" shall mean, with respect to:
(a) the Payment Obligations as of any date, that,
on or before such date, (i) the principal of and interest
accrued to such date on such Payment Obligations shall have
been paid in full in cash (other than the Undrawn L/C
Obligations), (ii) all Undrawn L/C Obligations shall have
been Fully Secured, (iii) all fees, expenses and other
amounts then due and payable which constitute Payment
Obligations (other than the Undrawn L/C Obligations) shall
have been paid in full in cash and (iv) the Commitments
shall have expired or irrevocably been terminated; and
(b) the Obligations (as defined in the Guarantees)
as of any date, that, on or before such date, (i) the
Payment Obligations shall have been Fully Satisfied and (ii)
all Rate Hedging Agreements with any of the Lenders or their
Affiliates shall have been terminated or all obligations
thereunder (other than for fees, expenses and indemnities)
shall have been cash collateralized and all fees, expenses
and indemnity payments then due and payable thereunder shall
have been paid in full in cash;
"Fully Secured" shall mean, with respect to any Undrawn L/C
Obligations as of any date, that, on or before such date, such Undrawn L/C
Obligations shall have been secured by the grant to the Issuing Lender by the
Company of a first priority, perfected security interest in, and Lien on, (a)
cash or Cash Equivalents in an amount at least equal to the excess, if any, of
the amount of such Undrawn L/C Obligations over the amount of the Aggregate
Commitment on such date or (b) other collateral security which is acceptable
to the Issuing Lender and the Required Lenders;
<PAGE>
11
"GAAP" shall mean generally accepted accounting principles
in the United States as in effect as of the date of, and used in, the
preparation of the audited consolidated financial statements referred to in
subsection 5.9, except that, with respect to the presentation of financial
statements required to be furnished hereunder, GAAP shall mean generally
accepted accounting principles in the United States as in effect from time to
time;
"Governmental Authority" shall mean any nation or
government, any state or other political subdivision thereof and any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government (including, without limitation, any
governmental department, commission, board, bureau, agency or instrumentality,
or other court or arbitrator, in each case whether of the United States or
foreign) and the National Association of Insurance Commissioners;
"Guarantees" shall be the collective reference to the
Holdings Guarantee, the Subsidiaries Guarantee and each other guarantee
delivered to the Administrative Agent to support the Payment Obligations of
the Company hereunder and under the Notes, as each of the same may be amended,
supplemented or otherwise modified from time to time; individually, a
"Guarantee";
"Guarantors" shall be the collective reference to the
guarantors parties to the Guarantees; individually, a "Guarantor";
"Hazardous Materials" shall mean any hazardous materials,
hazardous wastes, hazardous or toxic substances, defined or regulated as such
in or under any Environmental Law, including without limitation asbestos,
Petroleum Products and material exhibiting the characteristics of
ignitability, corrosivity, reactivity or extraction procedure toxicity, as
such terms are defined in connection with hazardous materials or hazardous
wastes or hazardous or toxic substances in any Environmental Law;
"Holdings" shall mean Consolidated Cigar Holdings Inc., a
Delaware corporation, the direct parent of the Company;
"Holdings Guarantee" shall mean the Guarantee, to be
executed and delivered by Holdings, substantially in the form of Exhibit D-1,
as the same may be amended, supplemented or otherwise modified from time to
time;
"Holdings Note" shall mean the promissory note of Holdings,
dated
<PAGE>
12
August 21, 1996, owing to Mafco Consolidated Group Inc.;
"Indebtedness" of a Person shall mean (a) indebtedness of
such Person for borrowed money whether short-term or long-term and whether
secured or unsecured, (b) indebtedness of such Person for the deferred
purchase price of services or property, which purchase price (i) is due twelve
months or more from the date of incurrence of the obligation in respect
thereof or (ii) customarily or actually is evidenced by a note or other
written instrument (including, without limitation, any such indebtedness which
is non-recourse to the credit of such Person but is secured by assets of such
Person), (c) obligations of such Person under Capital Leases, (d) obligations
of such Person arising under acceptance facilities, (e) the undrawn face
amount of, and unpaid reimbursement obligations in respect of, all letters of
credit issued for the account of such Person, (f) all obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (g)
all obligations of such Person upon which interest charges are customarily
paid, (h) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property),
(i) obligations of such Person to purchase, redeem, retire, defease or
otherwise acquire for value any Capital Stock of such Person (with redeemable
preferred capital stock being valued at the greater of its voluntary or
involuntary liquidation preference plus accrued and unpaid dividends), (j) all
executory obligations of such Person in respect of interest rate agreements
and foreign exchange and other financial hedge contracts (including, without
limitation, equity hedge contracts), (k) all Indebtedness of the types
referred to in clauses (a) through (j) above for which such Person is
obligated under a Contingent Obligation and (l) renewals, extensions,
refundings, deferrals, restructurings, amendments and modifications of any
such indebtedness, obligation or guarantee;
"indemnified liabilities" shall have the meaning assigned to
such term in subsection 11.5;
"Insolvency" shall mean with respect to any Multiemployer
Plan, the condition that such Plan is insolvent within the meaning of such
term as used in Section 4245 of ERISA;
"Insolvent" shall pertain to a condition of Insolvency;
"Intellectual Property" shall have the meaning assigned to
such term in subsection 5.13;
<PAGE>
13
"Interest Coverage Ratio" at the last day of any fiscal
quarter, shall mean the ratio of (a) (i) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending on such date less (ii) Capital
Expenditures for the period of four consecutive fiscal quarters ending on such
date to (b) Consolidated Interest Expense for the period of four consecutive
fiscal quarters ending on such date;
"Interest Payment Date" shall mean (a) as to any Alternate
Base Rate Loan, the last day of each March, June, September and December,
commencing on the first of such days to occur after such Alternate Base Rate
Loan is made or Eurodollar Loans are converted to Alternate Base Rate Loans,
(b) as to any Eurodollar Loan with an Interest Period of three months or less,
the last day of the Interest Period with respect thereto, (c) as to any
Eurodollar Loan with an Interest Period of six months, the day which is three
months after the first day of such Interest Period and the last day of such
Interest Period and (d) in any event, the Termination Date;
"Interest Period" shall mean, (a) initially, with respect to
any Eurodollar Loan, the period commencing on the borrowing date or the
initial date of conversion with respect to such Eurodollar Loan and ending
one, two, three or six months thereafter as selected by the Company in a
notice of borrowing or conversion, as the case may be, as provided herein and
(b) thereafter, each period commencing on the last day of the immediately
preceding Interest Period applicable to such Eurodollar Loan, as the case may
be, and ending one, two, three or six months thereafter, in any such case as
selected by the Company in accordance with the provisions of subsection 4.5;
provided that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(x) if any Interest Period relating to a Eurodollar
Loan would otherwise end on a day which is not a Working
Day, such Interest Period shall be extended to the next
succeeding Working Day, unless the result of such extension
would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
immediately preceding Working Day;
(y) the Company shall not select an Interest Period
relating to any Eurodollar Loan which extends beyond the
Termination Date and any Interest Period relating to any
Eurodollar Loan that would otherwise extend beyond the
Termination Date shall end on such date; and
(z) if any Interest Period relating to a Eurodollar
Loan begins
<PAGE>
14
on the last Working Day of a calendar month (or
on a day for which there is no numerically corresponding day
in the calendar month at the end of such Interest Period),
such Interest Period shall end on the last Working Day of a
calendar month;
"Issuing Lender" with respect to any Letter of Credit issued
or requested to be issued, shall mean The Chase Manhattan Bank or, subject to
the consent of the Company (which consent shall not be unreasonably withheld
or delayed), any other Lender designated by the Administrative Agent that
agrees to serve in such capacity;
"Jamaica Tobacco" shall mean Jamaica Tobacco Manufacturing
Company (1995) Limited, a company organized under the laws of Jamaica;
"L/C Commitment" shall equal $20,000,000;
"L/C Fee Payment Date" shall mean the last day of each
March, June, September and December and, in any event, the Termination Date;
"L/C Obligations" shall mean, at any time, an amount equal
to the sum of (a) the aggregate amount of Undrawn L/C Obligations then
outstanding and (b) the aggregate amount of then unreimbursed Reimbursement
Obligations;
"L/C Participants" shall be the collective reference to all
the Lenders, other than the Issuing Lender (or, to the extent that the Issuing
Lender is an affiliate of a Lender, such Lender);
"Lenders" shall have the meaning assigned to such term in
the preamble hereto;
"Letters of Credit" shall have the meaning assigned to such
term in subsection 3.1;
"Leverage Ratio" at the last day of any fiscal quarter,
shall mean the ratio of (a) Total Debt (after giving effect to all prepayments
made on such day) on such day to (b) Consolidated EBITDA for the period of
four consecutive fiscal quarters ending on such day;
"Lien" shall mean any mortgage, deed of trust, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory
or other) or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, (a) any conditional sale
or other title retention agreement, (b)
<PAGE>
15
any financing lease having substantially the same economic effect as any of
the foregoing, and (c) in the case of securities, any purchase option, call or
similar right of a third party with respect to such securities (other than, in
the case of securities other than the Capital Stock of any Subsidiary of the
Company, pursuant to normal settlement terms));
"Loan" and "Loans" shall have the meanings assigned to such
terms in subsection 2.1;
"Loan Parties" shall mean the Company and the Guarantors;
"Material Adverse Effect" shall mean a material adverse
effect upon (a) the business, assets, operations, condition (financial or
otherwise), performance, properties or prospects of Holdings, the Company and
their Subsidiaries taken as a whole, (b) the ability of Holdings, the Company
and each of their Subsidiaries to perform its obligations under the Credit
Documents or (c) the rights and remedies available to the Administrative Agent
and/or the Lenders under any Credit Document;
"Multiemployer Plan" shall mean a Plan (other than a welfare
plan as defined in Section 3(1) of ERISA) which is a multiemployer plan as
defined in Section 4001(a)(3) of ERISA;
"Note" shall have the meaning assigned to such term in
subsection 2.2(c);
"Note Redemption" shall have the meaning assigned to such
term in the recitals hereto;
"Parent" shall have the meaning assigned to such term in
subsection 7.8; "Participants" shall have the meaning assigned to such term in
subsection 11.6(b);
"Payment Obligations" shall mean (a) all principal,
interest, fees, charges, expenses, attorneys' fees and disbursements,
indemnities, reimbursement obligations and any other amounts payable by any
Person under any Credit Document (including, without limitation, the L/C
Obligations) and (b) any amount in respect of any of the foregoing that the
Administrative Agent or any Lender, in its sole discretion, may elect to pay
or advance under this Agreement on behalf of such Person after the occurrence
and during the continuance of a Default or an Event of Default;
"Payment Sharing Notice" shall mean a written notice from
the
<PAGE>
16
Company or any Lender informing the Administrative Agent that an Event of
Default has occurred and is continuing and directing the Administrative Agent
to allocate payments thereafter received from the Company in accordance with
the provisions of subsection 4.13(b)(ii);
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Subtitle A of Title IV of ERISA (and any Governmental
Authority which may succeed to the powers and functions thereof);
"Permitted Exceptions" shall have the meaning assigned to
such term in subsection 8.2;
"Permitted Holders" shall mean Ronald O. Perelman (or, in
the event of his incompetence or death, his estate, heirs, executor,
administrator, committee or other personal representative) (collectively,
"heirs") or any Person controlled, directly or indirectly, by Ronald O.
Perelman or his heirs;
"Person" shall mean an individual, a partnership, a
corporation, a business trust, a joint stock company, a limited liability
company, a trust, an unincorporated association, a joint venture, a
Governmental Authority or any other entity of whatever nature;
"Petroleum Products" shall mean gasoline, diesel fuel, motor
oil, waste or used oil, heating oil, kerosene and any other petroleum
products, including crude oil or any fraction thereof;
"Plan" shall mean at any particular time, any employee
benefit plan which is covered by ERISA and in respect of which the Company or
a Commonly Controlled Entity is (or, if such plan was terminated at such time,
would under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA;
"Potential Withdrawal Liability" shall have the meaning
assigned to such term in subsection 5.8;
"Pricing Grid" shall mean the pricing grid set forth below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Leverage Ratio Applicable Margin Commitment
Fee Rate
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Greater than or equal to 2.00 to 1.0 1.000% 0.225%
- ----------------------------------------------------------------------------------------------------------------
<PAGE>
17
Greater than or equal to 1.00 to 1.0 and less than 2.00 to 1.0 0.750% 0.200%
- ----------------------------------------------------------------------------------------------------------------
Greater than or equal to .75 to 1.0 and less than 1.00 to 1.0 0.625% 0.200%
- ----------------------------------------------------------------------------------------------------------------
Greater than or equal to .50 to 1.0 and less than .75 to 1.0 0.500% 0.175%
- ----------------------------------------------------------------------------------------------------------------
Less than .50 to 1.0 0.375% 0.150%
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Changes in the Applicable Margin with respect to Eurodollar Loans or in the
Commitment Fee Rate resulting from changes in the Leverage Ratio shall become
effective on the date (the "Adjustment Date") on which financial statements
are delivered to the Lenders pursuant to subsections 7.1(a) and (c) and shall
remain in effect until the next change to be effected pursuant to this
paragraph. If any such financial statements are not delivered within the time
periods specified in subsections 7.1(a) and (c), then from the time such
financial statements were due, until such financial statements are delivered,
the Leverage Ratio as at the end of the fiscal period that would have been
covered thereby shall for the purposes of this definition be deemed to be
greater than 2.00 to 1.00. In addition, at all times while an Event of Default
shall have occurred and be continuing, the Leverage Ratio shall for the
purposes of this definition be deemed to be greater than 2.00 to 1.00. Each
determination of the Leverage Ratio pursuant to this definition shall be made
with respect to the period of four consecutive fiscal quarters of the Company
ending at the end of the period covered by the relevant financial statements;
"Prime Rate" shall mean the rate of interest per annum
publicly announced from time to time by the Administrative Agent as its prime
rate in effect at its principal office in New York City (each change in the
Prime Rate to be effective on the date such change is publicly announced);
"Property" shall mean any right or interest in or to
property of any kind whatsoever, whether real, personal or mixed and whether
tangible or intangible, including, without limitation, Capital Stock;
"Purchasing Lenders" shall have the meaning assigned to such
term in subsection 11.6 (c)(ii);
"Rate Hedging Agreement" shall mean any (a) interest rate
swap, option, cap, collar or insurance, (b) foreign exchange contract or (c)
any other agreement or arrangement designed to provide protection against
<PAGE>
18
fluctuations in interest rates or currency exchange rates;
"Real Property" shall have the meaning assigned to such term
in subsection 5.14;
"Register" shall have the meaning assigned to such term in
subsection 11.6(d));
"Reimbursement Obligation" shall mean the obligation of the
Company to reimburse the Issuing Lender pursuant to subsection 3.5 for amounts
drawn under Letters of Credit;
"Reorganization" shall mean with respect to any
Multiemployer Plan, the condition that such Plan is in reorganization within
the meaning of such term as used in Section 4241 of ERISA;
"Reportable Event" shall mean any of the events set forth in
Section 4043(c) of ERISA, other than those events as to which the 30-day
notice period is waived by regulation (except for any waiver under PBGC Reg.
Section 4043.25);
"Required Lenders" at any date, shall mean the holders of at
least a majority of the Aggregate Commitment on such date;
"Requirement of Law" for any Person shall mean the
Certificate of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation, or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable to or binding upon such Person or any of its material
property or to which such Person or any of its material property is subject;
"Responsible Officer" shall mean any officer at the level of
Vice President or higher of the Company or, with respect to financial matters,
the Chief Financial Officer, Chief Accounting Officer or Treasurer of the
Company;
"Restricted Payment" shall mean (a) any payment by the
Company or any of its Subsidiaries of a dividend (other than a dividend
payable solely in Capital Stock of the Company) on, or any payment on account
of, the purchase, redemption or retirement of, or any other distribution on,
any shares of any class of Capital Stock of the Company (including any such
payment or distribution in cash or in property or obligations of the Company
or any of its Subsidiaries), (b) any loan or advance by the Company or any of
its Subsidiaries to any Affiliate of the Company or (c)
<PAGE>
19
the payment by the Company or any of its Subsidiaries of any management or
administrative fee to any Affiliate of the Company or of any salary, bonus or
other form of compensation other than in the ordinary course of business to
any Person who is a significant stockholder or executive officer of any
Affiliate of the Company;
"Senior Subordinated Notes" shall have the meaning assigned
to such term in the recitals hereto;
"Significant Trademark" shall mean any Trademark which is of
such a nature that the Company or its Subsidiaries in accordance with its
ordinary business practice then obtaining would file an application for
trademark registration in the United States Patent and Trademark Office;
"Single Employer Plan" shall mean any Plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA;
"Standby Letter of Credit" shall have the meaning assigned
to such term in subsection 3.1;
"Subsidiaries Guarantee" shall mean the Guarantee, to be
executed and delivered by each Domestic Subsidiary of the Company (with assets
the fair market value of which exceeds $100,000), substantially in the form of
Exhibit D-2, as the same shall be amended, supplemented or otherwise modified
from time to time;
"Subsidiary" of any Person shall mean a corporation or other
entity of which shares of Capital Stock or other ownership interests
having ordinary voting power (other than Capital Stock or other
ownership interests having such power only by reason of the happening
of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such
entity, are owned, directly or indirectly, by such Person; unless
otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company and all references to a "wholly owned
Subsidiary" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Company of which the Company directly or
indirectly owns all of the Capital Stock (other than directors'
qualifying shares);
"Syndication Agent" shall have the meaning assigned to such
term in the preamble hereto;
"Taxable Lender" shall have the meaning assigned to such
term in subsection 4.10(d);
<PAGE>
20
"Tax Allocation Agreement" shall mean the Amended and
Restated Tax Sharing Agreement entered into as of June 15, 1995 by and among
Mafco Holdings Inc., a Delaware corporation, Holdings (formerly known as
Consolidated Cigar (Parent) Holdings Inc.), Mafco Consolidated Group Inc., a
Delaware corporation, the Company, its Subsidiaries and any entities which
become parties thereto pursuant to the terms thereof, as amended, supplemented
or otherwise modified from time to time; "Taxes" shall have the meaning
assigned to such term in subsection 4.10(a);
"Termination Date" shall mean the earlier of (a) March 3,
2003, and (b) such earlier date upon which the Commitments shall terminate in
accordance with the terms hereof;
"Three-Month Secondary CD Rate" shall mean, for any day, the
secondary market rate for three-month certificates of deposit reported as
being in effect on such day (or, if such day shall not be a Business Day, the
next preceding Business Day) by the Board of Governors of the Federal Reserve
System (the "Board") through the public information telephone line of the
Federal Reserve Bank of New York (which rate will, under the current practices
of the Board, be published in Federal Reserve Statistical Release H.15(519)
during the week following such day), or, if such rate shall not be so reported
on such day or such next preceding Business Day, the average of the secondary
market quotations for three-month certificates of deposit of major money
center banks in New York City received at approximately 10:00 A.M., New York
City time, on such day (or, if such day shall not be a Business Day, on the
next preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing selected
by it;
"Total Debt" at any time, shall mean the sum (without
duplication) of (a) the aggregate principal amount of all outstanding
Indebtedness of the Company and its Subsidiaries and (b) all outstanding
Contingent Obligations of the Company and its Subsidiaries in respect of
Indebtedness of Persons other than the Company or any of its Subsidiaries;
provided that Indebtedness of the type described in clauses (e) and (j) of the
definition of the term Indebtedness shall not be included for the purpose of
calculating Total Debt;
"Trademark" means (a) all trademarks, trade names, corporate
names, company names, business names, fictitious source of business
identifiers of the Company and its Subsidiaries, and the goodwill associated
therewith, existing as of the Closing Date or thereafter
<PAGE>
21
adopted or acquired, all registrations and recordings thereof, and all
applications in connection therewith, whether in the United States Patent and
Trademark Office or in any similar office or agency of the United States, any
State thereof, or any political subdivision thereof, or otherwise, and (b) all
renewals thereof;
"Tranche" shall be the collective reference to Eurodollar
Loans the Interest Periods with respect to all of which begin on the same date
and end on the same later date (whether or not such Loans shall originally
have been made on the same day);
"Transferee" shall have the meaning assigned to such term in
subsection 11.6(f);
"Undrawn L/C Obligations" shall mean the portion, if any, of
the Payment Obligations constituting the contingent obligation of the Company
to reimburse the Issuing Lender in respect of the then undrawn and unexpired
portions of the Letters of Credit issued by the Issuing Lender pursuant to
subsection 3.1;
"Unfunded Pension Amount" shall have the meaning assigned to
such term in subsection 5.8;
"Uniform Commercial Code" and "UCC" shall mean the Uniform
Commercial Code as in effect from time to time in the State of New York;
"Uniform Customs" shall mean the Uniform Customs and
Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, as the same may be amended from time to time;
"United States" shall mean the United States of America;
"Voting Stock" shall mean, as to any Person, Capital Stock
of such Person of the class or classes pursuant to which the holders thereof
have the general voting power under ordinary circumstances to elect the board
of directors, managers or trustees of such Person (irrespective of whether or
not at the time Capital Stock of any other class or classes shall have or
might have voting power by reason of the happening of any contingency);
"Working Day" shall mean any Business Day other than a
Business Day on which commercial banks in London, England are authorized or
required by law to close;
<PAGE>
22
1.2 Other Definitional Provisions. (a) All terms defined in
this Agreement shall have the defined meanings when used in any other Credit
Document or any certificate or other document made or delivered pursuant
hereto or thereto unless otherwise defined therein.
(b) As used herein, in the other Credit Documents and in any
certificate or other document made or delivered pursuant hereto or thereto,
accounting terms not defined in subsection 1.1, and accounting terms partly
defined in subsection 1.1 to the extent not defined, shall have the respective
meanings given to them under GAAP. To the extent that the definitions of
accounting terms herein are inconsistent with the meanings of such terms under
GAAP, the definitions contained herein shall control.
(c) The words "hereof", "herein" and "hereunder" and words
of similar import when used in this Agreement or any other Credit Document
shall refer to this Agreement or such other Credit Document, as the case may
be, as a whole and not to any particular provision of this Agreement or such
other Credit Document, as the case may be; and Section, subsection, Schedule
and Exhibit references contained in this Agreement are references to Sections,
subsections, Schedules and Exhibits in or to this Agreement, unless otherwise
specified.
SECTION 2. AMOUNTS AND TERMS OF COMMITMENTS
2.1 Commitments. Subject to the terms and conditions of this
Agreement, each Lender severally agrees to make loans in Dollars
(individually, a "Loan"; collectively, the "Loans") to the Company from time
to time during the period from the Closing Date to the Termination Date in an
aggregate principal amount at any one time outstanding not to exceed the
amount equal to the Commitment Percentage of such Lender times the Aggregate
Commitment as of such date, but in no event more than the amount which when
added to such Lender's Commitment Percentage of the L/C Obligations then
outstanding does not exceed the amount of such Lender's Commitment. During the
period commencing on the Closing Date and ending on the Termination Date, the
Company may use the Commitments by borrowing, repaying the Loans in whole or
in part and reborrowing, all in accordance with the terms and conditions
hereof.
2.2 Obligations of the Company. (a) The Company agrees that
each Loan made by each Lender pursuant hereto shall constitute the promise and
obligation of the Company to pay to the Administrative Agent, for the benefit
of such Lender, at the office of the Administrative Agent, 270 Park Avenue,
New York, New York 10017, in lawful money of the United States and in
immediately available funds the aggregate unpaid principal amount of all
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23
Loans made to the Company by such Lender pursuant to subsection 2.1, which
amounts shall be due and payable (whether at maturity or by acceleration) as
set forth in this Agreement and, in any event, on the Termination Date.
(b) The Company agrees that each Lender is authorized to
record (i) the date and amount of each Loan made to the Company by such Lender
pursuant to subsection 2.1, (ii) the date of each interest rate conversion
pursuant to subsection 4.5 and the principal amount subject thereto, (iii) the
date and amount of each payment or prepayment of principal of each Loan made
by the Company and (iv) in the case of each Eurodollar Loan, the interest rate
and Interest Period, in the books and records of such Lender and in such
manner as is reasonable and customary for such Lender and a certificate of an
officer of such Lender, setting forth in reasonable detail the information so
recorded, shall constitute prima facie evidence of the accuracy of the
information so recorded; provided that the failure to make any such recording
shall not in any way affect the Payment Obligations of the Company hereunder.
(c) The Company agrees that, upon the request to the
Administrative Agent by any Lender at any time, such Lender's Loans shall be
evidenced by a promissory note of the Company, substantially in the form of
Exhibit A with appropriate insertions as to payor, date and principal amount
(a "Note"), payable to the order of such Lender and representing the
obligation of the Company to pay a principal amount equal to the amount of the
Commitment of such Lender or, if less, the aggregate unpaid principal amount
of all Loans made by such Lender to the Company, with interest on the unpaid
principal amount thereof from time to time outstanding under such Note as
prescribed in subsection 4.4.
2.3 Procedure for Borrowing Loans. (a) The Company may
request a borrowing from time to time under the Aggregate Commitment prior to
the Termination Date on any Business Day (if the Loans to be borrowed are
Alternate Base Rate Loans) or on any Working Day (if the Loans to be borrowed
are Eurodollar Loans) by giving irrevocable notice to the Administrative
Agent, specifying (i) the aggregate principal amount to be borrowed, (ii) the
requested borrowing date, (iii) whether the Loans to be borrowed are to be
Eurodollar Loans or Alternate Base Rate Loans or a combination thereof and, if
a combination, the respective aggregate amount of each type of borrowing and
(iv) if the Loans to be borrowed are Eurodollar Loans, the length of the
Interest Period or Interest Periods applicable thereto. Any such notice of
borrowing must be signed by a Responsible Officer of the Company and be
received by the Administrative Agent prior to 11:00 A.M., New York City time,
three Working Days prior to the requested borrowing date, in the case of
Eurodollar Loans, and one Business Day prior to the requested borrowing date,
in the case of Alternate Base Rate Loans. Each borrowing under the Commitments
shall be
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24
in an aggregate principal amount equal to the lesser of (x) $500,000
or a whole multiple of $100,000 in excess thereof or (y) the Available
Commitment. Upon receipt of any such notice, the Administrative Agent will
promptly notify each Lender thereof. Each Lender will make available to the
Administrative Agent at the office of the Administrative Agent specified in
subsection 11.2 (or at such other location as the Administrative Agent may
direct), by 1:00 P.M., New York City time, on the requested borrowing date, an
amount equal to the Commitment Percentage of such Lender times the aggregate
amount of Loans requested to be borrowed on such date, in funds immediately
available to the Administrative Agent. The proceeds of Loans received by the
Administrative Agent hereunder shall promptly be made available to the Company
by the Administrative Agent's crediting the account of the Company at the
office of the Administrative Agent specified in subsection 11.2 with the
aggregate amount actually received by the Administrative Agent from the
Lenders and in like funds as received by the Administrative Agent.
(b) The failure of any Lender to make the Loan to be made by
it on any requested borrowing date shall not relieve any other Lender of its
obligation hereunder to make its Loan on such borrowing date, but no Lender
shall be responsible for the failure of any other Lender to make the Loan to
be made by such other Lender on such borrowing date.
2.4 Use of Proceeds of Loans. The proceeds of the Loans
hereunder shall be used by the Company to finance the Note Redemption of all
of the outstanding Senior Subordinated Notes and to finance the working
capital and general corporate purposes of the Company and its Subsidiaries.
SECTION 3. AMOUNT AND TERMS OF LETTERS OF CREDIT
3.1 L/C Facility. (a) Subject to the terms and conditions
hereof, the Issuing Lender, in reliance on the agreements of the other Lenders
set forth in subsections 3.4(a) and (b), agrees to issue any letter of credit
("Letters of Credit") requested to be issued by it for the account of the
Company on any Business Day during the Commitment Period in such form as may
be approved from time to time by the Issuing Lender; provided that the Issuing
Lender shall have no obligation to issue any Letter of Credit if, after giving
effect to such issuance, (i) the L/C Obligations would exceed the L/C
Commitment or (ii) the aggregate amount of the Available Commitments would be
less than zero. Each Letter of Credit shall (i) be denominated in Dollars,
(ii) be either (x) a standby letter of credit issued to support obligations of
the Company or any of its Subsidiaries, contingent or otherwise, which are of
a type for which Loans would be available if the obligations were then due and
payable (including, without limitation, to support insurance and workmen's
compensation obligations) (a "Standby Letter of Credit"), or (y) a documentary
letter of credit
<PAGE>
25
in respect of the purchase of goods or services by the Company or any of its
Subsidiaries in the ordinary course of business (a "Commercial Letter of
Credit") and (iii) expire no later than the earlier of (x) one year from the
date of issue and (y) five Business Days prior to the Termination Date;
provided that any Letter of Credit with a one-year tenor may provide for the
renewal thereof for additional one-year periods (which shall in no event
extend beyond the date referred to in clause (y)); and provided, further, that
the Undrawn L/C Obligations in respect of each Letter of Credit which expires
after the last day of the Commitment Period shall be Fully Secured from and
after such day.
(b) Each Letter of Credit shall be subject to the Uniform
Customs and, to the extent not inconsistent therewith, the laws of the State
of New York.
(c) The Issuing Lender shall not at any time be obligated to
issue any Letter of Credit hereunder if such issuance would conflict with, or
cause the Issuing Lender or any L/C Participant to exceed any limits imposed
by, any applicable Requirement of Law.
3.2 Procedure for Issuance of Letters of Credit. The Company
shall request the Issuing Lender to issue a Letter of Credit by delivering to
the Issuing Lender at its address for notices specified herein an Application
therefor, completed to the satisfaction of the Issuing Lender, and such other
certificates, documents and other papers and information as the Issuing Lender
may reasonably request. Upon receipt of any Application, the Issuing Lender
will process such Application and the certificates, documents and other papers
and information delivered to it in connection therewith in accordance with its
customary procedures and shall promptly issue the Letter of Credit requested
thereby (but in no event shall the Issuing Lender be required to issue any
Letter of Credit earlier than three Business Days after its receipt of the
Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such
Letter of Credit to the beneficiary thereof or as otherwise may be agreed by
the Issuing Lender and the Company. The Issuing Lender shall (i) in the case
of each Standby Letter of Credit, notify each L/C Participant and the
Administrative Agent promptly following the request for and following the
issuance of the Standby Letter of Credit and furnish a copy of such Standby
Letter of Credit to the Company and to the Administrative Agent promptly
following the issuance thereof and (ii) in the case of Commercial Letters of
Credit, provide to each L/C Participant and the Administrative Agent, promptly
following the end of each calendar month during which it has issued Commercial
Letters of Credit, a monthly activity report of the Commercial Letters of
Credit issued by it during such month.
3.3 Fees, Commissions and Other Charges. (a) The Company
shall pay to the Administrative Agent, for the account of the Issuing Lender
and
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26
the L/C Participants with respect to each Letter of Credit, a letter of
credit commission with respect to such Letter of Credit in an amount per annum
equal to (i) the Applicable Margin applicable to Eurodollar Loans on the date
of payment of such letter of credit commission (which fee shall be for the
accounts of the L/C Participants and the Issuing Lender to be shared ratably
among them in accordance with their respective Commitment Percentages) times
(ii) the undrawn face amount of such Letter of Credit. In addition, the
Company shall pay to the Administrative Agent for the account of the Issuing
Lender for its own account a fronting fee of 1/8 of 1% per annum, payable
quarterly in arrears on each L/C Fee Payment Date after the issuance date.
(b) Letter of credit commissions which are payable pursuant
to clause (a) above shall be non-refundable and shall be payable to the
Administrative Agent in arrears on account of the period from the issuance
date with respect thereto through the day immediately preceding the next L/C
Fee Payment Date and on each succeeding L/C Fee Payment Date on account of the
period from such L/C Fee Payment Date through the day immediately preceding
the next L/C Fee Payment Date.
(c) In addition to the foregoing fees and commissions, the
Company shall pay or reimburse the Issuing Lender directly (and not through
the Administrative Agent) in respect of each Letter of Credit for such normal
and customary costs and expenses as are incurred or charged by the Issuing
Lender in issuing, effecting payment under, amending or otherwise
administering any Letter of Credit issued by it.
(d) The Administrative Agent shall pay to each L/C
Participant and the Issuing Lender all fees and commissions (including,
without limitation, any fees and commissions paid to the Administrative Agent
for the account of each L/C Participant and the Issuing Lender on the issuance
date of any Letter of Credit) received from time to time by the Administrative
Agent for their respective accounts pursuant to this subsection 3.3 within one
day following each L/C Fee Payment Date.
3.4 L/C Participations. (a) The Issuing Lender with respect
to each Letter of Credit irrevocably agrees to grant and hereby grants to each
L/C Participant, and, to induce the Issuing Lender to issue Letters of Credit
hereunder, each L/C Participant irrevocably agrees to accept and purchase, and
hereby accepts and purchases, from the Issuing Lender, on the terms and
conditions hereinafter stated, for such L/C Participant's own account and risk
an undivided interest equal to such L/C Participant's Commitment Percentage in
the Issuing Lender's obligations and rights under each Letter of Credit issued
hereunder and the amount of each draft paid by the Issuing Lender thereunder.
Each L/C Participant unconditionally and irrevocably agrees with the Issuing
Lender that, if a draft is paid under any Letter of Credit issued by it
<PAGE>
27
for which the Issuing Lender is not reimbursed in full by the Company in
accordance with the terms of this Agreement, such L/C Participant shall pay to
the Issuing Lender upon demand at the Issuing Lender's address for notices
specified herein an amount equal to such L/C Participant's Commitment
Percentage of the amount of such draft, or any part thereof, which is not so
reimbursed.
(b) If any amount required to be paid by any L/C Participant
to the Issuing Lender pursuant to subsection 3.4(a) in respect of any
unreimbursed portion of any payment made by the Issuing Lender under any
Letter of Credit issued by it is paid to the Issuing Lender within three
Business Days after the date such payment is due, such L/C Participant shall
pay to the Issuing Lender on demand an amount equal to the product of (i) such
amount, times (ii) the daily average Federal Funds Effective Rate, as quoted
by the Issuing Lender, during the period from and including the date such
payment is required to the date on which such payment is immediately available
to the Issuing Lender, times (iii) a fraction the numerator of which is the
number of days that elapse during such period and the denominator of which is
360. If any such amount required to be paid by any L/C Participant pursuant to
subsection 3.4(a) is not made available to the Issuing Lender by such L/C
Participant within three Business Days after the date such payment is due, the
Issuing Lender shall be entitled to recover from such L/C Participant, on
demand, such amount with interest thereon calculated from such due date at the
rate per annum applicable to Alternate Base Rate Loans hereunder. A
certificate of the Issuing Lender submitted to any L/C Participant with
respect to any amounts owing under this subsection 3.4(b) shall be conclusive
in the absence of manifest error.
(c) Whenever, at any time after any Issuing Lender has made
payment under any Letter of Credit issued by it and has received from any L/C
Participant its pro rata share of such payment in accordance with subsection
3.4(a), the Issuing Lender receives any payment related to such Letter of
Credit (whether directly from the Company or otherwise, including proceeds of
collateral applied thereto by the Issuing Lender), or any payment of interest
on account thereof, the Issuing Lender promptly will distribute to such L/C
Participant its pro rata share thereof; provided that, in the event that any
such payment received by the Issuing Lender shall be required to be returned
by the Issuing Lender, such L/C Participant shall return to the Issuing Lender
the portion thereof previously distributed to it by the Issuing Lender.
3.5 Reimbursement Obligation of the Company. The Company
agrees to reimburse the Issuing Lender on each date on which the Issuing
Lender notifies the Company of the date and amount of a draft presented under
any Letter of Credit issued and paid by the Issuing Lender for the amount of
(a) such draft so paid and (b) any taxes, fees, charges or other costs or
expenses
<PAGE>
28
incurred by the Issuing Lender in connection with such payment. Each
such payment shall be made to the Issuing Lender at its address for notices
specified herein in lawful money of the United States and in immediately
available funds. Interest shall be payable on any and all amounts remaining
unpaid by the Company under this subsection 3.5 from the date such amounts
become payable (whether at stated maturity, by acceleration or otherwise)
until payment in full at the rate which would be payable on any outstanding
Alternate Base Rate Loans which were then overdue; provided that if the
Issuing Lender does not notify the Company as provided for above earlier than
10:30 A.M. (New York City time) on the date such draft is paid, then for such
day (and until the next Business Day) all amounts remaining unpaid in respect
of such notice shall bear interest at the rate set forth in subsection 4.4(b).
3.6 Obligations Absolute. The Company's obligations under
this Section 3 shall be absolute and unconditional under any and all
circumstances and irrespective of any set-off, counterclaim or defense to
payment which the Company may have or have had against the Issuing Lender or
any beneficiary of a Letter of Credit. The Company also agrees with the
Issuing Lender that the Issuing Lender shall not be responsible for, and the
Company's Reimbursement Obligations under subsection 3.5 shall not be affected
by, among other things, the validity or genuineness of documents or of any
endorsements thereon, even though such documents shall in fact prove to be
invalid, fraudulent or forged, or any dispute between or among the Company and
any beneficiary of any Letter of Credit or any other party to which such
Letter of Credit may be transferred or any claims whatsoever of the Company
against any beneficiary of such Letter of Credit or any such transferee. The
Issuing Lender shall not be liable for any error, omission, interruption or
delay in transmission, dispatch or delivery of any message or advice, however
transmitted, in connection with any Letter of Credit issued by it, except for
errors or omissions caused by the Issuing Lender's gross negligence or willful
misconduct. The Company agrees that any action taken or omitted by the Issuing
Lender under or in connection with any Letter of Credit issued by the Issuing
Lender or the related drafts or documents, if done in the absence of gross
negligence or willful misconduct and in accordance with the standards of care
specified in the Uniform Commercial Code of the State of New York, shall be
binding on the Company and shall not result in any liability of the Issuing
Lender to the Company.
3.7 Letter of Credit Payments. If any draft shall be
presented for payment under any Letter of Credit, the Issuing Lender shall
promptly notify the Company of the date and amount thereof. The responsibility
of the Issuing Lender to the Company in connection with any draft presented
for payment under any Letter of Credit issued by it shall, in addition to any
payment obligation expressly provided for in such Letter of Credit, be limited
to determining that the documents (including each draft) delivered under such
Letter of Credit in connection with such presentment are in conformity with
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29
such Letter of Credit.
3.8 Application. To the extent that any provision of any
Application related to any Letter of Credit is inconsistent with the
provisions of this Section 3, the provisions of this Section 3 shall apply.
3.9 Existing Letters of Credit. Notwithstanding anything to
the contrary contained in this Agreement or any Guarantee, each of the letters
of credit described on Schedule 3.9 shall, from and after the Closing Date, be
deemed to have been issued on the Closing Date pursuant to subsection 3.1(a)
of this Agreement, with the Issuing Lender being deemed to be the Issuing
Lender in respect of such Letter of Credit hereunder and with each other
Lender being deemed to be an L/C Participant with respect to such Letter of
Credit for purposes of this Agreement and the Guarantees. The Company shall
pay to the Administrative Agent, for the accounts of the Issuing Lender and
L/C Participants, the fees and commissions described in subsection 3.3 with
respect to each such Letter of Credit.
SECTION 4. PROVISIONS RELATING TO THE LOANS; FEES AND
PAYMENTS
4.1 Voluntary Termination or Reduction of Commitments. (a)
The Company shall have the right at any time, upon not less than five Business
Days' notice to the Administrative Agent, to terminate or, from time to time,
reduce the Aggregate Commitment, with any such voluntary reduction being in an
amount equal to the lesser of (i) $5,000,000 or a whole multiple of $1,000,000
in excess thereof and (ii) the Aggregate Commitment then in effect. Any such
termination or reduction shall be pro rata among the Lenders and shall
permanently terminate or reduce, as the case may be, the Aggregate Commitment
then in effect.
(b) Any termination of the Aggregate Commitment pursuant to
subsection 4.1(a) shall be accompanied by prepayment in full (together with
accrued interest thereon to such date) by the Company of any Loans then
outstanding and payment of any other amounts necessary to cause the Payment
Obligations with respect to the Loans and the L/C Obligations to be Fully
Satisfied.
(c) Any reduction of the Aggregate Commitment pursuant to
subsection 4.1(a) or otherwise shall be accompanied by prepayment by the
Company of an amount equal to the excess, if any, of the Aggregate Outstanding
Extensions of Credit over the amount of the Aggregate Commitment after giving
effect to such reduction and each such reduction shall permanently reduce the
Aggregate Commitment then in effect.
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30
(d) Any prepayment required pursuant to this subsection 4.1
or otherwise shall be applied, first, to the Loans then outstanding; second,
to the reimbursement of all outstanding Reimbursement Obligations; and, third,
to causing the then outstanding Undrawn L/C Obligations to be Fully Secured.
4.2 Optional Prepayments. The Company may, at any time and
from time to time, prepay the Loans made to it then outstanding, in whole or
in part, without premium or penalty (other than amounts payable pursuant to
subsection 4.9), upon at least three Working Days' irrevocable notice to the
Administrative Agent, in the case of Eurodollar Loans and one Business Day's
irrevocable notice to the Administrative Agent, in the case of Alternate Base
Rate Loans, specifying (a) the Loans to be prepaid, (b) the date and amount of
such prepayment and (c) whether the prepayment is of Eurodollar Loans or
Alternate Base Rate Loans or a combination thereof, and, if of a combination
thereof, the amount of prepayment allocable to each (and, with respect to such
Eurodollar Loans, each Tranche thereof). Upon receipt of any such notice, the
Administrative Agent will promptly notify each Lender thereof. If any such
notice is given, the Company will make the prepayment specified therein, and
such prepayment shall be due and payable on the date specified therein. Each
partial prepayment of the Loans pursuant to this subsection 4.2 shall be in an
amount equal to the lesser of (x) $500,000 or a whole multiple of $100,000 in
excess thereof and (y) the aggregate principal amount of the Loans then
outstanding to the Company.
4.3 Mandatory Prepayments.
(a) If, at any time and from time to time, the Aggregate
Outstanding Extensions of Credit exceed the Aggregate Commitment, the Company
shall immediately, first, repay the Loans and, second, make payments necessary
to cause Payment Obligations in respect of L/C Obligations to be Fully
Satisfied in an aggregate amount equal to such excess.
(b) If, as a result of the making of any payment required to
be made pursuant to this subsection 4.3, the Company would incur costs
pursuant to subsection 4.9, the Company may deposit the amount of such payment
with the Administrative Agent, for the benefit of the Lenders, in a cash
collateral account until the end of the applicable Interest Period, at which
time such payment shall be made. The Company hereby grants to the
Administrative Agent, for the benefit of the Lenders, a security interest in
all amounts from time to time on deposit in such cash collateral account and
expressly waives all rights (which rights the Company hereby acknowledges and
agrees are vested exclusively in the Administrative Agent) to exercise
dominion or control over any such amounts.
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31
4.4 Interest Rate and Payment Dates. (a) The Eurodollar
Loans shall bear interest on the unpaid principal amount thereof for each day
during each Interest Period with respect thereto at a rate per annum equal to
the Eurodollar Rate for such day plus the Applicable Margin.
(b) The Alternate Base Rate Loans shall bear interest on the
unpaid principal amount thereof at a rate per annum equal to the Alternate
Base Rate.
(c) If all or a portion of any amount owing hereunder shall
not be paid when due, then, for so long as such amount remains unpaid, (i) if
the overdue amount represents principal, all Loans shall bear interest at a
rate per annum which is 2% above the rate which would otherwise be applicable
pursuant to subsection 4.4(a) or (b), as the case may be, and (ii) if the
overdue amount represents overdue interest, fees or other amounts (other than
the amounts described in clause (i) of this paragraph (c)) due under the
Credit Documents, such overdue amount shall bear interest at a rate per annum
equal to the Alternate Base Rate plus 2%. During such time as any principal of
or interest on any Eurodollar Loan remains unpaid, all such Eurodollar Loans
shall be converted to Alternate Base Rate Loans at the end of the respective
Interest Periods applicable thereto.
(d) Interest on each Loan accrued to but not including each
Interest Payment Date applicable thereto shall be payable in arrears on such
Interest Payment Date; provided that interest accruing on the principal of or
(to the extent permitted by applicable law) interest or any other amount
payable in connection with any Loan not paid when due (whether at stated
maturity, by acceleration or otherwise) shall be payable from time to time
upon demand of the Administrative Agent.
4.5 Conversion Options, Minimum Tranches and Maximum
Interest Periods. (a) The Company may elect from time to time to convert
outstanding Loans from Eurodollar Loans to Alternate Base Rate Loans by giving
the Administrative Agent at least one Business Day's prior irrevocable notice
of such election. The Company may elect from time to time and at any time to
convert outstanding Loans from Alternate Base Rate Loans to Eurodollar Loans
by giving the Administrative Agent at least three Working Days' irrevocable
notice of such election; provided that no Loans may be converted to Eurodollar
Loans (i) when any Default or Event of Default has occurred and is continuing
and the Administrative Agent has or the Required Lenders have determined that
such a conversion is not appropriate or (ii) after the date that is one month
prior to the Termination Date. Upon receipt of such notice, the Administrative
Agent shall promptly notify each Lender. On the date on which such conversion
is being made, each Lender shall take such action as is necessary to effect
such conversion. All or any part of the
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32
outstanding Eurodollar Loans or Alternate Base Rate Loans may be converted as
provided herein.
(b) Any Eurodollar Loans may be continued as such upon the
expiration of an Interest Period with respect thereto by the Company giving
the Administrative Agent at least three Working Days' irrevocable notice for
continuation thereof; provided that no Eurodollar Loan may be continued as
such (i) when any Default or Event of Default has occurred and is continuing
and the Agent has or the Required Lenders have determined that such a
continuation is not appropriate, or (ii) subsequent to the date that is one
month prior to the Termination Date, and, instead, such Eurodollar Loans shall
be automatically converted to an Alternate Base Rate Loan on the last day of
the Interest Period for which a Eurodollar Rate was determined by the
Administrative Agent prior to the Administrative Agent's obtaining knowledge
of such Default or Event of Default. The Administrative Agent shall notify the
Lenders promptly that such automatic conversion shall occur.
(c) In the event that a timely notice of conversion or
continuation with regard to Eurodollar Loans is not given in accordance with
this subsection 4.5, then, unless the Administrative Agent shall have received
timely notice in accordance with subsection 4.2 that the Company elects to
prepay such Eurodollar Loans on the last day of such Interest Period, the
Company shall be deemed irrevocably to have requested that such Eurodollar
Loans be converted into Alternate Base Rate Loans on the last day of such
Interest Period.
(d) Any borrowing or continuation of Eurodollar Loans, or
conversion to or from Eurodollar Loans, or payments or prepayments of
Eurodollar Loans, shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, (i) the aggregate principal
amount of each Tranche of Eurodollar Loans shall be $500,000 or a whole
multiple (to the extent possible) of $100,000 in excess thereof, (ii) the
aggregate principal amount of all Alternate Base Rate Loans shall be $500,000
or a whole multiple (to the extent possible) of $100,000 in excess thereof and
(iii) there shall not be more than six Tranches of Eurodollar Loans in the
aggregate at any one time outstanding.
4.6 Inability to Determine Interest Rate. (a) In the event
that the Administrative Agent shall have determined (which determination, in
the absence of manifest error, shall be conclusive and binding upon the
Company) that by reason of circumstances affecting the relevant interbank
eurocurrency market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for any Interest Period with respect to (i)
proposed Loans that the Company has requested be made as Eurodollar Loans,
(ii) a Eurodollar Loan that will result from the requested conversion of all
or part of the Alternate Base Rate Loans into Eurodollar Loans or (iii) the
continuation of a
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33
Eurodollar Loan as such for an additional Interest Period (any such Loan
described in clauses (i), (ii) or (iii) of this subsection 4.6(a) being herein
called an "Affected Loan"), the Administrative Agent shall forthwith give
telecopy or telephonic notice of such determination, confirmed in writing, to
the Company and the Lenders at least two Business Days prior to the borrowing
date for such Loan, the conversion date for such Alternate Base Rate Loan or
the last day of the Interest Period applicable to such Loan, as the case may
be. Unless the Company shall have notified the Administrative Agent promptly
upon receipt of such telecopy or telephonic notice that it wishes to rescind
or modify its request regarding such Affected Loans, then any requested
Eurodollar Loan shall be made as, continued as, or converted into an Alternate
Base Rate Loan, as the case may be. Until any such notice has been withdrawn
by the Administrative Agent, no further Affected Loans shall be made.
(b) In the event that the Required Lenders determine that
the rate quoted by the Administrative Agent does not accurately reflect the
cost of making or maintaining any Loans that the Company has requested be made
or continued as or converted to Eurodollar Loans the Administrative Agent
shall forthwith give telecopy or telephonic notice of such determination to
the Company on or before the requested borrowing, conversion or continuation
date for such Loans or the next succeeding Interest Period for such Loans.
Unless the Company shall have notified the Administrative Agent promptly after
receipt of such telecopy or telephonic notice that it wishes to rescind or
modify its request regarding such Loans, then any such Eurodollar Loans shall
be made as or converted to Alternate Base Rate Loans.
4.7 Illegality. Notwithstanding any other provision herein,
if any change in law, rule, regulation, treaty or directive or in the
interpretation or application thereof, shall make it unlawful for any Lender
to make or maintain Eurodollar Loans as contemplated by this Agreement or to
accept deposits in order to make or maintain such Eurodollar Loans, (a) such
Lender shall promptly notify the Administrative Agent and the Company thereof,
(b) the agreements of such Lender hereunder to make or convert to Eurodollar
Loans shall be suspended forthwith and (c) such Lender's Loans then
outstanding as Eurodollar Loans, if any, shall automatically become Alternate
Base Rate Loans for the duration of the respective Interest Periods applicable
thereto (or, if permitted by applicable law, at the end of such Interest
Periods). The Company agrees promptly to pay to any Lender any additional
amounts necessary to compensate such Lender for any costs incurred by such
Lender as a consequence of the Company making any conversion in accordance
with this subsection 4.7, including, without limitation, any interest or fees
payable by such Lender to lenders of funds obtained by it in order to make or
maintain its Eurodollar Loans. A certificate as to any such costs payable
pursuant to this subsection 4.7 submitted by an officer of any Lender, through
the Administrative Agent, to the Company shall be conclusive, in the absence
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34
of manifest error.
4.8 Requirements of Law; Changes of Law. (a) In the event
that the adoption of or any change in law, rule, regulation, treaty or
directive or in the interpretation or application thereof, or compliance by
any Lender with any request or directive (whether or not having the force of
law) issued after the date hereof from any central bank or other Governmental
Authority:
(i) imposes upon any Lender any tax of any kind
whatsoever with respect to this Agreement, its Notes, any Letter of
Credit, any Application or any Loan, or changes the basis of taxation
of payments to such Lender of principal, commitment fee, interest or
any other amount payable hereunder (except for (x) income and
franchise taxes imposed on such Lender by the jurisdiction under the
laws of which such Lender is organized or any political subdivision
or taxing authority thereof or therein, or by any jurisdiction in
which such Lender is located or any political subdivision or taxing
authority thereof or therein, and (y) taxes imposed by way of
deduction or withholding, which shall be exclusively governed by
subsection 4.10);
(ii) imposes, modifies or holds applicable any
reserve, special deposit, compulsory loan or similar requirement
against any Loan made, or assets held by, or credit extended by, or
deposits or other liabilities in or for the account of, or
acquisition of funds by or for the account of, any office of such
Lender, which is not otherwise included in the determination of the
Eurodollar Rate hereunder; or
(iii) imposes on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender
of making, renewing, maintaining or participating in advances or extensions of
credit or issuing or participating in Letters of Credit or to reduce any
amount receivable by it in respect of its Eurodollar Loans, then, in any such
case, the Company shall promptly pay such Lender any additional amounts
necessary to compensate such Lender for such additional cost or reduced amount
receivable as reasonably determined by such Lender with respect to this
Agreement (including, without limitation, its participating interests in
Letters of Credit), its Notes or its Loans after taking into account any
amounts paid or payable pursuant to subsection 4.10(a). If a Lender becomes
entitled to claim any additional amounts pursuant to this subsection 4.8(a),
it shall promptly notify the Company, through the Administrative Agent, of the
event by reason of which it has become so entitled. A certificate as to any
additional amounts payable pursuant to the foregoing sentence submitted by an
officer of a Lender, through the Administrative Agent, to the Company shall be
conclusive, in the absence of manifest error.
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35
(b) In the event that any Lender shall have determined that
the adoption of any law, rule, regulation or guideline adopted pursuant to or
arising out of the International Convergence of Capital Measurement and
Capital Standards or of any Requirement of Law otherwise regarding capital
adequacy, or any change therein or in the interpretation or application
thereof or compliance by any Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) issued after the
date hereof from any central bank or Governmental Authority, does or shall
have the effect of reducing the rate of return on such Lender's capital as a
consequence of its obligations hereunder to a level below that which such
Lender could have achieved but for such adoption, change or compliance (taking
into consideration such Lender's policies with respect to capital adequacy) by
an amount which is reasonably deemed by such Lender to be material, then from
time to time, promptly after submission by such Lender, through the
Administrative Agent, to the Company of a written request therefor, the
Company shall promptly pay to such Lender such additional amount or amounts as
will compensate such Lender for such reduction.
(c) The agreements in this subsection 4.8 shall survive the
termination of this Agreement and payment of the Loans and the Notes and all
other amounts payable hereunder.
4.9 Indemnity. The Company agrees to promptly pay and
indemnify each Lender for, and to hold such Lender harmless from, any loss or
expense which such Lender may sustain or incur in its reemployment of funds
obtained in connection with the making or maintaining of, or converting to,
Eurodollar Loans, as a consequence of (a) any default by the Company in
borrowing such Eurodollar Loans or in converting Alternate Base Rate Loans to
Eurodollar Loans after the Company has given a notice in respect thereof or
(b) any failure by the Company to prepay Eurodollar Loans after the Company
has given notice in respect thereof or (c) any payment, prepayment (whether
optional or mandatory) or conversion (whether optional or mandatory) of any
Eurodollar Loan on a day which is not the last day of an Interest Period with
respect thereto. Without limiting the effect of the foregoing, the Company
agrees to pay to each Lender an amount equal to the excess, if any, of (i) the
amount of interest which otherwise would have accrued on the principal amount
paid, prepaid or not borrowed for (A) the period from the date of such payment
or prepayment to the last day of the Interest Period applicable to such
Eurodollar Loan or (B) in the case of a failure to borrow or to convert, the
Interest Period applicable to such Eurodollar Loan, which would have commenced
on the date specified for such borrowing or conversion, at the applicable rate
of interest for such Eurodollar Loan provided for herein exclusive of any
margin applicable thereto minus (ii) the interest component of the amount such
Lender would have bid in the London interbank market in
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36
respect of such Loan if such Loan were to be made on the date of such payment,
prepayment, failure to borrow or failure to convert, as the case may be. A
certificate as to any additional amounts payable pursuant to this subsection
4.9 submitted by an officer of a Lender, through the Administrative Agent, to
the Company shall be conclusive, absent manifest error. The agreements in this
subsection 4.9 shall survive termination of this Agreement and payment of the
Loans and the Notes and all other amounts payable hereunder.
4.10 Taxes. (a) All payments made by the Company under this
Agreement shall be made free and clear of, and without reduction for or on
account of, any present or future income, stamp, documentary, property, excise
or other taxes, levies, imposts, duties, charges, fees, deductions or
withholdings, now or hereafter imposed, levied, collected, withheld or
assessed by any Governmental Authority, excluding, in the case of the
Administrative Agent and each Lender, income and franchise taxes imposed on
the Administrative Agent or such Lender by the jurisdiction under the laws of
which the Administrative Agent or such Lender is organized or any political
subdivision or taxing authority thereof or therein, or by any jurisdiction in
which the Administrative Agent or such Lender is located or any political
subdivision or taxing authority thereof or therein (such non-excluded taxes
being called "Taxes"). If any Taxes are required to be withheld from any
amounts payable to the Administrative Agent or any Lender hereunder or under
the Notes, the amounts so payable to the Administrative Agent or such Lender
shall (without any obligation on the part of the Company to pay such amounts
ratably in accordance with the provisions of subsection 4.13) be increased to
the extent necessary to yield to the Administrative Agent or such Lender
(after payment of all Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Agreement and the
Notes. Whenever any Taxes are payable by the Company, as promptly as possible
thereafter, the Company shall send to the Administrative Agent, for its own
account or for the account of such Lender, as the case may be, a certified
copy of an original official receipt or other evidence reasonably satisfactory
to the Administrative Agent showing payment thereof. If the Company fails to
pay any Taxes when due to the appropriate taxing authority or fails to remit
to the Administrative Agent the required receipts or other required
documentary evidence, the Company shall indemnify the Administrative Agent and
the Lenders for any incremental taxes, interest or penalties that may become
payable by the Administrative Agent or any Lender as a result of any such
failure. If any Taxes are paid by the Administrative Agent or any Lender to
any Governmental Authority, the Company shall indemnify the Administrative
Agent or such Lender, as the case may be (within 30 days after demand therefor
upon the Company), for any amounts so paid.
(b) Except as the Company shall otherwise consent, each
Lender
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37
hereby severally (but not jointly) represents that, under applicable
law and treaties in effect on the date of this Agreement, no United States
federal taxes will be required to be withheld by the Administrative Agent or
the Company with respect to any payments to be made to such Lender in respect
of this Agreement. Each Lender which itself is not incorporated under the laws
of the United States or a state thereof or which is lending from an office
that is not incorporated under the laws of the United States or a state
thereof agrees severally (but not jointly) that, prior to the Closing Date, it
will deliver to the Company and the Administrative Agent two duly completed
copies of either United States Internal Revenue Service Form 1001 or 4224, or,
in the case of a Lender claiming exemption from U.S. federal withholding tax
under Section 871(h) or 881(c) of the Code with respect to payments of
"portfolio interest", a Form W 8, or any subsequent versions thereof or
successors thereto (and, if such Lender delivers a Form W-8, a statement under
the penalties of perjury that such Lender (i) is not a "bank" under Section
881(c)(3)(A) of the Code, is not subject to regulatory or other legal
requirements as a bank in any jurisdiction, and has not been treated as a bank
for purposes of any tax, securities law or other filing or submission made to
any Governmental Authority, any application made to a rating agency or
qualification for any exemption from tax, securities law or other legal
requirements, (ii) is not a 10-percent shareholder (within the meaning of
Section 871(h)(3)(B) of the Code) of the Company and (iii) is not a controlled
foreign corporation related to the Company (within the meaning of Section
864(d)(4) of the Code)), certifying in each case that such Lender is entitled
to receive all payments under this Agreement and the Notes payable to it,
without deduction or withholding of any United States federal income taxes.
Each Lender which delivers to the Company and the Administrative Agent any
form pursuant to the immediately preceding sentence further undertakes to
deliver to the Company and the Administrative Agent two further completed
copies of said form, or successor applicable form, or other manner of
certification, as the case may be, on or before the date that any such form
expires or becomes obsolete or after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the Company and
the Administrative Agent, and such extensions or renewals thereof as may
reasonably be requested by the Company and the Administrative Agent,
certifying that such Lender is entitled to receive payments under this
Agreement without deduction or withholding of any United States federal income
taxes, unless in any such case any change in law, rule, regulation, treaty or
directive, or in the interpretation or application thereof, has occurred prior
to the date on which any such delivery would otherwise be required which
renders all such forms inapplicable or which would prevent such Lender from
duly completing and delivering any such form with respect to it and such
Lender advises the Company that it is not capable of receiving payments
without any deduction or withholding of United States federal income tax.
Notwithstanding any provision of subsection 4.10(a) to the contrary, the
Company shall not have any obligation to pay any amount to or
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38
for the account of any Lender on account of any Taxes pursuant to subsection
4.10(a) (including, without limitation, the second sentence thereof) to the
extent that such amount results from (i) the failure of any Lender to comply
with its obligations pursuant to this subsection 4.10(b) (or, in the case of
any Transferee, pursuant to subsection 11.6(g)) or (ii) any representation or
warranty made or deemed to be made by any Lender pursuant to this subsection
4.10(b) (or, in the case of any Transferee pursuant to subsection 11.6(g))
proving to have been incorrect, false or misleading when so made or deemed to
be made.
(c) Each Lender agrees to use reasonable efforts (including
reasonable efforts to change the office in which it is booking its Loans) to
avoid or to minimize any amounts which might otherwise be payable pursuant to
this subsection 4.10; provided, however, that such efforts shall not cause the
imposition on such Lender of any additional costs or legal or regulatory
burdens deemed by such Lender to be material or otherwise be deemed by such
Lender to be disadvantageous to it or contrary to its policies.
(d) In the event that such reasonable efforts pursuant to
subsection 4.10(c) are insufficient to avoid all withholding taxes which would
be payable pursuant to this subsection 4.10, then such Lender (the "Taxable
Lender") shall use its best efforts to transfer to any other Lender (which is
not subject to such withholding taxes) its Loans and Commitment hereunder;
provided, however, that such transfer shall not be deemed by such Taxable
Lender, in its sole discretion, to be disadvantageous to it or contrary to its
policies. In the event that the Taxable Lender is unable, or otherwise is
unwilling, so to transfer its Loans and Commitment, the Company may designate
an alternate bank to purchase the Taxable Lender's Loans and Commitment and,
subject to the approval of the Administrative Agent (which approval shall not
be unreasonably withheld), the Taxable Lender shall transfer its Loans and
Commitments to such alternate bank and such alternate bank shall become a
Lender hereunder.
(e) The agreements in this subsection 4.10 shall survive the
termination of this Agreement and the payment of the Loans and Notes, and all
other amounts payable hereunder.
4.11 Commitment Fees; Other Fees. (a) The Company agrees to
pay to the Administrative Agent, for the account of the Lenders, a commitment
fee from and including the Closing Date in the amount equal to the Commitment
Fee Rate times the average daily Available Commitment, in each case during the
period for which such fee is payable. Such commitment fee shall be payable in
arrears on the last day of each March, June, September and December and (iii)
the Termination Date.
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39
(b) The Company agrees to pay to Chase Securities Inc. and
The Chase Manhattan Bank, in each case for its own account the fees set forth
in the Fee Letter dated January 29, 1998 between the Company, Chase Securities
Inc. and The Chase Manhattan Bank on the dates and in the amounts set forth in
such Fee Letter.
4.12 Computation of Interest and Fees. (a) Interest in
respect of Alternate Base Rate Loans bearing interest at a rate based upon the
Prime Rate shall be calculated on the basis of a 365 or 366-day year, as the
case may be, for the actual days elapsed. Interest in respect of Alternate
Base Rate Loans bearing interest at a rate based upon the Federal Funds
Effective Rate or the Base CD Rate, interest in respect of Eurodollar Loans
and commitment fees shall be calculated on the basis of a 360-day year for the
actual days elapsed. The Administrative Agent will, as soon as practicable,
notify the Company and the Lenders of each determination of a Eurodollar Rate
and of any change in the Alternate Base Rate and the effective date thereof.
Any change in the Alternate Base Rate due to a change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate shall be
effective on the effective day of such change in the Prime Rate, the
Three-Month Secondary CD Rate or the Federal Funds Effective Rate,
respectively.
(b) Except as set forth in subsection 4.6, each
determination of an interest rate by the Administrative Agent pursuant to any
provision of this Agreement shall be conclusive and binding on the Company and
the Lenders, in the absence of manifest error.
4.13 Pro Rata Treatment and Payments. (a) Each borrowing by
the Company of Loans shall be made ratably by the Lenders in accordance with
the respective Commitment Percentages of the Lenders.
(b) Whenever any payment received by the Administrative
Agent under this Agreement or any Note is insufficient to pay in full all
amounts then due and payable to the Administrative Agent and the Lenders under
this Agreement and the Notes:
(i) If the Administrative Agent has not received a
Payment Sharing Notice (or if the Administrative Agent has received a
Payment Sharing Notice but the Event of Default specified in such
Payment Sharing Notice has been cured or waived pursuant to
subsection 11.1), such payment shall be distributed by the
Administrative Agent and applied by the Administrative Agent and the
Lenders in the following order: first, to the payment of fees and
expenses due and payable to the Administrative Agent under and in
connection with this Agreement; second, to the payment of all
expenses due and payable under subsection 11.5, ratably among the
Lenders in accordance
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40
with the aggregate amount of such payments owed to each such Lender;
third, to the payment of fees due and payable under subsections 4.11
and 3.3, and ratably among the Lenders in accordance with the
Commitment Percentage of each Lender of the Commitment for which such
payment is owed; fourth, to the payment of interest then due and
payable on the Loans and under the Notes and in respect of the
Reimbursement Obligations, ratably in accordance with the aggregate
amount of interest owed to each such Lender; fifth, to the payment of
the principal amount of the Loans and the Notes and the Reimbursement
Obligations which is then due and payable and, in the case of
payments under any guarantee, to the payment of any other obligations
to any Lender (or Affiliate) not covered in first through fourth
above ratably guaranteed under any such guarantee, ratably among the
Lenders in accordance with the aggregate principal amount and, in the
case of payments under any guarantee, the obligations secured or
guaranteed thereby owed to each such Lender (or Affiliate); and,
sixth, to the payment of any other outstanding Payment Obligations,
ratably among the Lenders in accordance with the aggregate amount
owed to each Lender; and any balance remaining after payment in full
of all Payment Obligations shall be returned to the Company; or
(ii) If the Administrative Agent has received a
Payment Sharing Notice which remains in effect (or, if the Event of
Default specified therein has been waived pursuant to subsection
11.1), all payments received by the Administrative Agent under this
Agreement or any Note shall be distributed by the Administrative
Agent and applied by the Administrative Agent and the Lenders in the
following order: first, to the payment of all amounts described in
clauses "first" through " third" of the foregoing clause (i), in the
order set forth therein; second, to the payment of the interest
accrued on all Loans and Notes regardless of whether any such amount
is then due and payable, and the Reimbursement Obligations then due
and owing ratably among the Lenders in accordance with the aggregate
accrued interest owed to each such Lender; and third, to the payment
of the principal amount of all Loans and Notes and in respect of the
Reimbursement Obligations and, in the case of payments under any
guarantee, to the payment of any other obligations to any Lender (or
Affiliate) not covered in first and second above ratably guaranteed
under any such guarantee, regardless of whether any such amount is
then due and payable, ratably among the Lenders in accordance with
the aggregate principal amount and, in the case of payments under any
guarantee, the obligations guaranteed thereby owed to each such
Lender (or Affiliate); and fourth, to the payment of any other
Payment Obligations, ratably among the Lenders in accordance with the
aggregate amount owed to each Lender; and any balance remaining after
payment in full of all Payment Obligations
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41
shall be returned to the Company.
(c) All payments (including prepayments) to be made by the
Company on account of principal, interest and fees shall be made without
set-off or counterclaim and shall be made to the Administrative Agent for the
account of the Lenders at the office of the Administrative Agent specified in
subsection 11.2, or at such other location as the Administrative Agent may
direct on or prior to 1:00 P.M., New York City time, in lawful money of the
United States and in immediately available funds. The Administrative Agent
shall distribute such payments in accordance with the provisions of subsection
4.13(b) promptly upon receipt in like funds as received.
(d) If any payment hereunder (other than payments on
Eurodollar Loans) becomes due and payable on a day other than a Business Day,
such payment shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension. If any payment hereunder on a
Eurodollar Loan becomes due and payable on a day other than a Working Day, the
maturity thereof shall be extended to the next succeeding Working Day unless
the effect of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Working Day.
(e) Unless the Administrative Agent shall have been notified
by telephone, confirmed in writing, by any Lender prior to a borrowing date
that such Lender will not make the amount which would constitute its
Commitment Percentage of the borrowing to be made on such date available to
the Administrative Agent, on such borrowing date the Administrative Agent may
assume that such Lender has made such amount available to the Administrative
Agent and, in reliance upon such assumption, make available to the Company a
corresponding amount. If such amount is made available to the Administrative
Agent on a date after such borrowing date, such Lender shall pay to the
Administrative Agent on demand an amount equal to the product of (i) the daily
average Federal Funds Effective Rate during such period as determined by the
Administrative Agent times (ii) such amount times (iii) a fraction of which
the numerator is the number of days from and including such borrowing date to
the date on which such amount becomes immediately available to the
Administrative Agent and of which the denominator is 360. A certificate of the
Administrative Agent submitted to any Lender with respect to any amounts owing
under this paragraph (e) shall be conclusive, in the absence of manifest
error. If such amount is not in fact made available to the Administrative
Agent by such Lender within three Business Days after such borrowing date, the
Administrative Agent shall be entitled to recover such amount, with interest
thereon at the rate per annum then applicable to Alternate Base Rate Loans
hereunder, within eight Business Days after
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42
demand, from the Company.
4.14 Payments on Account of Loans and Fees. All payments and
prepayments hereunder shall be made in accordance with subsection 4.13(c).
SECTION 5. REPRESENTATIONS AND WARRANTIES
In order to induce the Lenders and the Administrative Agent
to enter into this Agreement and to make the Loans hereunder, the Company
hereby represents and warrants to each of them that:
5.1 Corporate Existence. Each of the Company and its
Subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation (except no representation is
made as to the good standing of any Subsidiary organized under the laws of a
jurisdiction in which there is no concept of good standing), has the corporate
power to own its assets and to transact the business in which it is presently
engaged, is duly qualified as a foreign corporation and in good standing under
the laws of each jurisdiction where its ownership or lease of property or the
conduct of its business requires such qualification, except where all such
failures to so qualify and be in good standing would not, in the aggregate, be
reasonably likely to have a Material Adverse Effect, and is in compliance with
all Requirements of Law except to the extent that the failure to comply
therewith would not, in the aggregate be reasonably likely to have a Material
Adverse Effect.
5.2 Corporate Power. (a) The Company has the corporate
power, authority and legal right to execute, deliver and perform this
Agreement and the other Credit Documents to which it is a party and to borrow
hereunder. The Company has taken as of the Closing Date all necessary
corporate action to authorize the borrowings on the terms and conditions of
this Agreement and the other Credit Documents. The Company has taken as of the
Closing Date all necessary corporate action to authorize the execution,
delivery and performance of this Agreement and the other Credit Documents to
which it is a party.
(b) No consent of any other Person (including, without
limitation, stockholders or creditors of the Company or any of its
Subsidiaries), and no consent, license, permit, approval or authorization of,
exemption by, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery, performance,
validity or enforceability of this Agreement, the Applications and the Notes
and the Guarantees other than (i) those which have been obtained or made and
remain in full force and effect and (ii) those which, in the aggregate, would
not be
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43
reasonably likely to have a Material Adverse Effect if not obtained or
made.
(c) This Agreement and the other Credit Documents to which
it is a party have been executed and delivered by a duly authorized officer of
the Company and constitute the legal, valid and binding obligations of the
Company, enforceable against it in accordance with their terms except as
enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or other similar laws affecting creditors' rights generally and
except as enforceability may be limited by general principles of equity.
5.3 No Legal Bar to Loans. The execution, delivery and
performance by the Company of this Agreement, the Applications and the Notes
will not violate any Contractual Obligation or material Requirement of Law to
which the Company or any of its Subsidiaries is a party, or by which the
Company or any of its Subsidiaries or any of their respective material
properties or assets may be bound, and will not result in the creation or
imposition of any Lien on any of their respective material properties or
assets pursuant to the provisions of any Contractual Obligation except
pursuant to the Credit Documents.
5.4 No Material Litigation. No litigation, suit, action,
investigation, inquiry or other proceeding is presently pending or, to the
knowledge of the Company, threatened against Holdings or any of its
Subsidiaries or any of its or their properties or assets, by or before any
arbitrator or any Governmental Authority and no preliminary or permanent
injunction or order by a state or federal court has been entered in connection
with any Credit Document or any of the transactions contemplated hereby or
thereby, which in any of such cases would be reasonably likely to have a
Material Adverse Effect, and all applicable waiting periods have expired
without any action being taken or threatened by any Governmental Authority
which would restrain, prevent or otherwise impose material adverse conditions
on the transactions contemplated hereby or which would be reasonably likely to
have a Material Adverse Effect.
5.5 No Default. Neither Holdings nor any of its Subsidiaries
is in default in the payment or performance of any obligations or in the
performance of any Contractual Obligation to which it is a party or by which
it or any of its properties or assets may be bound, except to the extent that
such defaults, in the aggregate, would not be reasonably likely to have a
Material Adverse Effect. No Default hereunder has occurred and is continuing.
Neither Holdings nor any of its Subsidiaries is in default under any order,
award or decree of any court, arbitrator or Governmental Authority binding
upon or affecting it or by which any of its material properties or assets is
bound or affected, and no such order, award or decree or any default
thereunder would be reasonably likely to have a Material Adverse Effect.
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44
5.6 Ownership of Properties; Liens. Except as is or would be
permitted pursuant to subsection 8.2, each of the Company and its Subsidiaries
has good and marketable title to all its owned real properties, subject to no
Lien (other than Permitted Exceptions), and has good title to all its personal
properties and assets, subject to no Lien (other than Permitted Exceptions).
5.7 Taxes. Each of the Company and its Subsidiaries has
timely filed or caused to be timely filed all material tax returns (including,
without limitation, information returns) which to the knowledge of the Company
or any of its Subsidiaries are required to be filed, and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
them (other than those being contested in good faith by appropriate
proceedings for which adequate reserves (in accordance with GAAP) have been
provided on the books of the Company or such Subsidiary, as the case may be),
and no tax liens have been filed (other than those relating to taxes which are
not yet due and payable or which are being contested as aforesaid).
5.8 ERISA. No Reportable Event has occurred during the
immediately preceding six-year period with respect to any Plan that resulted
or would be reasonably likely to result in any unpaid liability, and each Plan
(other than any Multiemployer Plan or any multiemployer health or welfare
plan) has complied and has been administered in all material respects with the
applicable provisions of ERISA and the Code, except as such Reportable Event
or such failure to comply or be so administered would not reasonably be likely
to have a Material Adverse Effect. The amount by which the present value of
all accrued benefits under each Single Employer Plan maintained by the Company
or any of its Subsidiaries or any Commonly Controlled Entity (based on those
assumptions used to fund the Plans), as of the last annual valuation date
applicable thereto, exceeds the value of the assets of each such Plan
allocable to such benefits, in the aggregate for all such Plans as to which
such present value of benefits exceeds the value of its assets (the "Unfunded
Pension Amount"), is less than $60,000,000, when aggregated with the Potential
Withdrawal Liability. Neither the Company nor any of its Subsidiaries nor any
Commonly Controlled Entity has during the immediately preceding six-year
period had a complete or partial withdrawal from any Multiemployer Plan that
resulted or would be reasonably likely to result in any unpaid withdrawal
liability under Section 4201 of ERISA that would be reasonably likely to have
a Material Adverse Effect, and the withdrawal liability under Section 4201 of
ERISA to which the Company or any of its Subsidiaries or any Commonly
Controlled Entity would become subject under ERISA if the Company or any of
its Subsidiaries or any such Commonly Controlled Entity were to withdraw
completely from all Multiemployer Plans as of the most recent valuation date
applicable thereto (the "Potential Withdrawal Liability") is not in excess of
$60,000,000, when aggregated with the Unfunded Pension Amount. Neither
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45
the Company nor any of its Subsidiaries nor any Commonly Controlled Entity has
received notice that any Multiemployer Plan is in Reorganization or Insolvent
where such Reorganization or Insolvency has resulted, or would be reasonably
likely to result in an unpaid liability that would be reasonably likely to
have a Material Adverse Effect nor, to the best knowledge of the Company or
any of its Subsidiaries, is any such Reorganization or Insolvency reasonably
likely to occur. The obligations of the Company and each of its Subsidiaries
and each Commonly Controlled Entity for post retirement benefits to be
provided to their current and former employees under Plans which are welfare
benefits plans (as defined in Section 3(l) of ERISA) are not reasonably likely
to have a Material Adverse Effect, when aggregated with their obligations with
respect to the Unfunded Pension Amount and the Potential Withdrawal Liability.
5.9 Financial Condition. The consolidated balance sheet of
the Company as of December 31, 1996 and the related consolidated statements of
earnings and stockholders' equity and cash flows for the fiscal year ended on
such date, certified by Ernst & Young LLP, present fairly the consolidated
financial position of the Company and its Subsidiaries as at such date, and
the consolidated results of their operations and cash flows for the fiscal
year then ended. The unaudited consolidated balance sheet of the Company as at
September 27, 1997, and the related unaudited consolidated statements of
earnings and stockholders' equity and cash flows for the nine-month period
ended on such date present fairly the consolidated financial position of the
Company and its Subsidiaries as of such date, and the consolidated results of
their operations and cash flows for the nine-month period then ended (subject
to normal year-end audit adjustments and subject to the absence of footnotes).
All such financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied consistently
throughout the periods involved except as disclosed in the notes thereto.
Neither the Company nor any of its Subsidiaries has any material Contingent
Obligation or any material obligation, liability or commitment, direct or
contingent (including, without limitation, any liability for taxes or any
material forward or long-term commitment), which is not (a) reflected in the
foregoing statements or in the notes thereto or (b) permitted to be incurred
under this Agreement.
5.10 No Change. Since December 31, 1996, there has been no
material adverse change in the business, condition (financial or otherwise),
operations, performance, properties or prospects of either of (i) the Company
or (ii) the Company and its Subsidiaries taken as a whole.
5.11 Federal Regulations. No part of the proceeds of any
Loans will be used for "purchasing" or "carrying" any "margin stock" in
violation of Regulations G, T, U and X of the Board of Governors of the
Federal Reserve
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46
System as now and from time to time hereafter in effect. If
requested by any Lender or the Administrative Agent at any time or from time
to time, the Company will furnish to the Administrative Agent and each Lender
a statement to the foregoing effect in conformity with the requirements of FR
Form U-1 or G-3 referred to in said Regulations U and G, respectively.
5.12 Not an "Investment Company". Neither the Company nor
any of its Subsidiaries is an "investment company," or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act
of 1940, as amended. Neither the Company nor any of its Subsidiaries is
subject to regulation under any federal or state statute or regulation which
limits its ability to incur indebtedness.
5.13 Intellectual Property. Each of the Company and its
Subsidiaries owns, or is licensed to use, all trademarks, tradenames,
copyrights, patents, technology, know-how and processes necessary for the
conduct of its business as currently conducted that are material to the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company and its Subsidiaries taken as a whole
(the "Intellectual Property"). No claim has been asserted and is pending by
any Person with respect to the use of any such Intellectual Property, or
challenging or questioning the validity or effectiveness of any such
Intellectual Property and the Company and its Subsidiaries do not know of any
valid basis for any such claim, nor does the use of such Intellectual Property
by the Company and its Subsidiaries infringe on the rights of any Person,
except to the extent of such claims and infringements which would not
(including, without limitation, any liability arising therefrom), in the
aggregate, be reasonably likely to have a Material Adverse Effect.
5.14 Environmental Matters. Except to the extent that the
failure of the representations and warranties set forth in this subsection
5.14 to be true and correct would not be reasonably likely to have a Material
Adverse Effect, to the best knowledge of the Company and its Subsidiaries:
(i) each parcel of real property owned or leased by
the Company or any of its Subsidiaries (the "Real Property") does not
contain any Hazardous Materials in concentrations which violate any
applicable Environmental Laws governing the use, storage, treatment,
transportation, manufacture, refinement, handling, production or
disposal of Hazardous Materials;
(ii) the Real Property is in compliance with all
Environmental Laws, including, without limitation, all applicable
federal, state and local standards and requirements regarding the
generation, treatment, storage, handling, use or disposal of
Hazardous Materials at
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47
the Real Property, and there is no Hazardous Materials contamination
which could materially interfere with the continued operation of the
Real Property or materially impair the fair saleable value thereof;
(iii) neither the Company nor any of its
Subsidiaries has received any notice of violation or advisory action
by any Governmental Authority regarding environmental control matters
or permit compliance with regard to the Real Property, nor is the
Company nor any Subsidiary aware that any Governmental Authority is
contemplating delivering to the Company or any of its Subsidiaries
any such notice;
(iv) Hazardous Materials have not been transferred
from the Real Property to any other location in violation of any
applicable Environmental Laws; and
(v) there are no governmental administrative
actions or judicial proceedings pending or, threatened under any
Environmental Laws to which the Company or any of its Subsidiaries is
or will be named as a party with respect to the Real Property.
5.15 Models and Pro Forma Balance Sheet. The financial
models (including projections for the 1998 fiscal year of the Company) and the
pro forma financial statements adjusted to give effect to the Note Redemption
and the financings contemplated hereby contained in the confidential
information memorandum delivered to the Lenders in January 1998 were prepared
in good faith on the basis of the assumptions stated therein, which
assumptions (a) were reasonable in light of conditions existing at the time of
delivery of such models and pro forma financial statements and, in all
material respects, on the Closing Date, and (b) represented, at the time of
delivery and on the Closing Date, the Company's best estimate of future
financial performance.
5.16 Disclosure. No information, schedule, exhibit or report
or other document furnished by the Company or any of its Subsidiaries to the
Administrative Agent or any Lender in connection with the negotiation of this
Agreement or pursuant to the terms of this Agreement, as such information,
schedule, exhibit or report or other document has been amended, supplemented
or superseded by any other information, schedule, exhibit or report or other
document later delivered to the same parties receiving such information,
schedule, exhibit or report or other document, contained any material
misstatement of fact or omitted to state a material fact or any fact necessary
to make the statements contained therein, in light of the circumstances when
made, not materially misleading; provided that in the case of information,
schedules, exhibits or reports or other documents made, delivered or prepared
by Persons other than the Company, its Subsidiaries and their agents, such
representation and warranty is subject to the qualification
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48
that it is true and correct only to the knowledge of the Company and its
Subsidiaries.
5.17 Solvency. The aggregate value of all of the assets of
the Company and its Subsidiaries on a consolidated basis, at a fair valuation,
exceeds the total liabilities of the Company and its Subsidiaries on a
consolidated basis (including contingent, subordinated, unmatured and
unliquidated liabilities). Each of the Company and its Subsidiaries has the
ability to pay its debts as they mature and each of the Company and its
Subsidiaries does not have unreasonably small capital with which to conduct
its business. For purposes of this subsection 5.17, the "fair valuation" of
such assets shall be determined on the basis of that amount which may be
realized within a reasonable time, in any manner through realization of the
value of or dispositions of such assets at the regular market value,
conceiving the latter as the amount which could be obtained for the properties
in question within such period by a capable and diligent business person from
an interested buyer who is willing to purchase under ordinary selling
conditions.
5.18 Guarantees. The provisions of each Guarantee are
effective to create a legal, valid, binding and enforceable guarantee of the
obligations described therein, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors' rights generally and by general equitable
principles.
5.19 Matters Relating to Subsidiaries. The Company has no
Subsidiaries on the Closing Date, other than those set forth on Schedule 5.19.
The Company has notified the Administrative Agent in writing of each
Subsidiary created or acquired after the Closing Date and has complied with
the provisions of subsection 8.16 with respect to each such Subsidiary.
5.20 Labor Matters. There are no strikes or other labor
disputes against the Company or any of its Subsidiaries pending or, to the
knowledge of the Company, threatened that (individually or in the aggregate)
would be reasonably likely to have a Material Adverse Effect. Hours worked by
and payment made to employees of the Company and its Subsidiaries have not
been in violation of the Fair Labor Standards Act or any other applicable
Requirement of Law dealing with such matters that (individually or in the
aggregate) could reasonably be expected to have a Material Adverse Effect. All
payments due from the Company or any of its Subsidiaries on account of
employee health and welfare insurance that (individually or in the aggregate)
would be reasonably likely to have a Material Adverse Effect if not paid, have
been paid or accrued as a liability on the books of the Company or the
relevant Subsidiary.
5.21 Tax Allocation Agreement. The Tax Allocation Agreement
is
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49
in full force and effect.
SECTION 6. CONDITIONS PRECEDENT
6.1 Conditions to Initial Extensions of Credit. The
agreement of each Lender to make the initial extensions of credit (regardless
of whether such extensions of credit are to be made in the form of Loans or
Letters of Credit) requested to be made by it shall be subject to the
satisfaction or waiver by such Lender of the following conditions precedent
(the date on which said conditions are satisfied or waived, being herein
called the "Closing Date") on or before March 2, 1998:
(a) Credit Agreement. The Administrative Agent shall have
received this Agreement duly executed and delivered by a duly
authorized officer of the Company, each Lender and the Administrative
Agent;
(b) Notes. The Administrative Agent shall have received, for
the account of each Lender which has so requested, a Note conforming
to the requirements hereof and executed and delivered by a duly
authorized officer of the Company;
(c) Guarantees. The Administrative Agent shall have received
each Guarantee (other than the Guarantees delivered pursuant to
subsection 8.16), duly executed and delivered by a duly authorized
officer of the Guarantor or Guarantors parties thereto;
(d) Lien Searches. The Administrative Agent shall have
received the results of Lien searches, conducted by a search service
reasonably satisfactory to the Administrative Agent, and the
Administrative Agent shall be satisfied that no Liens are outstanding
on the property or assets of the Company and its Domestic
Subsidiaries, other than any such Liens (i) which are permitted
pursuant to the terms of the Credit Documents or (ii) as to which the
Administrative Agent has received documentation reasonably
satisfactory to it evidencing the termination of such Liens;
(e) Corporate Proceedings of Loan Parties. The
Administrative Agent shall have received (a) certified copies of the
Charter and by-laws of each Loan Party and (b) the resolutions, in
form and substance reasonably satisfactory to the Administrative
Agent, of the Board of Directors of each Loan Party, authorizing in
each case the execution, delivery and performance of this Agreement,
the Notes and the other Credit Documents to which such Loan Party is
a party, in each case certified by the Secretary or an Assistant
Secretary of such Loan Party as of the Closing Date and each such
certificate shall state that the
<PAGE>
50
resolutions thereby certified have not been amended, modified,
revoked or rescinded as of the date of such certificate;
(f) Incumbency Certificates for Loan Parties. The
Administrative Agent shall have received a certificate of the
Secretary or an Assistant Secretary (or analogous officer) of each
Loan Party dated the Closing Date, as to the incumbency and signature
of the officers of such Loan Party executing each of this Agreement,
the Notes and each other Credit Document to which such Loan Party is
a party, and any certificate or other documents to be delivered by it
pursuant thereto, together with evidence of the incumbency of such
Secretary or Assistant Secretary as the case may be;
(g) Certain Legal Opinions. The Administrative Agent shall
have received executed legal opinions of:
(i) Paul, Weiss, Rifkind, Wharton & Garrison, as
counsel to the Company, substantially in the form of Exhibit B-1; and
(ii) the General Counsel (or other person
reasonably acceptable to the Administrative Agent) of the Company,
substantially in the form of Exhibit B-2.
Each of the foregoing legal opinions shall be accompanied by copies of the
legal opinions, if any, upon which such counsel rely, and in each case shall
contain such changes thereto as may be approved by, and as shall otherwise be
in form and substance reasonably satisfactory to, the Administrative Agent and
shall cover such other matters incident to the transactions contemplated by
the Credit Documents as the Administrative Agent may reasonably require. Each
of the counsel delivering the foregoing legal opinions is expressly instructed
to deliver its opinion for the benefit of each of the Administrative Agent and
each other holder of the Payment Obligations;
(h) Existing Credit Agreement. The Company shall have given
irrevocable notice pursuant to the terms of the Existing Credit
Agreement, terminating in whole the loan commitments of the lenders
thereunder. All principal and interest, if any, outstanding under,
and all fees or other amounts then due under, the Existing Credit
Agreement shall have been paid in full, and the Administrative Agent
shall have received a certificate of the Company to the foregoing
effect;
(i) Termination of Existing Security Documents. The
Administrative Agent shall have received evidence satisfactory to it
that (i) all "Security Documents" (as defined in the Existing Credit
Agreement)
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51
have been terminated and (ii) all collateral security delivered under
such Security Documents has been released and returned;
(j) Fees. The Administrative Agent shall have received, for
the accounts of the Lenders and the Administrative Agent, all accrued
fees and expenses owing hereunder or in connection herewith to the
Administrative Agent and the Lenders (including, without limitation,
accrued fees and disbursements of counsel to the Administrative
Agent), to the extent that such fees and expenses have been presented
for payment a reasonable time prior to the Closing Date;
(k) Financial Statements. The Lenders shall have received
(i) satisfactory audited consolidated financial statements of the
Company for the two most recent fiscal years ended prior to the
Closing Date as to which such financial statements are available and
(ii) satisfactory unaudited interim consolidated financial statements
of the Company certified by a senior officer of the Company for each
fiscal quarterly period ended subsequent to the date of the latest
financial statements delivered pursuant to clause (i) of this
paragraph as to which such financial statements are available;
(l) Legal Investment. The making of the Loans and other
extensions of credit hereunder shall be permitted on the Closing Date
as a legal investment by the laws, rules and regulations of the State
of New York and by each jurisdiction to which the Lenders may be
subject (without resort to any so-called "basket" provision of such
laws, including without limitation Section 1405(8) of the New York
Insurance Laws); and the Lenders shall have received such
certificates or other evidence as they may reasonably request
demonstrating the legality of such purchase under such laws, rules
and regulations;
(m) Financial Models and Pro Forma Balance Sheet. The
Administrative Agent shall have received financial models and pro
forma balance sheet referenced in subsection 5.15;
(n) Consents and Approvals. The Administrative Agent shall
have received true and correct copies (in each case, certified as to
authenticity on such date by a duly authorized officer of the
Company) of all documents and instruments necessary or reasonably
advisable under any Requirement of Law or by Contractual Obligation
of the Company or any of its Subsidiaries, in connection with the
execution, delivery, performance, validity and enforceability of any
Credit Document and the continuing operations of the Company and its
Subsidiaries, other than any consents, authorizations and filings for
which the failure to make or obtain would not be reasonably likely to
have a Material Adverse Effect;
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52
such consents, authorizations and filings shall be reasonably
satisfactory in form and substance to the Administrative Agent and
shall be in full force and effect. The Administrative Agent shall
have received a certificate of a Responsible Officer of the Company
stating that such consents, licenses and approvals are in full force
and effect;
(o) Redemption of Senior Subordinated Notes. The Note
Redemption of the Senior Subordinated Notes shall have been
consummated concurrently with the initial funding of the Loans at a
redemption price of 103%;
(p) No Litigation. No litigation, suit, action,
investigation, inquiry or other proceeding by or before any
arbitrator or any Governmental Authority shall be pending and no
preliminary or permanent injunction or order by a state or federal
court shall have been entered in connection with any Credit Document
or any of the transactions contemplated hereby or thereby or
otherwise which in any of such cases would be reasonably likely to
have a material adverse effect on (a) the business, assets,
operations, condition (financial or otherwise) or prospects of
Holdings and its Subsidiaries taken as a whole, (b) their ability to
perform their obligations under the Credit Documents or (c) the
rights and remedies of the Lenders, and all applicable waiting
periods shall have expired without any action being taken or
threatened by any Governmental Authority which would restrain,
prevent or otherwise impose material adverse conditions on the
transactions contemplated hereby;
(q) No New Information. The Lenders shall not have become
aware of any previously undisclosed information which would be
reasonably likely to have a Material Adverse Effect;
(r) No Defaults. There shall exist no event of default (or
condition which would constitute an event of default with the giving
of notice or the passage of time) under any Capital Stock, financing
agreements, lease agreements or other contracts of Holdings or any of
its Subsidiaries which event of default or condition, in the
aggregate with all other then-existing events of default and
conditions, would be reasonably likely to (i) have a Material Adverse
Effect or (ii) materially adversely affect the ability of the Company
to consummate the Note Redemption;
(s) Tax Allocation Agreement. The Administrative Agent shall
have received a true and correct copy of the Tax Allocation
Agreement; and
(t) Additional Matters. All corporate and other proceedings,
and all documents, instruments and other legal matters in connection
with
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53
the transactions contemplated by the Credit Documents shall be
reasonably satisfactory in form and substance to the Administrative
Agent and its counsel.
6.2 Conditions to Each Extension of Credit. The agreement of
each Lender to make any Loan requested to be made by it on any date and the
agreement of the Issuing Lender to issue any Letter of Credit to be issued by
it on any date (including, without limitation, its initial extension of
credit) is subject to the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the
representations and warranties made by each party to each Credit
Document in or pursuant to this Agreement or any other Credit
Document, or contained in any certificate or financial statement
furnished at any time under or in connection with this Agreement or
any other Credit Document shall be true and correct in all material
respects on and as of such date as if made on and as of such date,
both before and after giving effect to such Loan, and to all other
extensions of credit to be made on such date and the use of the
proceeds thereof; and
(b) No Default. No Event of Default and no Default shall
have occurred and be continuing on such date or after giving effect
to the extensions of credit requested to be made on such date.
Each borrowing by the Company or issuance of a Letter of Credit hereunder
shall constitute a representation and warranty by the Company, as of the date
of such borrowing or issuance, that the conditions contained in paragraphs (a)
and (b) of this subsection 6.2 have been satisfied.
SECTION 7. AFFIRMATIVE COVENANTS
The Company hereby agrees that, until the Payment
Obligations have been Fully Satisfied:
7.1 Financial Statements. The Company will furnish to each
Lender, through the Administrative Agent:
(a) as soon as available, but in any event within 105 days
after the end of each fiscal year of the Company, a copy of the
audited consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year and the related consolidated
statements of earnings and stockholders' equity and cash flows for
such year, setting forth in each case in comparative form the figures
for the previous year, certified without a "going concern" or like
qualification or exception, or
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54
qualification arising out of the scope of the audit, by independent
certified public accountants of nationally recognized standing not
unacceptable to the Required Lenders;
(b) as soon as available, but in any event within 105 days
after the end of each fiscal year of the Company, a copy of the
consolidating balance sheet of the Company and its Subsidiaries as at
the end of such year and the related consolidating statements of
earnings for such year, setting forth in each case in comparative
form the figures for the previous year, certified by a Responsible
Officer;
(c) as soon as available, but in any event within 50 days
after the end of each of the first three fiscal quarters in each
fiscal year of the Company, a copy of the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end of
each such quarter and the related unaudited consolidated statements
of earnings and stockholders' equity and cash flows for such
quarterly period and the portion of the fiscal year through such
date, setting forth in each case in comparative form the figures for
the previous year, certified by a Responsible Officer (subject to
normal year-end audit adjustments); and
(d) as soon as available, but in any event within 50 days
after the end of the first three fiscal quarters in each fiscal year
of the Company, a copy of the unaudited consolidating balance sheet
of the Company and its Subsidiaries as at the end of each such
quarter and the related unaudited consolidating statements of
earnings for such quarterly period and the portion of the fiscal year
through such date, setting forth in each case in comparative form the
figures for the previous year, certified by a Responsible Officer
(subject to normal year-end audit adjustments).
All financial statements referred to in this subsection 7.1
shall be prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as approved by
such accountants or Responsible Officer, as the case may be, and disclosed
therein).
7.2 Certificates; Other Information. The Company will
furnish to each Lender, through the Administrative Agent:
(a) concurrently with the delivery of the financial
statements referred to in subsection 7.1(a), a certificate of the
independent certified public accountants certifying such financial
statements stating that in making the examination necessary therefor
no knowledge was obtained of any Default or Event of Default, except
as specified in such certificate;
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55
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.1(a) through (d), a
certificate of a Responsible Officer (i) stating that, to the best of
such Responsible Officer's knowledge, the Company during such period
has observed or performed in all material respects all of its
covenants and other agreements, and satisfied in all material
respects every condition, contained in the Credit Documents to be
observed, performed or satisfied by it, and that such officer has
obtained no knowledge of any Default or Event of Default, except as
specified in such certificate, and (ii) showing in detail the
calculations supporting such statement in respect of subsection 8.1;
(c) within 60 days following the commencement of each fiscal
year, the budget for the Company and its Subsidiaries for such fiscal
year, showing each quarter separately;
(d) promptly upon receipt thereof, copies of all audit
reports submitted to the Company by independent public accountants in
connection with each interim or special audit of the books of the
Company or any of its Subsidiaries made by such accountants;
(e) within five days after the same are sent, copies of all
financial statements and reports which Holdings sends to its
stockholders or holders of its publicly traded equity securities or
Indebtedness pursuant to Section 13 or 15(d) of the Exchange Act, and
within five days after the same are filed, copies of all financial
statements and reports which the Company or Holdings may make to, or
file with, the Securities and Exchange Commission; and
(f) promptly, such additional documents and financial and
other information with respect to Holdings and its Subsidiaries as
the Administrative Agent or any Lender may from time to time
reasonably request.
7.3 Payment of Obligations. The Company will, and will cause
each of its Subsidiaries to, pay, discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, all its
Indebtedness and other material obligations of whatever nature, except when
the amount or validity thereof is then being contested in good faith by
appropriate proceedings and reserves with respect thereto to the extent, if
any, required by GAAP have been provided on the books of the Company or such
Subsidiary, as the case may be. Notwithstanding anything to the contrary in
the foregoing sentence, the Company shall not be in default under this
subsection 7.3 unless the aggregate amount of non-contested Indebtedness or
obligations which it and its Subsidiaries have so failed to pay, discharge or
satisfy before they become delinquent and which remain delinquent at the time
of determination is more than $5,000,000 in the aggregate.
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56
7.4 Conduct of Business and Maintenance of Existence. Except
as permitted by this Agreement, the Company and its Subsidiaries will continue
to engage in business of the same general type as now conducted by the Company
and its Subsidiaries; and, except as permitted by this Agreement, the Company
will, and will cause each of its Subsidiaries to, preserve, renew and keep in
full force and effect its corporate existence and take all reasonable action
to maintain all rights, privileges and franchises necessary or desirable in
the normal conduct of its business, except as otherwise permitted pursuant to
subsections 8.4 and 8.5 and except that the Company and its Subsidiaries may
fail to maintain any such rights, privileges and franchises which in the
Company's business judgment are not necessary in the best interests of the
Company to be maintained, and comply with all Contractual Obligations and
Requirements of Law except to the extent that all failures to comply therewith
would not in the aggregate, be reasonably likely to have a Material Adverse
Effect. The Company and its Subsidiaries will not make any material change in
its present method of conducting business.
7.5 Maintenance of Property; Insurance. The Company will,
and will cause each of its Subsidiaries to, (a) keep all property useful and
necessary in its business in good working order and condition, except where
the failure to do so would not, in the aggregate, be reasonably likely to have
a Material Adverse Effect and (b) maintain with financially sound and
reputable insurance companies insurance on such of its property and against
such liabilities in at least such amounts and against at least such risks as
are customarily insured against in the same general area by companies engaged
in the same or a similar business and furnish to the Administrative Agent,
upon written request, and to each Lender which makes a written request through
the Administrative Agent, reasonable information as to the insurance carried.
7.6 Inspection of Property; Books and Records; Discussions.
The Company will, and will cause each of its Subsidiaries to, (a) keep proper
books of accounts and records in which entries in conformity in all material
respects with all Requirements of Law shall be made of all dealings and
transactions in relation to its businesses and activities and which shall
permit the preparation of financial statements in conformity with GAAP and (b)
permit representatives of any Lender to visit and inspect such of its
properties as such Lender may request through the Administrative Agent and
(during such visit or inspection, or otherwise upon request through the
Administrative Agent) examine and make abstracts from such of its books and
records as it may reasonably request at any reasonable time and as often as
may reasonably be desired, and to discuss the business, condition (financial
or otherwise), performance, properties and prospects of the Company and its
Subsidiaries with officers and employees of the Company and its Subsidiaries
and with its then independent certified public accountants.
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57
7.7 Notices. The Company will promptly give notice to each
Lender, through the Administrative Agent, and the Administrative Agent:
(a) of the occurrence of any Default or Event of Default;
(b) of any default or event of default by Holdings or any of
its Subsidiaries under any Contractual Obligation of Holdings or any
of its Subsidiaries or the institution of, or the occurrence of any
material adverse change in the status or likely result of, any
litigation, investigation or proceeding which may exist at any time
between Holdings or any of its Subsidiaries and any Governmental
Authority or any other Person which, in any of the foregoing cases,
would be reasonably likely to have a Material Adverse Effect;
(c) of (i) any violation or noncompliance by Holdings or any
of its Subsidiaries or, to the best of its knowledge, any other
Person of any Environmental Laws which would be reasonably likely to
have a Material Adverse Effect or (ii) any liability or potential
liability of Holdings or any of its Subsidiaries or, to the best of
its knowledge, of any other Person under, any Environmental Laws
which would be reasonably likely to have a Material Adverse Effect;
(d) of any of the following events, as soon as practicable,
and in any event, within 30 days after the Company knows or has
reason to know thereof:
(i) the occurrence or expected occurrence of any
Reportable Event with respect to any Plan; or
(ii) the institution of proceedings or the taking
or expected taking of any other action by PBGC or the
Company or any Commonly Controlled Entity to terminate,
withdraw or partially withdraw from any Single Employer or
Multiemployer Plan and with respect to a Multiemployer Plan,
the Reorganization or Insolvency of such Plan;
if such Reportable Event, termination, withdrawal or partial
withdrawal (and, in the case of any Multiemployer Plan, its
Reorganization or Insolvency) would be reasonably likely to result in
liability to the Company and its Subsidiaries, in the aggregate, in
excess of $60,000,000; and
(e) of a material adverse change in the business, condition
(financial or otherwise), operations, performance, properties or
prospects of the Company and its Subsidiaries taken as a whole, or of
any event
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58
which would be reasonably likely to have a Material Adverse Effect.
Each notice pursuant to this subsection 7.7 shall be accompanied by a
statement of a Responsible Officer of the Company setting forth details of the
occurrence referred to therein and stating what action the Company proposes to
take with respect thereto.
7.8 Maintenance of Corporate Identity. The Company will
operate its businesses and those of its Subsidiaries, and maintain their
records, independently from any Person (a "Parent") which, directly or
indirectly, is in control (as defined in Rule 12b-2 under the Exchange Act) of
the Company and independently from any Subsidiary of such Parent other than
the Company and its Subsidiaries; and the Company will maintain bank accounts
separate from the bank accounts of each Parent of the Company and act solely
in its own corporate name and through its own authorized officers and agents.
7.9 Environmental Laws. The Company will, and will cause
each of its Subsidiaries to:
(a) comply with and require compliance by all tenants and
subtenants, if any, with all Environmental Laws and obtain and comply
in all respects with and maintain, and require that all tenants and
subtenants obtain and comply with and maintain, any and all licenses,
approvals, registrations or permits required by Environmental Laws,
except to the extent that the failure to do so would not be
reasonably likely to have a Material Adverse Effect;
(b) conduct and complete all investigations, studies,
sampling and testing, and all remedial, removal and other actions
required under Environmental Laws and promptly comply in all respects
with all lawful orders and directives of all Governmental Authorities
respecting Environmental Laws, except (i) to the extent that the
failure to perform any of the obligations contained in this clause
(b) would not be reasonably likely to have a Material Adverse Effect
or (ii) to the extent that such obligations are being contested in
good faith by appropriate proceedings and the pendency of such
proceedings would not be reasonably likely to have a Material Adverse
Effect; and
(c) defend, indemnify and hold harmless the Administrative
Agent and the Lenders, and their respective employees, agents,
officers and directors, from and against any claims, demands,
penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature, known or unknown, contingent or
otherwise, arising out of, or in any way relating to the violation of
or noncompliance with any Environmental Laws by the Company or any of
its Subsidiaries, or any
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59
orders, requirements or demands of Governmental Authorities related
thereto, including without limitation reasonable attorney and
consultant fees, investigation and laboratory fees, court costs and
litigation expenses, except to the extent that any of the foregoing
arise out of the gross negligence or willful misconduct of the party
seeking indemnification therefor. The agreements in this subsection
7.9(c) shall survive the payment of the Loans, the Notes, and all
other amounts payable hereunder.
7.10 Intellectual Property. (a) The Company will, to the
extent permitted by Title 15 of the United States Code, submit, and will cause
each of its Domestic Subsidiaries to submit, to the United States Patent and
Trademark Office for registration or recordation, as applicable:
(i) a completed application for trademark registration, in
such class or classes as is in conformity with its ordinary business
practice then obtaining, of each Trademark acquired or adopted and
used or intended to be used by it, with respect to any mark which, in
the Company's reasonable judgment, is a Significant Trademark; and
(ii) with respect to any interest acquired after the date
hereof by the Company or any of its Subsidiaries in a Significant
Trademark, any appropriate assignment to the Company or such Domestic
Subsidiary of the interest acquired by it in the United States in
such Significant Trademark, including, without limitation, all
previously unrecorded assignments to the Company's or such Domestic
Subsidiary's predecessors-in-interest of which the Company or any
Domestic Subsidiary is or becomes aware.
The Company will, and will cause each of its Domestic Subsidiaries to, use its
respective best efforts to comply with all requirements of the Lanham Act and
the rules and regulations thereunder, as from time to time in effect, or other
applicable law necessary in order to validly register and maintain the
registration of any such Significant Trademark with the United States Patent
and Trademark Office, except as permitted pursuant to subsections 7.4, 8.4 and
8.5.
(b) The Company will, to the extent permitted by Title 35 of
the United States Code, submit, and will cause each of its Domestic
Subsidiaries to submit, to the United States Patent and Trademark Office for
issuance or recordation, as applicable:
(i) an application for letters patent for each patentable
invention acquired by or invented by or for it which invention is of
such a nature that the Company or its Subsidiaries in accordance with
its ordinary business practice then obtaining would file a patent
application
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60
in the United States Patent and Trademark Office with respect to it;
and
(ii) with respect to any interest acquired after the date
hereof by the Company or any of its Subsidiaries in a material
patent, any appropriate assignment to the Company or such Domestic
Subsidiary of the interest acquired by it in the United States in
such patent, including, without limitation, all previously unrecorded
assignments to the Company's or such Domestic Subsidiary's
predecessors-in-interest of which the Company or any Domestic
Subsidiary is or becomes aware.
The Company will, and will cause each of its Domestic Subsidiaries to, use its
respective best efforts to comply with all requirements of the United States
Patent Act and the rules and regulations thereunder, as from time to time in
effect, or other applicable law necessary in order to validly obtain and
maintain any material patent with the United States Patent and Trademark
Office, except as permitted pursuant to subsections 7.4, 8.4 and 8.5.
(c) Notwithstanding anything to the contrary contained in
this subsection 7.10, the Company and its Subsidiaries shall have the right to
license their respective patents and Trademarks to third parties on an arms'
length basis.
SECTION 8. NEGATIVE COVENANTS
The Company hereby agrees that, until the Payment
Obligations are Fully Satisfied:
8.1 Financial Covenants. The Company will not:
(a) Leverage. Permit the Leverage Ratio as of the last day
of any fiscal quarter to exceed 2.50 to 1.00.
(b) Interest Coverage. Permit the Interest Coverage Ratio as
of the last day of any fiscal quarter to be less than 3.00 to 1.00.
8.2 Limitation on Liens. The Company will not, and will not
permit any of its Subsidiaries to, create, incur, assume or suffer to exist
any Lien upon any of their properties, assets (including shares of Capital
Stock) or revenues, whether now owned or hereafter acquired, except for the
following (collectively, "Permitted Exceptions"):
(a) Liens for taxes not yet due or which are being contested
in good faith and by appropriate proceedings if adequate reserves
with respect thereto are maintained on the books of the Company or
any of its
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61
Subsidiaries, as the case may be, in accordance with GAAP;
(b) carriers', warehousemen', mechanics', materialmen',
repairmen' or other like Liens arising in the ordinary course of
business which are not overdue for a period of more than 30 days or
which are being contested in good faith and by appropriate
proceedings;
(c) pledges or deposits in connection with workmen's
compensation, unemployment insurance and other social security
legislation;
(d) deposits to secure the performance of bids, trade
contracts (other than for borrowed money), government contracts,
leases, statutory obligations, surety and appeal bonds, performance
bonds and other obligations of a like nature incurred and statutory
or contractual bankers' Liens on monies held in bank accounts in the
ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which do not
in any case materially detract from the value of the property subject
thereto or interfere with the ordinary conduct of the business of the
Company or any of its Subsidiaries;
(f) Liens in favor of the United States for amounts paid by
the Company or any of its Subsidiaries as progress payments under
government contracts entered into by them;
(g) attachment, judgment or other similar Liens arising in
connection with court or arbitration proceedings, provided that the
same are discharged, or that execution or enforcement thereof is
stayed pending appeal, within 30 days or (in the case of any
execution or enforcement pending appeal) such lesser time during
which such appeal may be taken;
(h) Liens granted in the ordinary course of business of the
Company or any of its Subsidiaries in favor of issuers of documentary
or trade letters of credit for the account of the Company or such
Subsidiary which support the purchase and/or importation of inventory
of the Company and its Subsidiaries, which Liens secure the
reimbursement obligations of the Company or such Subsidiary on
account of such letters of credit; provided that each such Lien is
limited to (i) the assets acquired or shipped with the support of
such letter of credit and (ii) any assets of the Company or such
Subsidiary which are in the care, custody or control of such issuer
in the ordinary course of business;
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62
(i) possessory Liens in favor of brokers and dealers arising
in connection with the acquisition or disposition of investments of
the type permitted by subsection 8.7(a)(ii); provided that such Liens
(i) attach only to such investments and (ii) secure only obligations
incurred in the ordinary course and arising in connection with the
acquisition or disposition of such investments and not any obligation
in connection with margin financing;
(j) Liens set forth in Schedule 8.2(j);
(k) Liens on the assets of any Foreign Subsidiary securing
obligations of such Foreign Subsidiary permitted hereunder;
(l) Liens securing Indebtedness in an aggregate amount at
any one time outstanding not in excess of $1,000,000 incurred to
purchase or finance the purchase of real or personal property;
provided that (i) such Liens shall be created substantially
simultaneously with the purchase of such property, (ii) such Liens do
not at any time encumber any property other than the property
financed by such Indebtedness, (iii) the amount of Indebtedness is
not increased and (iv) the principal amount of Indebtedness secured
by any such Lien shall at no time exceed 100% of the purchase price
of such property;
(m) Liens on the property or assets of a corporation which
becomes a Subsidiary after the date hereof securing Indebtedness of
such Subsidiary permitted by subsection 8.11(f) or Contingent
Obligations permitted by subsection 8.3(d), provided that (i) such
Liens and Indebtedness or Contingent Obligations existed at the time
such corporation became a Subsidiary and were not created in
anticipation thereof, (ii) any such Lien is not spread to cover any
other property or assets of such corporation after the time such
corporation becomes a Subsidiary, (iii) the amount of Indebtedness or
Contingent Obligation secured thereby is not increased and (iv)
immediately after giving effect to the acquisition of such
corporation, no Default or Event of Default shall have occurred and
be continuing; and
(n) any extension, renewal or replacement of the foregoing;
provided that the Liens permitted by this paragraph shall not extend
to or cover any additional Indebtedness or Property (other than a
substitution of like Property).
8.3 Limitation on Contingent Obligations. The Company will
not, and will not permit any of its Subsidiaries to, agree to, or assume or
incur, or otherwise in any way be or become responsible or liable, directly or
indirectly,
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63
with respect to, any Contingent Obligation other than:
(a) the guarantees made by the Domestic Subsidiaries
pursuant to the Subsidiaries Guarantee;
(b) Contingent Obligations of any Subsidiary of the Company
in the nature of a guarantee of Indebtedness or other obligations of
the Company or any other wholly-owned Subsidiary of the Company
(including, without limitation, any wholly-owned Subsidiary incurring
such Contingent Obligations);
(c) Contingent Obligations of the Company in the nature of
guarantees of Indebtedness or other obligations of any of its
wholly-owned Subsidiaries to the extent such Indebtedness or other
obligations, as the case may be, are not prohibited by this
Agreement;
(d) Contingent Obligations of a corporation which becomes a
Subsidiary after the date hereof, provided that (i) such Contingent
Obligations existed at the time such corporation became a Subsidiary
and were not created in anticipation thereof and (ii) immediately
after giving effect to the acquisition of such corporation no Default
or Event of Default shall have occurred and be continuing; and
(e) Guarantees of obligations of customers or suppliers made
in the ordinary course of business after the Closing Date by the
Company and/or any Subsidiary of the Company in respect of funds
advanced to customers or suppliers by third parties so long as the
aggregate amount so Guaranteed, together with the amounts paid under
any such Guarantee or advanced under subsection 8.7(e), does not
exceed $20,000,000 in the aggregate at any one time outstanding.
8.4 Limitation on Fundamental Changes. The Company will not,
and will not permit any of its Subsidiaries to, enter into any transaction in
the nature of merger or consolidation or amalgamation, or liquidate, wind up
or dissolve itself (or suffer any liquidation or dissolution), convey, sell,
lease, assign, transfer or otherwise dispose of, in one transaction or a
series of related transactions, all or a substantial part of the business or
assets of the Company, or enter into any such transaction or series of related
transactions with regard to a group of Subsidiaries which, if merged into a
single Subsidiary, would constitute a substantial part of the business or
assets of the Company, or acquire by purchase or otherwise all or
substantially all the business or assets of, or Capital Stock or other
evidences of beneficial ownership of, any Person, except that:
(a) any Subsidiary of the Company (i) may be merged or
consolidated with or into, or its assets liquidated and distributed
to, the
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64
Company, provided that the Company shall be the continuing or
surviving corporation or (ii) may be merged or consolidated with or
into, or its assets liquidated and distributed to, any one or more
wholly-owned Subsidiaries of the Company; provided that no Domestic
Subsidiary may be merged or consolidated with or into a Foreign
Subsidiary unless a Domestic Subsidiary is the continuing or
surviving entity and no Domestic Subsidiary may have its assets
liquidated and distributed to any Foreign Subsidiary;
(b) any Subsidiary of the Company may sell, lease, transfer
or otherwise dispose of any or all of its assets (upon voluntary
liquidation or otherwise) to the Company or a wholly-owned Subsidiary
of the Company; provided that no Domestic Subsidiary may sell, lease
transfer or otherwise dispose of any of its assets to any Foreign
Subsidiary other than in the ordinary course of business; and
(c) the Company and its Subsidiaries may make acquisitions
and purchases permitted by subsection 8.7.
8.5 Limitation on Sale of Assets. The Company will not, and
will not permit any of its Subsidiaries to, sell, lease, assign, transfer or
otherwise dispose of any of its assets (including, without limitation,
receivables and leasehold interests), whether now owned or hereafter acquired,
or, in the case of any of the Subsidiaries of the Company, issue any shares of
Capital Stock (other than any director's qualifying shares), to any Person
other than the Company or any of its Subsidiaries, except:
(a) as permitted by subsections 8.2 or 8.4;
(b) the sale or other disposition (including abandonment) of
any property (including intellectual property rights) which has
become uneconomic, obsolete or worn out and which is disposed of in
the ordinary course of business;
(c) the sale of inventory in the ordinary course of
business;
(d) licensing agreements entered into with respect to
Trademarks, patents, trade secrets or know-how in the ordinary course
of business; and
(e) from the Closing Date, sales and other dispositions of
property not having a value together with all other sales and
dispositions pursuant to this clause (e) in excess of the lesser of
(i) 5% of the consolidated assets of the Company as of the last day
of the most recent fiscal period for which financial statements have
been delivered pursuant to subsection 7.1 and (ii) $5,000,000.
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65
8.6 Limitation on Restricted Payments. The Company will not,
and will not permit any of its Subsidiaries to, make any Restricted Payment,
except that the following Restricted Payments may be made:
(a) Restricted Payments to Holdings (i) in amounts equal to
the amounts required for Holdings to pay franchise and similar taxes
and other fees required to maintain its corporate existence and (ii)
in amounts equal to the amounts required to pay actual expenses,
other than those paid to Affiliates of the Company, incidental to
being a publicly reporting, but non-operating company;
(b) Restricted Payments necessary for Holdings, the Company
and any of its Subsidiaries to pay federal, state and local taxes to
the extent such taxes are attributable to the operations of the
Company and its Subsidiaries;
(c) So long as no Default or Event of Default has occurred
and is continuing at the time such Restricted Payment is made or
would result therefrom, commencing with the 1998 fiscal year,
Restricted Payments in an aggregate amount not to exceed an amount
equal to the greater of (i) 50% of Consolidated Net Income for the
prior fiscal year and (ii) $10,000,000 per annum, including for the
purpose of enabling Holdings to make principal payments on the
Holdings Note;
(d) So long as no Default or Event of Default has occurred
and is continuing at the time such Restricted Payment is made or
would result therefrom, Restricted Payments by Fabrica, or any
non-wholly owned Subsidiary of Fabrica, so long as such Restricted
Payment is made on a pro rata basis (or a basis more favorable to the
Company and its other Subsidiaries) to each holder of Capital Stock
of Fabrica;
(e) So long as no Default or Event of Default has occurred
and is continuing at the time such Restricted Payment is made or
would result therefrom, Restricted Payments by Jamaica Tobacco, or
any non-wholly owned Subsidiary of Jamaica Tobacco, so long as such
Restricted Payment is made on a pro-rata basis (or a basis more
favorable to the Company and its other Subsidiaries) to each holder
of Capital Stock of Jamaica Tobacco; and
(f) So long as no Default or Event of Default has occurred
and is continuing at the time such Restricted Payment is made or
would result therefrom, Restricted Payments by Cuban Cigar, or any
non-wholly owned Subsidiary of Cuban Cigar, so long as such
Restricted Payment is made on a pro-rata basis (or a basis more
favorable to the
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66
Company and its other Subsidiaries) to each holder of Capital Stock
of Cuban Cigar.
8.7 Limitation on Investments, Loans and Advances. The
Company will not, and will not permit any of its Subsidiaries to, make or
commit to make any advance, loan, extension of credit or capital contribution
to, or purchase any Capital Stock, bonds, notes, debentures or other
securities of, or make any other investment in, any Person (other than the
Company or any of its Subsidiaries), except:
(a) investments by the Company and its Subsidiaries in (i)
accounts, contract rights and chattel paper (as defined in the
Uniform Commercial Code), put and call foreign exchange options and
foreign exchange forwards and futures to the extent necessary to
hedge foreign exchange exposures and notes receivable, arising or
acquired in the ordinary course of business and in Rate Hedging
Agreements and (ii) Cash Equivalents;
(b) investments by Foreign Subsidiaries in investments of a
type similar to Cash Equivalents made outside of the United States;
(c) extensions of trade credit in the ordinary course of
business;
(d) the Company and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers or in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising out of the ordinary course of
business; provided that the Company and its Subsidiaries have paid no
new consideration (other than forgiveness of Indebtedness or other
obligations) therefor;
(e) Payments made after the Closing Date on Guarantees
permitted by subsection 8.3(e) hereof and advances made after the
Closing Date by the Company and/or any Subsidiary of the Company to
suppliers or customers in the ordinary course of business so long as
the amount of all such payments and advances, together with the
amounts guaranteed under subsection 8.3(e), does not exceed
$20,000,000 in the aggregate at any one time outstanding;
(f) so long as no Default or Event of Default shall have
occurred and be continuing, or would result therefrom (including,
without limitation, compliance with subsection 8.14), other
investments in Persons not to exceed $20,000,000 in the aggregate at
any time (such investments to be measured by their fair market value
at the time of the investment); and
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67
(g) loans and advances to officers, directors and employees
in the ordinary course of business not to exceed $2,000,000 in the
aggregate at any time outstanding.
8.8 Sale and Leaseback. The Company will not, and will not
permit any of its Subsidiaries to, enter into any arrangement with any Person
whereby the Company shall sell or transfer any property, real or personal,
whether now owned or hereafter acquired, and thereafter rent or lease such
property.
8.9 Limitation on Transactions with Affiliates. The Company
will not, and will not permit any of its Subsidiaries to, enter into any
transaction (including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service) with any Affiliate of
the Company unless such transactions are not otherwise prohibited under this
Agreement, are in the ordinary course of business and are upon fair and
reasonable terms no less favorable to the Company or such Subsidiary, as the
case may be, than it would obtain in a comparable arm's length transaction
with a Person not an Affiliate.
8.10 Accounting Changes. (a) The Company will not, and will
not permit any of its Subsidiaries to, make or permit to be made any change in
accounting policies affecting the presentation of financial statements or
reporting practices from those employed by it on the date hereof, unless (i)
such changes are required or permitted by GAAP, (ii) such changes are
disclosed to the Lenders through the Administrative Agent or otherwise and
(iii) if requested by the Administrative Agent, relevant prior financial
statements are reconciled (in form and detail satisfactory to the
Administrative Agent) to show comparative results and reconciliations.
(b) Notwithstanding anything to the contrary contained
herein, compliance with the financial covenants contained in subsection 8.1
shall be determined based upon GAAP as in effect on the date of this
Agreement.
(c) The Company will not permit its fiscal year to end on a
date other than December 31.
8.11 Indebtedness. The Company will not, and will not permit
any of its Subsidiaries to, create, incur or suffer to exist any Indebtedness
except:
(a) Indebtedness to the Lenders hereunder and under the
other Credit Documents;
(b) Indebtedness outstanding on the date hereof and listed
in
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Schedule 8.11(b), and other Indebtedness outstanding on the date
hereof in an aggregate principal amount at any one time outstanding
not to exceed $250,000;
(c) Indebtedness of (i) Subsidiaries to the Company or to
other Subsidiaries and (ii) the Company to any of its Subsidiaries;
(d) Indebtedness of the Company and its Subsidiaries secured
by Liens permitted by subsection 8.2(l) hereof;
(e) Indebtedness permitted by subsection 8.3;
(f) Indebtedness of a corporation which becomes a Subsidiary
after the date hereof in an aggregate principal amount not to exceed
$10,000,000 at any one time outstanding, provided that (i) such
Indebtedness existed at the time such corporation became a Subsidiary
and was not created in anticipation thereof and (ii) immediately
after giving effect to the acquisition of such corporation, no
Default or Event of Default shall have occurred and be continuing;
(g) Indebtedness of (i) Fabrica in an aggregate principal
amount at any one time outstanding not to exceed $5,000,000, (ii)
Jamaica Tobacco in an aggregate principal amount at any one time
outstanding not to exceed $5,000,000 and (iii) Foreign Subsidiaries
other then Fabrica and Jamaica Tobacco in an aggregate principal
amount at any one time outstanding not to exceed $2,000,000;
(h) Indebtedness in respect of documentary and trade letters
of credit issued for the account of the Company or any of its
Subsidiaries in the ordinary course of business in an aggregate
amount not to exceed $2,000,000 at any one time outstanding; and
(i) obligations arising under Capital Leases in an aggregate
principal amount not to exceed $1,000,000.
8.12 Limitation on Modifications of Tax Allocation
Agreement. The Company will not and will not permit any of its Subsidiaries to
modify or waive any provision of the Tax Allocation Agreement to the extent
such amendment, modification or waiver would be reasonably likely to have a
material adverse effect on the interests of the Lenders hereunder and under
the other Loan Documents.
8.13 Limitation on Negative Pledge Clauses. The Company will
not, and will not permit any of its Subsidiaries to, enter into with any
Person any agreement, other than this Agreement, which prohibits or limits the
ability
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69
of the Company or any of its Subsidiaries to create, incur, assume or
suffer to exist any Lien upon any of its property, assets or revenues, whether
now owned or hereafter acquired; provided that any of the Company and its
Subsidiaries may enter into any such agreement to the extent that such
agreement is in connection with (i) a Lien permitted by subsection 8.2 or a
sale of assets permitted by section 8.5 and any such prohibitions or
limitations apply only to the Property encumbered by such Lien or subject to
such sale or (ii) Indebtedness permitted under subsection 8.11(f) and (g).
8.14 Limitation on Lines of Business. The Company will not,
and will not permit any of its Subsidiaries to, principally engage in any
business or activity other than the business conducted by the Company and its
Subsidiaries on the Closing Date and businesses and activities reasonably
related thereto.
8.15 Limitation on Restrictions on Subsidiary Distributions.
The Company will not, and will not permit any of its Subsidiaries to, enter
into or suffer to exist or become effective any consensual encumbrance or
restriction on the ability of any Subsidiary of the Company to (a) pay
dividends or make any other distributions in respect of any Capital Stock of
such Subsidiary held by, or pay any Indebtedness owed to, the Company or any
other Subsidiary of the Company, (b) make loans or advances to the Company or
any other Subsidiary of the Company or (c) transfer any of its assets to the
Company or any other Subsidiary of the Company, except for such encumbrances
or restrictions existing under or by reason of (i) any restrictions existing
under the Credit Documents, (ii) any restrictions with respect to a Subsidiary
imposed pursuant to an agreement which has been entered into in connection
with the disposition of all or substantially all of the Capital Stock or
assets of such Subsidiary, (iii) any restrictions with respect to the Company
or any of its Subsidiaries imposed pursuant to an agreement which has been
entered into in connection with a Lien permitted by subsection 8.2 or a sale
of assets permitted by subsection 8.5 and any such prohibitions or limitations
apply only to the Property encumbered by such Lien or subject to such sale or
(iv) any restrictions imposed pursuant to agreements in connection with
Indebtedness permitted under subsections 8.11(f) and (g).
8.16 Limitation on Subsidiaries. The Company will not, and
will not permit any of its Subsidiaries to, create, acquire or otherwise
suffer to exist any Domestic Subsidiary unless either (i) the fair market
value of the assets of such Domestic Subsidiary is equal to or less than
$100,000 or (ii) such Domestic Subsidiary is party to a guarantee
substantially in the form of the Subsidiaries Guarantee and the Administrative
Agent has received such legal opinions and other such documents, instruments
and agreements (including, without limitation, any board resolutions and
incumbency certificates) as the Administrative Agent reasonably may request to
evidence the enforceability of
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such guarantee.
SECTION 9. EVENTS OF DEFAULT
Upon the occurrence and during the continuance of any of the
following events:
(a) Payments. Failure by the Company to pay any principal of
or interest on any Loan or Note or any Reimbursement Obligation when
due in accordance with the terms thereof and hereof, or failure by
the Company to pay any fee or other amount payable in connection with
any Credit Document within five days after the date when due; or
(b) Representations and Warranties. Any representation or
warranty made or deemed made by the Company or any Guarantor in any
Credit Document or which is contained in any certificate or financial
statement furnished at any time under or in connection herewith or
therewith shall prove to have been incorrect, false or misleading in
any material respect on or as of the date when made or deemed to have
been made; or
(c) Negative Covenants. Default by the Company or any of its
Subsidiaries in the observance or performance of any negative
covenant or agreement contained in Section 8; or
(d) Other Covenants. Default by any Loan Party in the
observance or performance of any other covenant or agreement
contained or incorporated by reference in this Agreement other than
as provided in clauses (a) through (c) above, and such default shall
continue unremedied for a period of 30 days; or
(e) Cross Default. Holdings or any of its Subsidiaries
(including without limitation the Company) shall Cross Default; or
(f) Commencement of Bankruptcy or Reorganization Proceeding.
(i) Holdings or any of its Subsidiaries shall commence any case,
proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an
order for relief entered with respect to it, or seeking to adjudicate
it as bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, wind-up, liquidation, dissolution, composition or other
relief with respect to it or its debts, or (B) seeking appointment of
a receiver, trustee, custodian or other similar official for it or
for all or any substantial part of its assets; or, (ii) there shall
be commenced against Holdings or any of its
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Subsidiaries any such case, proceeding or other action referred to in
subsection (i) which results in the entry of an order for relief or
any such adjudication or appointment remains undismissed,
undischarged or unbonded for a period of 60 days, provided that the
Company, for itself and on behalf of each of its Subsidiaries, hereby
expressly authorizes the Administrative Agent and each Lender to
appear in any court conducting any such case, proceeding or other
action during said 60-day period to preserve, protect and defend
their rights under the Credit Documents; or (iii) there shall be
commenced against Holdings or any of its Subsidiaries any case,
proceeding or other action seeking issuance of a warrant of
attachment, execution, distraint or similar process against all or
any substantial part of its assets which results in the entry of an
order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 60 days from
the entry thereof; or (iv) Holdings or any of its Subsidiaries shall
take any action authorizing, or in furtherance of, or indicating its
consent to, approval of, or acquiescence in, any of the acts set
forth above in this paragraph (f); or (v) Holdings or any of its
Subsidiaries shall generally not, or shall be unable to, or shall
admit in writing its inability to, pay its debts as they become due;
or
(g) ERISA. (i) Any Person shall engage in any "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of
the Code) involving any Plan, (ii) any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not
waived, shall exist with respect to any Plan, (iii) a Reportable
Event shall occur with respect to, or proceedings shall commence to
have a trustee appointed, or a trustee shall be appointed, to
administer or to terminate, any Single Employer Plan, which
Reportable Event or commencement of proceedings or appointment of a
trustee is, in the reasonable opinion of the Required Lenders, likely
to result in the termination of such Plan for purposes of Title IV of
ERISA, (iv) any Single Employer Plan shall terminate for purposes of
Title IV of ERISA, (v) the Company or any Commonly Controlled Entity
of the Company shall, or in the reasonable opinion of the Required
Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a
Multiemployer Plan or (vi) any other event or condition shall occur
or exist, with respect to a Plan; provided that, in each case in
clauses (i) through (vi) above, such event or condition, together
with all other such events or conditions, if any, would be reasonably
likely to have a Material Adverse Effect; or
(h) Change of Control. At any time on or after the Closing
Date, Holdings shall fail to own, beneficially and of record, and
control all of the issued and outstanding capital stock of the
Company; or any Change
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72
of Control shall occur; or
(i) Material Judgments. (i) One or more judgments or decrees
shall be entered against Holdings or any of its Subsidiaries
involving in the aggregate a liability (not covered by insurance) of
$5,000,000 or more or (ii) any non-monetary judgment or order shall
be rendered against Holdings or any of its Subsidiaries that is
reasonably likely to have a Material Adverse Effect, and in the case
of either clause (i) or (ii), there shall be any period of 30
consecutive days during which a stay of enforcement of such judgment
or order, by reason of a pending appeal or otherwise, shall not be in
effect unless such judgment or order shall have been vacated,
satisfied, discharged or bonded pending appeal; or
(j) Effectiveness of the Guarantees. On or after the Closing
Date, (i) for any reason (other than any act on the part of the
Administrative Agent or any Lender or by its terms) any Guarantee
ceases to be or is not in full force or (ii) the Company or any
Guarantor shall assert in writing that any Guarantee has ceased to be
or is not in full force and effect; or
(k) Activities of Holdings. Holdings shall (a) conduct,
transact or otherwise engage in, or commit to conduct, transact or
otherwise engage in, any business or operations other than those
incidental to its ownership of the Capital Stock of the Company, (b)
incur, create, assume or suffer to exist any Indebtedness or other
liabilities or financial obligations, except (i) nonconsensual
obligations imposed by operation of law, (ii) pursuant to the Credit
Documents to which it is a party, (iii) obligations with respect to
its Capital Stock and (iv) obligations under the Holdings Note, or
(c) own, lease, manage or otherwise operate any properties or assets
(other than cash and Cash Equivalents) other than the ownership of
shares of Capital Stock of the Company;
then, and in any such event, (x) if such event is an Event of Default
specified in clause (i), (ii) or (iii) of paragraph (f) of this Section with
respect to the Company, automatically the Commitments shall immediately
terminate and the Loans hereunder (with accrued interest thereon) and all
other amounts owing under this Agreement (including, without limitation, all
amounts of L/C Obligations, whether or not the beneficiaries of the then
outstanding Letters of Credit shall have presented the documents required
thereunder) and the other Credit Documents shall immediately become due and
payable, and (y) if such event is any other Event of Default, either or both
of the following actions may be taken: (i) with the consent of the Required
Lenders, the
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73
Administrative Agent may, or upon the request of the Required
Lenders, the Administrative Agent shall, by notice to the Company, declare the
Commitments to be terminated forthwith, whereupon the Commitments shall
immediately terminate; and/or (ii) with the consent of the Required Lenders,
the Administrative Agent may, or upon the request of the Required Lenders, the
Administrative Agent shall, by notice to the Company, declare all or any part
of the Loans (with accrued interest thereon) and any other amounts owing under
this Agreement and the other Credit Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Company shall at such time deposit in
a cash collateral account opened by the Administrative Agent an amount equal
to the aggregate then undrawn and unexpired amount of such Letters of Credit.
Amounts held in such cash collateral account shall be applied by the
Administrative Agent to the payment of drafts drawn under such Letters of
Credit, and the unused portion thereof after all such Letters of Credit shall
have expired or been fully drawn upon, if any, shall be applied to repay other
obligations of the Company hereunder and under the Notes. After all such
Letters of Credit shall have expired or been fully drawn upon, all
Reimbursement Obligations shall have been satisfied and all other obligations
of the Company hereunder and under the Notes then due and payable shall have
been paid in full, the balance, if any, in such cash collateral account shall
be returned to the Company. The Company hereby grants to the Administrative
Agent, for the ratable benefit of the Lenders, as collateral security for the
payment in full of the Payment Obligations, a security interest in all amounts
from time to time held in the cash collateral account maintained pursuant to
this paragraph.
Except as expressly provided above in this Section 9,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived to the maximum extent permitted by applicable law.
SECTION 10. THE ADMINISTRATIVE AGENT
10.1 Appointment. Each Lender hereby irrevocably designates
and appoints The Chase Manhattan Bank (and each successor thereto which is
appointed in accordance with the provisions of subsection 10.9) as the
Administrative Agent under the Credit Documents and hereby irrevocably
authorizes The Chase Manhattan Bank (and any such successors thereto), as the
Administrative Agent for such Lender, to take such action, in the
Administrative Agent's discretion, on such Lender's behalf under the
provisions of the Credit Documents and to exercise such powers and perform
such duties as are expressly delegated to the Administrative Agent by the
terms of the Credit Documents, together with such other powers as are
reasonably incidental thereto. The Chase Manhattan Bank hereby accepts its
appointment as the Administrative Agent and the authorization set forth above.
Notwithstanding any provision to the contrary in the Credit Documents, the
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74
Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth in the Credit Documents, nor any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into the
Credit Documents or otherwise exist against the Administrative Agent in such
capacity.
10.2 Delegation of Duties. The Administrative Agent may
execute any of its duties under the Credit Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Administrative Agent shall not be
responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions. Neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates shall be (a) liable to any of the Lenders for any action
lawfully taken or omitted to be taken by it or such Person under or in
connection with the Credit Documents (except for its or such Person's own
gross negligence or willful misconduct) or (b) responsible in any manner to
any of the Lenders for any recitals, statements, representations or warranties
made by the Company or any officer thereof contained in the Credit Documents
or in any certificate, report, statement or other document referred to or
provided for in, or received by it under or in connection with, the Credit
Documents or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of the Credit Documents (other than with respect
to its own due execution and delivery thereof) or the perfection of any
security interest contemplated thereby or for any failure of any party thereto
(other than the Administrative Agent in such capacity) to perform its
obligations thereunder. The Administrative Agent shall not be under any
obligation to any Lender to ascertain or to inquire as to the observance or
performance of any of the agreements contained in, or conditions of, the
Credit Documents, or to inspect the properties, books or records of any party
to any thereof.
10.4 Reliance by the Administrative Agent. The
Administrative Agent shall be entitled to rely, and shall be fully protected
in relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company), independent accountants and other experts
selected by the Administrative Agent. The Administrative Agent may deem and
treat the payee of any Note or on account of any Loan as the owner thereof for
all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have
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been filed with the Administrative Agent (in its capacity as such). The
Administrative Agent shall be fully justified in failing or refusing to take
any action under any Credit Document unless it shall have received such advice
or concurrence of the Required Lenders as it deems appropriate or it shall
have been expressly indemnified to its satisfaction by the Lenders or, at its
option, the Required Lenders against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such
action (except that no such indemnification need include any indemnification
for any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting solely from the
gross negligence or willful misconduct of the Administrative Agent). Each of
the Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall in all cases be fully protected in
acting, or in refraining from acting, under the Credit Documents upon advice
of counsel or in accordance with a request of the Required Lenders (except in
cases in which a greater number of Lenders is required, in which case the
Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall in all cases be fully protected in
acting, or in refraining from acting, under the Credit Documents in accordance
with a request of such Lenders), and such request, and any action taken or
failure to act pursuant thereto, shall be binding upon all the Lenders and all
future holders of the Loans and the Notes.
10.5 Notice of Default. The Administrative Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or
Event of Default unless, the Administrative Agent has received notice from a
Lender or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Administrative Agent receives any such notice, it shall
promptly give notice thereof to the Lenders. The Administrative Agent shall
take such action with respect to any Default or Event of Default as shall be
reasonably directed by the Required Lenders, provided that, unless and until
the Administrative Agent shall have received any such directions, it may (but
shall not be obligated to) take such action (other than any such action under
clause (y) of Section 9), or refrain from taking such action, with respect to
such Default or Event of Default as it shall deem advisable in the best
interests of the Lenders.
10.6 Non-Reliance on the Administrative Agent and the Other
Lenders. Each Lender expressly acknowledges that neither the Administrative
Agent nor any of its officers, directors, employees, agents, attorneys-in-fact
or affiliates has made any representations or warranties to it and that no act
by it hereinafter taken, including any review of the affairs of the Company or
any Subsidiary or any Affiliate of any of the foregoing, shall be deemed to
constitute any representation or warranty by the Administrative Agent to any
Lender. Each Lender represents to the Administrative Agent that it has or
will, independently and without reliance upon the Administrative Agent or any
other
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76
Lender, and based on such documents and information as it has deemed or
will deem appropriate, made and will make its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Company and its Subsidiaries and
Affiliates and made and will make its own decision to make its Loans and enter
into the Credit Documents to which it is or will be a party. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
the Credit Documents, and to make such investigation as it deems necessary to
inform itself as to the business, operations, property, financial and other
condition and creditworthiness of the Company and its Subsidiaries and
Affiliates. Each Lender acknowledges that no action on the part of the
Administrative Agent shall relieve such Lender from performing its own credit
analysis and making its own determination prior to, and from time to time
after, its entering into this Agreement with respect to the nature of the
transaction contemplated hereby and assuming any risks or disadvantages to it
that may arise out of any such determination. Except for notices, reports and
other documents expressly required to be furnished to the Lenders, or
obtained, by the Administrative Agent, under the Credit Documents, the
Administrative Agent in such capacity shall have no duty or responsibility to
provide any Lender with any credit or other information concerning the
business, operations, property, financial and other condition or
creditworthiness of the Company and its Subsidiaries and Affiliates which may
come into its possession or the possession of any of its officers, directors,
employees, agents, attorneys-in-fact or affiliates.
10.7 Indemnification. The Lenders agree to indemnify the
Administrative Agent (in its capacity as such) and its officers, directors,
employees, agents, attorneys-in-fact or affiliates, to the extent not
reimbursed by the Company and without limiting the obligation of the Company
to do so, ratably according to the respective amounts of their pro rata shares
of the Aggregate Commitment in effect on the date upon which indemnity is
sought, from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or
disbursements of any kind whatsoever (including, without limitation, legal
fees and disbursements) which may at any time (including, without limitation,
at any time following the payment of the Loans or the Notes) be imposed on,
incurred by or asserted against the Administrative Agent, in such capacity, in
any way relating to or arising out of the Credit Documents, or any documents
contemplated by or referred to therein or the transactions contemplated
thereby or any action taken or omitted by the Administrative Agent, in such
capacity, thereunder or in connection therewith, provided that no Lender shall
be liable for the payment of any portion of such liabilities, obligations,
losses, damages,
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77
penalties, actions, judgments, suits, costs, expenses or disbursements
resulting from the gross negligence or willful misconduct of the
Administrative Agent, in such capacity, or, in the case of a claim against the
Administrative Agent, in such capacity, arising from a lawsuit against the
Administrative Agent if such Lender was not given notice of said lawsuit and
an opportunity to participate in the defense thereof at its own expense. The
agreements in this subsection 10.7 shall survive the payment of the Loans, the
Notes, and all other amounts payable hereunder.
10.8 The Administrative Agent in Its Individual Capacity.
The Administrative Agent and its Affiliates may make loans to, accept deposits
from and generally engage in any kind of business with Holdings and any of its
Subsidiaries or Affiliates as though it were not the Administrative Agent.
With respect to its Loans and any Notes or other promissory note issued to it,
the Administrative Agent shall have the same rights and powers under this
Agreement as any Lender and may exercise the same as though it were not the
Administrative Agent, and the terms "Lender" and "Lenders" shall include the
Administrative Agent in its individual capacity.
10.9 Successor Administrative Agent. The Administrative
Agent may resign as the Administrative Agent upon 30 days' notice to the
Lenders and the Company. If it shall resign as Administrative Agent, then the
Required Lenders shall appoint from among the Lenders a successor
Administrative Agent for the Lenders, which successor Administrative Agent
shall be approved by the Company, such approval not to be unreasonably
withheld (or, if the Required Lenders and the Company are unable to select
such successor Administrative Agent within such 30-day period, a successor
Administrative Agent shall be selected by the Administrative Agent), whereupon
such successor agent shall succeed to the rights, powers and duties of the
resigning Administrative Agent under all of the Credit Documents, and the term
"Administrative Agent" shall mean such successor Administrative Agent
effective upon its appointment, and the former Administrative Agent's rights,
powers and duties as the Administrative Agent shall be terminated, without any
other or further act or deed on the part of such former Administrative Agent
or any of the parties to this Agreement or any holders of the Loans or the
Notes. After any retiring Administrative Agent's resignation hereunder or as
Administrative Agent, as the case may be, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be taken by
it while it was the Administrative Agent under the Credit Documents.
10.10 Issuing Lender as Issuer of Letters of Credit. Each
Lender hereby acknowledges and agrees that the provisions of this Section 10
shall apply to the Issuing Lender, in its capacity as issuer of the Letters of
Credit, in the same manner as such provisions are expressly stated to apply to
the Administrative Agent.
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10.11 Documentation Agent. The Documentation Agent, in its
capacity as such, shall not have any duties or any responsibilities hereunder
nor any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or otherwise against the Documentation Agent in its
capacity as such.
10.12 Syndication Agent. The Syndication Agent, in its
capacity as such, shall not have any duties or any responsibilities hereunder
nor any fiduciary relationship with any Lender, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this agreement or otherwise against the Syndication Agent in its capacity
as such.
SECTION 11. MISCELLANEOUS
11.1 Amendments and Waivers. (a) Except as set forth in the
next succeeding sentence, the Administrative Agent, on the one hand and the
Company or the Guarantors, as the case may be, as party thereto, on the other
hand, may from time to time with the written consent of the Required Lenders
enter into written amendments, supplements or modifications for the purpose of
adding, deleting or modifying any provision of any Credit Document or changing
in any manner the rights, remedies, obligations and duties of the parties
thereto, and the Administrative Agent, on behalf of the Lenders, may, with the
written consent of the Required Lenders, execute and deliver a written
instrument waiving, on such terms and conditions as may be specified in such
instrument, any of the requirements applicable to the Company or Guarantors
party to any Credit Document, or any Default or Event of Default and its
consequences. No such waiver, amendment, supplement or modification shall:
(i) without the written consent of each Lender directly
affected thereby, extend the final scheduled maturity of any of the
Loans or the Notes or any scheduled installment thereof, or reduce
the rate or extend the time of payment of interest thereon, or reduce
the principal amount thereof, or change the amount or terms
(including, without limitation, fees and commissions) of any
Commitment, or consent to the assignment or transfer by the Company
of any of its rights and obligations under this Agreement, or reduce
the percentages specified in the definitions of "Required Lenders" in
subsection 1.1, or amend, modify or waive any provision of this
subsection 11.1;
(ii) without the written consent of Lenders holding 100% of
the Aggregate Commitment, take any action having the effect of
releasing any of the material guarantee obligations provided for in a
Guarantee, except as set forth therein or in subsection 11.9;
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(iii) without the prior written consent of the Issuing
Lender amend, supplement or otherwise modify Section 3 or any
provisions of or directly applicable to any Letter of Credit; or
(iv) without the written consent of the then Administrative
Agent and Issuing Lender, amend, modify or waive any provision of
Section 10.
Any such waiver and any such amendment, supplement or modification shall apply
equally to each of the Lenders and shall be binding upon the Lenders and all
future holders of any of the Loans and the Notes. In the case of such waiver,
the parties to the Credit Documents, the Lenders and the Administrative Agent
shall be restored to their former positions and rights hereunder and under the
Notes, and any Default or any Event of Default waived shall, to the extent
provided in such waiver, be deemed to be cured and not continuing; but, no
such waiver shall extend to any subsequent or other Default or Event of
Default, or impair any right consequent thereon. The Administrative Agent
shall, as soon as practicable, furnish a copy of each such amendment,
supplement, modification or waiver to each Lender.
(b) To the extent that the execution, delivery or
performance of any Credit Document constitutes a Default or an Event of
Default under (and as defined in) the Existing Credit Agreement, each Lender
hereunder which is a party to the Existing Credit Agreement hereby waives such
Default or Event of Default.
(c) To the extent that the existence or performance of any
Basic Document (as defined in the Existing Credit Agreement) constitutes a
Default or an Event of Default hereunder, each Lender hereunder hereby waives
such Default or Event of Default; provided that the Existing Credit Agreement
is terminated in the manner and at the time contemplated by subsection 6.1(h)
hereof.
(d) Each Lender hereby agrees that any Security Document
under (and as defined in) the Existing Credit Agreement, and any financing
statement or similar filing on account thereof, which remains in effect after
the date hereof shall be deemed not to constitute a "Lien" for purposes of
this Agreement; provided that such Security Documents are terminated in the
manner and at the time contemplated by subsection 6.1(i) hereof and the
Company shall use best efforts to terminate or cause to be terminated such
filings upon the termination of the Existing Credit Agreement.
11.2 Notices. All notices, consents, requests and demands to
or upon the respective parties hereto to be effective shall be in writing and,
unless otherwise expressly provided herein, shall be deemed to have been duly
given or made when delivered by hand, or three Business Days after being
deposited
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in the mail, certified mail, return receipt requested, postage
prepaid, or, in the case of telecopy notice, when sent, addressed as follows
in the case of the Company, the Administrative Agent and the Issuing Lender,
and as set forth in Schedule 1.1(A) hereto in the case of each of the other
parties hereto, or to such address or other address as may be hereafter
notified by any of the respective parties hereto or any future holders of the
Loans or the Notes:
The Company: Consolidated Cigar Corporation
5900 North Andrews Avenue, Suite 700
Fort Lauderdale, Florida 33309
Attention: Gary R. Ellis - Senior Vice
President and Chief Financial
Officer
Telecopy: (954) 938-7835
The Administrative Agent
and Issuing Lender: The Chase Manhattan Bank
270 Park Avenue
New York, New York 10017
Attention: Neil R. Boylan
Telecopy: (212) 972-0009
with a copy to: The Chase Manhattan Bank Agency
Services Corporation
Chase Manhattan Plaza
New York, New York 10081
Attention: Sandra Miklave
Telecopy: (212) 552-5658
provided that any notice, request or demand to or upon the Administrative
Agent or the Issuing Lender pursuant to Sections 2, 3 and 4 shall not be
effective until received.
11.3 No Waiver; Cumulative Remedies. No failure to exercise
and no delay in exercising, on the part of the Administrative Agent or any
Lender, any right, remedy, power or privilege hereunder, shall operate as a
waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not
exclusive of any rights, remedies, powers and privileges provided by law.
11.4 Survival of Representations and Warranties. All
representations and warranties made hereunder and in any document, certificate
or statement delivered pursuant hereto or in connection herewith
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shall survive the execution and delivery of this Agreement and the Notes.
11.5 Payment of Expenses and Taxes. The Company agrees (a)
to pay or reimburse the Administrative Agent for all of its reasonable
out-of-pocket costs and expenses incurred in connection with the preparation,
execution and delivery of, and any amendment, supplement or modification to,
any Credit Document and any other documents prepared in connection herewith,
and the consummation of the transactions contemplated hereby and thereby
(including, without limitation, the fees and disbursements of counsel to the
Administrative Agent, but not including any fees and expenses of counsel to
the Lenders), (b) to pay or reimburse each Lender, the Issuing Lender and the
Administrative Agent for all its reasonable costs and expenses incurred in
connection with the enforcement or preservation of any rights under the Credit
Documents and any such other documents, including, without limitation, fees
and disbursements of counsel to the Administrative Agent, the Issuing Lender
and to the Lenders, (c) to pay, indemnify, and to hold each Lender, the
Issuing Lender and the Administrative Agent harmless from, any and all
recording and filing fees and any and all liabilities with respect to, or
resulting from any delay in paying, stamp, excise and other similar taxes, if
any, which may be payable or determined to be payable in connection with the
execution and delivery of, or consummation of any of the transactions
contemplated by, or any amendment, supplement or modification of, or any
waiver or consent under or in respect of, the Credit Documents and any such
other documents, and (d) to pay, indemnify, and hold each Lender, the Issuing
Lender, the Administrative Agent, the Documentation Agent, the Syndication
Agent, and the officers, directors, employees and agents thereof, harmless
from and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever with respect to the execution, delivery,
consummation, enforcement, performance and administration of the Credit
Documents and the use by the Company of the proceeds of the Loans and other
extensions of credit hereunder (all of the foregoing, collectively, the
"indemnified liabilities"), provided that the Company shall have no obligation
hereunder with respect to indemnified liabilities arising from (i) the gross
negligence or willful misconduct of any such Lender, the Issuing Lender or of
the Administrative Agent, (ii) legal proceedings commenced against any such
Lender, the Issuing Lender or against the Administrative Agent by any security
holder or creditor (other than the Company, its Subsidiaries and its
Affiliates) thereof arising out of and based upon rights afforded any such
security holder or creditor solely in its capacity as such, (iii) legal
proceedings commenced against any such Lender or the Issuing Lender by any
other Lender or by the Administrative Agent or (iv) amounts of the types
referred to in clauses (a) through (c) above except as provided therein. The
agreements in this subsection 11.5 shall survive repayment of the Loans and
the Notes and all other amounts payable hereunder.
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11.6 Successors and Assigns; Loan Participations. (a) This
Agreement shall be binding upon and inure to the benefit of the Company, the
Administrative Agent, the Lenders, all future holders of the Loans and the
Notes, and their respective successors and assigns, except that the Company
may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
(b) Any Lender may, in accordance with applicable law, at
any time sell to one or more banks or other entities ("Participants")
participating interests in any Loan owing to such Lender, any Note held by
such Lender, any Commitment of such Lender or any other interest of such
Lender hereunder or under any other Credit Document. In the event of any such
sale by a Lender of participating interests to a Participant, such Lender's
obligations under this Agreement to the other parties to this Agreement shall
remain unchanged, such Lender shall remain solely responsible for the
performance thereof, such Lender shall remain the holder of any such Loan or
Note for all purposes under this Agreement and the Company and the
Administrative Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement. The Company agrees that if amounts outstanding under this Agreement
and the Notes are due and unpaid, or shall have been declared or shall have
become due and payable upon the occurrence of an Event of Default, each
Participant shall be deemed to have the right of setoff in respect of its
participating interest in amounts owing under this Agreement and any Note to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement or any Note; provided that
such right of set-off shall be subject to the obligation of such Participant
to share with the Lenders, and the Lenders agree to share with such
Participant, as provided in subsection 11.7. The Company also agrees that each
Participant shall be entitled to the benefits of subsections 4.8, 4.9 and 11.5
with respect to its participation in the Loans and Commitments outstanding
from time to time; provided that no Participant shall be entitled to receive
any greater amount pursuant to such subsections than the transferor Lender
would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred. Notwithstanding anything to the contrary contained
herein, no Participant shall have any right to consent to any amendment,
supplement or other modification to this Agreement or the other Credit
Documents, other than any such amendment, supplement or other modification
which would (i) extend the final scheduled maturity of any of the Loans or the
Notes, (ii) reduce the rate or extend the time of payment of interest thereon,
or reduce the principal amount thereof, (iii) increase the amount of such
Participant's participating interest in the Loans or the Notes or (iv) except
in accordance with their terms, release any of the material guarantee
obligations provided for in any Guarantee.
<PAGE>
83
(c) Any Lender may, in accordance with applicable law:
(i) at any time sell all or any part of its rights
and obligations under this Agreement and any of the Loans or the
Notes and any other Credit Document to any Lender or any Affiliate
thereof; and
(ii) with the consent of the Company and the
Administrative Agent (which consent shall not be unreasonably
withheld) sell to one or more additional banks or financial
institutions ("Purchasing Lenders") which are not Lenders or
Affiliates thereof, all or any part of its rights and obligations
under this Agreement and the Loans and the Notes and any other Credit
Document, provided that, unless the Company and the Administrative
Agent otherwise consent (which consent shall not be unreasonably
withheld), each such sale pursuant to this clause (ii) shall be in an
amount of $5,000,000 or more;
provided that, after giving effect to such sale, if the transferor Lender
retains any Commitment hereunder, such Commitment shall, unless the Company
otherwise consents (which consent shall not be unreasonably withheld), be not
less than $5,000,000. Any such sale pursuant to clause (i) or (ii) shall be
made pursuant to an Assignment and Acceptance, substantially in the form of
Exhibit C (an "Assignment and Acceptance"), executed by the Administrative
Agent, such Purchasing Lender and such transferor Lender (and, in the case of
any such transfer which requires the Company's consent, by the Company), and
delivered to the Administrative Agent for its acceptance and recording in the
Register (as defined below). Upon such execution, delivery, acceptance and
recording, from and after the effective date set forth in such Assignment and
Acceptance, (x) the Assignee thereunder (and as defined therein) shall be a
party hereto and, to the extent provided in such Assignment and Acceptance,
have the rights and obligations of a Lender hereunder with Commitments as set
forth therein, and (y) the Assignor thereunder (and as defined therein) shall,
to the extent of the interest transferred, as reflected in such Assignment and
Acceptance, be released from its obligations under this Agreement and the
other Credit Documents (and, in the case of an Assignment and Acceptance
covering all or the remaining portion of an Assignor's rights and obligations
under this Agreement and the other Credit Documents, such Assignor shall cease
to be a party hereto). Such Assignment and Acceptance shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Assignee and the resulting adjustment of the relevant
Commitment Percentages arising from the purchase by such Assignee of all or a
portion of the rights and obligations of such Assignor under this Agreement
and the Loans and the Notes. On or prior to the effective date of such
Assignment and Acceptance, the Company (at its own expense and upon the
request of such Assignee or the Assignor) shall execute and deliver to the
<PAGE>
84
Administrative Agent in exchange for any surrendered Note a new Note to the
order of such Assignee in an amount equal to the relevant Commitment assumed
by it pursuant to such Assignment and Acceptance and, if the Assignor has
retained such a Commitment hereunder (and has previously requested a Note
evidencing its Loans thereunder), a new Note to the order of the Assignor in
an amount equal to the relevant Commitment retained by it hereunder. Any such
new Note shall be dated the date of the original Note and shall otherwise be
in the form of the Note replaced thereby. Any Note surrendered by the Assignor
shall be returned by the Administrative Agent to the Company marked
"canceled."
(d) The Administrative Agent shall maintain at its address
referred to in subsection 11.2 a copy of each Assignment and Acceptance
delivered to it and a register (the "Register") for the recordation of the
names and addresses of the Lenders and the Commitments and Commitment
Percentages of the Loans owing to each Lender from time to time. The entries
in the Register shall be conclusive, in the absence of manifest error, and the
Company, the Administrative Agent and the Lenders may treat each
Person whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The Register shall be
available for inspection by the Company or any Lender at any reasonable time
and from time to time upon reasonable prior notice.
(e) Upon its receipt of an Assignment and Acceptance
executed by an Assignor and an Assignee (and, in the case of any transfer
which requires the Company's consent, by the Company and the Administrative
Agent), together with payment to the Administrative Agent of a registration
and processing fee of $3,500 ($1,000 if the Purchasing Lender is then a Lender
or an Affiliate thereof), the Administrative Agent shall (i) promptly accept
such Assignment and Acceptance and (ii) on the effective date thereof record
the information contained therein in the Register and give notice of such
acceptance and recordation to the Lenders and the Company.
(f) The Company authorizes each Lender to disclose to any
Participant or Assignee (each, a "Transferee") and any prospective Transferee
any and all financial information in such Lender's possession concerning
Holdings, the Company and its Subsidiaries which has been delivered to such
Lender by or on behalf of the Company pursuant to this Agreement or any other
Credit Document, or which has been delivered to such Lender by or on behalf of
the Company in connection with such Lender's credit evaluation of the Company,
its Subsidiaries and its Affiliates prior to becoming a party to this
Agreement; provided that such Transferee or potential Transferee agrees to
take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information provided to it concerning the Company or
any of its Subsidiaries.
<PAGE>
85
(g) Unless the Company shall otherwise consent, if, pursuant
to this subsection 11.6, any interest in this Agreement or any Loan or Note is
transferred to any Transferee (which, for purposes of this subsection 11.6(g),
shall include an Affiliate of a Lender to which a sale is made pursuant to
subsection 11.6(c)(i)) which is organized under the laws of any jurisdiction
other than the United States or any State thereof, the transferor Lender shall
cause such Transferee, concurrently with the effectiveness of such transfer,
(i) to represent to the transferor Lender (for the benefit of the transferor
Lender, the Administrative Agent, and the Company) that under applicable law
and treaties at the time in effect no taxes will be required to be withheld by
the Administrative Agent, the Company or the transferor Lender with respect to
any payments to be made to such Transferee in respect of the Loans under this
Agreement, (ii) to furnish to the transferor Lender (and, in the case of any
Purchasing Lender registered in the Register, the Administrative Agent and the
Company) either United States Internal Revenue Service Form 4224 or United
States Internal Revenue Service Form 1001 or any successor applicable form, as
the case may be (wherein such Transferee claims entitlement to complete
exemption from United States federal withholding tax on all interest payments
hereunder) and (iii) to agree (for the benefit of the transferor Lender, the
Administrative Agent and the Company) to be bound by the provisions of
subsections 4.10(b), (c) and (d) as if such Transferee were a Lender
hereunder.
(h) For avoidance of doubt, the parties to this Agreement
acknowledge that the provisions of this subsection 11.6 concerning assignments
of Loans and Notes relate only to absolute assignments and that such
provisions do not prohibit assignments creating security interests, including,
without limitation, any pledge or assignment by a Lender of any Loan or Note
to any Federal Reserve Bank in accordance with applicable law.
11.7 Adjustments; Set-off. (a) If any Lender (a "Benefitted
Lender") shall at any time receive any payment of all or part of any of the
Loans or Reimbursement Obligations owing to it, or interest thereon, pursuant
to a guarantee or otherwise, or receive any collateral in respect thereof
(whether voluntarily or involuntarily, by set-off or otherwise), in a greater
proportion than any such payment to and collateral received by any other
Lender, if any, in respect of such other Lender's Loans or Reimbursement
Obligations, as the case may be, owing to it or interest thereon, such
Benefitted Lender shall purchase for cash from the other Lenders such portion
of each such other Lender's Loans or Reimbursement Obligations, as the case
may be, owing to such other Lender, or shall provide such other Lenders with
the benefits of any such collateral, or the proceeds thereof, as shall be
necessary to cause such Benefitted Lender to share the excess payment or
benefits of such collateral or proceeds ratably with each of the Lenders;
provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such
<PAGE>
86
Benefitted Lender, such purchase shall be rescinded, and the purchase price
and benefits returned, to the extent of such recovery, but without interest.
The Company agrees that each Lender so purchasing a portion of another
Lender's Loans or Reimbursement Obligations may exercise all rights of payment
(including, without limitation, rights of set-off) with respect to such
portion as fully as if such purchasing Lender were the direct holder of such
portion.
(b) In addition to any rights and remedies of the Lenders
provided by law, upon both the occurrence of an Event of Default and
acceleration of the obligations owing in connection with this Agreement, each
Lender shall have the right, without prior notice to the Company, any such
notice being expressly waived to the extent permitted by applicable law, to
set off and apply against any indebtedness, whether matured or unmatured, of
the Company to such or any other Lender, any amount owing from such Lender to
the Company at, or at any time after, the happening of both of the above
mentioned events, and such right of set-off may be exercised by such Lender
against the Company or against any trustee in bankruptcy, debtor in
possession, assignee for the benefit of creditors, receiver, custodian or
execution, judgment or attachment creditor of the Company, or against anyone
else claiming through or against the Company or such trustee in bankruptcy,
debtor in possession, assignee for the benefit of creditors, receivers or
execution, judgment or attachment creditor, notwithstanding the fact that such
right of set-off shall not have been exercised by such Lender prior to the
making, filing or issuance of, or service upon such Lender of, or of notice
of, any such petition, assignment for the benefit of creditors, appointment or
application for the appointment of a receiver, or issuance of execution,
subpoena, order or warrant. Each Lender agrees promptly to notify the Company
and the Administrative Agent after any such set-off and application made by
such Lender, provided that the failure to give such notice shall not affect
the validity of such set-off and application.
11.8 Severability. 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 invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
11.9 Releases of Guarantee Obligations. Notwithstanding
anything to the contrary contained herein or in any Guarantee, upon request of
the Company, the Administrative Agent shall (without any notice to or vote or
consent of any Lender) take action having the effect of releasing any
guarantee obligations provided for in any Guarantee to the extent necessary to
permit the consummation of any transactions not prohibited hereunder by the
relevant Person in accordance with the provisions of this Agreement and the
other Credit Documents.
<PAGE>
87
11.10 Effectiveness; Counterparts. This Agreement shall
become binding upon the parties hereto when the Administrative Agent shall
have received one or more counterparts of this Agreement, executed by a duly
authorized officer of each party hereto or, in the case of any Lender, telex
or telecopier confirmation to the Administrative Agent that a duly authorized
officer of such Lender has executed a counterpart of this Agreement and that
such counterpart has been sent to the Administrative Agent. This Agreement may
be executed by one or more of the parties to this Agreement on any number of
separate counterparts and all of said counterparts taken together shall be
deemed to constitute one and the same instrument. A set of the copies of this
Agreement signed by all the parties shall be lodged with the Company and the
Administrative Agent.
11.11 SUBMISSION TO JURISDICTION; WAIVERS.
(a) THE COMPANY HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY
LEGAL ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER
CREDIT DOCUMENT TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING
MAY BE BROUGHT IN SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY
OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH
ACTION OR PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR
PROCEEDING WAS BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO
PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH
ACTION OR PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY
REGISTERED OR CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF
MAIL), POSTAGE PREPAID, TO IT AT ITS ADDRESS SET FORTH IN SUBSECTION
11.2 OR AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL
HAVE BEEN NOTIFIED PURSUANT THERETO; AND
<PAGE>
88
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE
RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION.
(b) EACH OF THE COMPANY, THE ADMINISTRATIVE AGENT, THE
ISSUING LENDER AND THE LENDERS HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES
TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A)
ABOVE.
11.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
<PAGE>
89
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered in New York, New York by their
proper and duly authorized officers as of the day and year first above
written.
CONSOLIDATED CIGAR CORPORATION
By: /s/ Gary R. Ellis
---------------------------------------
Title: Senior Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent, as Issuing Lender,
and as a Lender
By: /s/ Neil R. Boylan
---------------------------------------
Title: Vice President
NATIONSBANK, N.A., as
Documentation Agent and as a Lender
By: /s/ Robert Wilson
---------------------------------------
Title: Vice President
CREDIT SUISSE FIRST BOSTON,
as Syndication Agent and as a Lender
By: /s/ Joel Glodowski
---------------------------------------
Title: Managing Director
By: /s/ Daniel R. Wenger
---------------------------------------
Title: Associate
<PAGE>
Annex A
<PAGE>
HOLDINGS GUARANTEE
GUARANTEE, dated as of March 2, 1998, made by CONSOLIDATED
CIGAR HOLDINGS INC., a Delaware corporation (the "Guarantor"), in favor of THE
CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"Administrative Agent") for the financial institutions (the "Lenders") from
time to time parties to the Credit Agreement, dated as of the date hereof (as
amended, supplemented or otherwise modified from time to time, the "Credit
Agreement"), among Consolidated Cigar Corporation, a Delaware corporation (the
"Company"), the Lenders, the Arranger, the Administrative Agent, the
Documentation Agent, and the Syndication Agent (the Lenders and the
Administrative Agent, collectively, the "Benefitted Parties").
W I T N E S S E T H :
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make loans and other extensions of credit to the Company
upon the terms and subject to the conditions set forth therein; and
WHEREAS, it is a condition precedent to the obligation of
the Lenders to make their respective loans and other extensions of credit to
the Company under the Credit Agreement that the Guarantor shall have executed
and delivered this Guarantee to the Administrative Agent, for the benefit of
the Benefitted Parties;
NOW, THEREFORE, in consideration of the premises and to
induce the Benefitted Parties to enter into the Credit Agreement and to induce
the Lenders to make their respective loans and other extensions of credit to
the Company under the Credit Agreement, the Guarantor hereby agrees with the
Administrative Agent as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms
which are defined in the Credit Agreement and used herein are so used as so
defined and the following terms shall have the following meanings:
"Obligations" shall mean the Payment Obligations and all
obligations (including, without limitation, principal, interest,
fees, expenses, costs and indemnities) owing by the Company under
each Rate Hedging Agreement with a Lender or an Affiliate thereof.
"Termination Date" shall mean (subject to reinstatement
pursuant to Section 7) the earlier of (i) the date upon which all
Guarantors have been released by the Administrative Agent from their
respective guarantee obligations hereunder in accordance with the
terms of the Credit Agreement and (ii) the date upon which the
Obligations have been Fully Satisfied.
(b) The words "hereof," "herein" and "hereunder" and words
of similar import when used in this Guarantee shall refer to this Guarantee as
a whole and not to any particular
<PAGE>
2
provision of this Guarantee, and section and paragraph references are to this
Guarantee unless otherwise specified.
(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.
2. Guarantee. (a) The Guarantor hereby unconditionally and
irrevocably guarantees to the Administrative Agent, for the benefit of the
Benefitted Parties and their respective successors, indorsees, transferees and
assigns, the prompt and complete payment and performance by the Company when
due (whether at the stated maturity, by acceleration or otherwise) of the
Obligations (including, in any event, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding relating to the Company whether
or not a claim for post-filing or post-petition interest is allowed in such
proceeding). The Guarantor further agrees to pay any and all reasonable and
documented fees, charges and expenses (including, without limitation, all
reasonable and documented fees and disbursements of counsel) which may be paid
or incurred by any Benefitted Party in enforcing, or obtaining advice of
counsel in connection with the enforcement of, any of their rights under this
Guarantee to which it is a party. Without limiting the generality of the
foregoing, the Guarantor's liability shall extend to all amounts that
constitute part of the Obligations and would be owed by the Company but for
the fact that they are unenforceable or not allowable due to the existence of
a bankruptcy. This Guarantee shall remain in full force and effect until the
Termination Date, notwithstanding that from time to time prior thereto the
Company may be free from any Obligations. This Guarantee shall terminate on
the Termination Date. The provisions of the second and third sentences of this
paragraph (a) shall survive the termination of this Guarantee and the payment
in full of the Obligations and the termination of the Commitments.
(b) The Guarantor agrees that whenever, at any time, or from
time to time, it shall make any payment to a Benefitted Party on account of
its liability hereunder, it will notify such Benefitted Party (with a copy to
the Administrative Agent) in writing that such payment is made under this
Guarantee for such purpose. No payment or payments made by the Company or any
other Person or received or collected by any Benefitted Party from the Company
or any other Person by virtue of any action or proceeding or any set-off or
appropriation or application, at any time or from time to time, in reduction
of or in payment of the Obligations shall be deemed to modify, reduce, release
or otherwise affect the liability of the Guarantor hereunder which shall
remain obligated hereunder, notwithstanding any such payment or payments
(other than payments made by, or collected or received from, the Guarantor in
respect of the Obligations), until the Termination Date. By its acceptance of
the benefits hereof, each Benefitted Party agrees to make demand for payment
from the Guarantor on account of this Guarantee through the Administrative
Agent, not to take any action to enforce this Guarantee (other than actions
contemplated by Section 3) without the consent of the Administrative Agent and
to notify the Administrative Agent in writing of any payments received by such
Benefitted Party from any Person other than the Administrative Agent
(including, without limitation, by the exercise of any right of set-off)
pursuant to this Guarantee.
(c) All payments made by the Guarantor hereunder shall be
made, in accordance
<PAGE>
3
with subsection 4.10 of the Credit Agreement, free and clear of, and without
reduction for or on account of, any present or future Taxes. If any Taxes are
required to be withheld from or in respect of any amounts payable to any
Benefitted Party hereunder, (i) the amounts so payable to such Benefitted
Party shall be increased to the extent necessary to yield to such Benefitted
Party (after payment of all Taxes) such amounts equal to the amounts it would
have received had no such withholding been made, (ii) the Guarantor shall make
such withholding and (iii) the Guarantor shall pay the full amount of the
Taxes to the relevant taxation authority or other authority in accordance with
applicable law. If the Guarantor fails to pay any Taxes when due to the
appropriate taxing authority or fails to remit to the Administrative Agent the
required receipts or other required documentary evidence, the Guarantor shall
indemnify each Benefitted Party for any incremental taxes, interest or
penalties that may become payable by such Benefitted Party as a result of any
such failure. The provisions of this paragraph shall survive the termination
of this Guarantee and the payment in full of the Obligations and the
termination of the Commitments.
3. Right of Set-off. During any period in which an Event of
Default shall have occurred and be continuing, each Benefitted Party is hereby
irrevocably authorized by the Guarantor at any time and from time to time
without notice to the Guarantor, any such notice being hereby waived by the
Guarantor, to set off and appropriate and apply any and all deposits (general
or special, time or demand, provisional or final), in any currency, and any
other credits, indebtedness or claims, in any currency, in each case whether
direct or indirect, absolute or contingent, matured or unmatured, at any time
held or owing by such Benefitted Party to or for the credit or the account of
the Guarantor, or any part thereof in such amounts as such Benefitted Party
may elect, on account of the liabilities of the Guarantor hereunder and claims
of every nature and description of such Benefitted Party against the
Guarantor, in any currency, whether arising hereunder, under the Credit
Agreement, the Loans, the Notes, the Applications, the Letters of Credit or
any other Credit Document, as such Benefitted Party may elect, whether or not
such Benefitted Party has made any demand for payment and although such
liabilities and claims may be contingent or unmatured. Each Benefitted Party
shall notify the Guarantor promptly of any such set-off made by it and the
application made by it of the proceeds thereof; provided that the failure to
give such notice shall not affect the validity of such set-off and
application. The rights of each Benefitted Party under this Section are in
addition to other rights and remedies (including, without limitation, other
rights of set-off) which such Benefitted Party may have.
4. No Subrogation. Notwithstanding any payment or payments
made by the Guarantor hereunder or any set-off or application of funds of the
Guarantor by any Benefitted Party, the Guarantor shall not be entitled to be
subrogated to any of the rights of any Benefitted Party against the Company or
any other guarantor or any collateral security or guarantee or right of offset
held by any Benefitted Party for the payment of the Obligations, nor shall the
Guarantor seek or be entitled to seek any contribution or reimbursement from
the Company or any other guarantor in respect of payments made by the
Guarantor hereunder, until all amounts owing to the Benefitted Parties by the
Company on account of the Obligations are Fully Satisfied. If any amount shall
be paid to the Guarantor on account of such subrogation rights at any time
when all of the Obligations shall not have been Fully Satisfied, such amount
shall be held by the Guarantor in trust for the Administrative Agent (on
behalf of the Benefitted Parties), segregated from other funds of the
Guarantor, and shall, forthwith upon receipt by the Guarantor, be turned
<PAGE>
4
over to the Administrative Agent (on behalf of the Benefitted Parties) in the
exact form received by the Guarantor (duly indorsed by the Guarantor to the
Administrative Agent, if required), to be applied against the Obligations,
whether matured or unmatured, in such order as the Administrative Agent may
determine.
5. Amendments, etc. with respect to the Obligations. The
Guarantor shall remain obligated hereunder notwithstanding that, without any
reservation of rights against the Guarantor, and without notice to or further
assent by the Guarantor, any demand for payment of any of the Obligations made
by any Benefitted Party may be rescinded by such Benefitted Party, and any of
the Obligations continued, and the Obligations, or the liability of any other
party upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by any Benefitted Party, and the
Credit Agreement, any Notes, any Application, any Letter of Credit, any other
Credit Document and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Lenders may deem advisable from time to time and in accordance
with the Credit Agreement, and any collateral security, guarantee or right of
offset at any time held by any Benefitted Party for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. No
Benefitted Party, nor any other holder of Obligations, shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by
it as security for the Obligations or for this Guarantee or any property
subject thereto.
6. Guarantee Absolute and Unconditional. The Guarantor
waives any and all notice of the creation, renewal, extension or accrual of
any of the Obligations and notice of or proof of reliance by any Benefitted
Party upon this Guarantee or acceptance of this Guarantee; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived in reliance upon this
Guarantee; and all dealings between the Company or the Guarantor, on the one
hand, and the Benefitted Parties, on the other, shall likewise be conclusively
presumed to have been had or consummated in reliance upon this Guarantee. The
Guarantor waives diligence, presentment, protest, demand for payment and
notice of default or nonpayment to or upon the Company or the Guarantor with
respect to the Obligations. This Guarantee shall be construed as a continuing,
absolute and unconditional guarantee of payment without regard to (a) the
validity or enforceability of the Credit Agreement, any Note, any Application,
any Letter of Credit, any other Credit Document or any of the documents
executed in connection therewith, any of the Obligations or any collateral
security therefor or guarantee or right of offset with respect thereto at any
time or from time to time held by any Benefitted Party, (b) any defense
(including, without limitation, any statute of limitations), set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Company against any Benefitted
Party, (c) any change in the time, manner or place of any application of
collateral security, or proceeds thereof, to all or any of the Obligations, or
any manner of sale or other disposition of any collateral security for all or
any of the Obligations or any other assets of the Company or any of its
Subsidiaries, (d) any change, restructuring or termination of the corporate
structure or existence of the Company or any of its Subsidiaries, or (e) any
other circumstance whatsoever (with or without notice to or knowledge of the
Company or the Guarantor) which constitutes, or might be construed to
constitute, an equitable or legal discharge of the Company for the
<PAGE>
5
Obligations, or of the Guarantor under this Guarantee, in bankruptcy or in any
other instance. When any Benefitted Party is pursuing its rights and remedies
hereunder against the Guarantor, such Benefitted Party may, but shall be under
no obligation to, pursue such rights and remedies as it may have against the
Company or any other Person or against any collateral security or guarantee
for the Obligations or any right of offset with respect thereto, and any
failure by such Benefitted Party to pursue such other rights or remedies or to
collect any payments from the Company or any such other Person or to realize
upon any such collateral security or guarantee or to exercise any such right
of offset, or any release of the Company or any such other Person or of any
such collateral security, guarantee or right of offset, shall not relieve the
Guarantor of any liability hereunder, and shall not impair or affect the
rights and remedies, whether express, implied or available as a matter of law,
of the Benefitted Parties against the Guarantor.
7. Reinstatement. This Guarantee shall continue to be
effective, or be reinstated, as the case may be, if at any time payment, or
any part thereof, of any of the Obligations is rescinded or must otherwise be
restored or returned by any Benefitted Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Company or upon or as a
result of the appointment of a receiver, intervenor or conservator of, or
trustee or similar officer for, the Company or any substantial part of its
property, or otherwise, all as though such payments had not been made.
8. Payments. The Guarantor hereby agrees that amounts
payable by it under this Guarantee will be paid to the Administrative Agent
without set-off or counterclaim in U.S. Dollars at the office of the
Administrative Agent located at 270 Park Avenue, New York, New York 10017 or
at such other office as the Administrative Agent shall designate in writing to
the Guarantor.
9. Representations and Warranties. The Guarantor represents
and warrants that:
(a) the Guarantor is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of
its incorporation and has the corporate power and authority and the
legal right to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is
currently engaged;
(b) the Guarantor has the corporate power and authority and
the legal right to execute and deliver, and to perform its
obligations under, this Guarantee, and has taken all necessary
corporate action to authorize its execution, delivery and performance
of this Guarantee;
(c) this Guarantee constitutes a legal, valid and binding
obligation of the Guarantor enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement
of creditors' rights generally and by general equitable principles;
(d) the execution, delivery and performance of this
Guarantee will not violate any Contractual Obligation or material
Requirement of Law of the Guarantor and will not result in or require
the creation or imposition of any Lien on any of the material
properties or assets of the Guarantor pursuant to the provisions of
any Contractual
<PAGE>
6
Obligation of the Guarantor;
(e) no consent or authorization of, filing with, or other
act by or in respect of, any arbitrator or Governmental Authority and
no consent of any other Person (including, without limitation, any
stockholder or creditor of the Guarantor) is required in connection
with the execution, delivery, performance, validity or enforceability
of this Guarantee, except for such consents which have been obtained
prior to the date hereof and remain in full force and effect;
(f) no litigation, investigation or proceeding of or before
any arbitrator or Governmental Authority is pending or, to the
knowledge of the Guarantor, threatened against the Guarantor or
against any of its properties or assets (i) with respect to this
Guarantee or any of the transactions contemplated hereby or (ii)
which would be reasonably likely to have a material adverse effect on
the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Company and its
Subsidiaries taken as a whole;
(g) the Guarantor has good title to all its personal
properties and assets, and none of such property is subject to any
Lien of any nature whatsoever except Liens of a type permitted under
subsection 8.2 of the Credit Agreement;
(h) the Guarantor has filed or caused to be filed all
material tax returns, which to the knowledge of the Guarantor are
required to be filed by it, and has paid all taxes shown to be due
and payable on said returns or on any assessments made against it
(other than those being contested in good faith by appropriate
proceedings for which adequate reserves (in accordance with GAAP)
have been provided on its books);
(i) no Default or Event of Default has occurred and is
continuing on the date hereof and no Default or Event of Default will
occur as a result of consummation of the transactions contemplated
hereby.
The Guarantor agrees that the foregoing representations and
warranties shall be deemed to have been made by the Guarantor on the date of
each extension of credit under the Credit Agreement on and as of such date of
extension of credit as though made hereunder on and as of such date.
10. Covenants. The Guarantor hereby agrees that, until the
Termination Date, notwithstanding anything to the contrary in the Credit
Agreement or any other Credit Document, the Guarantor will not (a) conduct,
transact or otherwise engage in, or commit to conduct, transact or otherwise
engage in, any business or operations other than those incidental to its
ownership of the Capital Stock of the Company, (b) incur, create, assume or
suffer to exist any Indebtedness or other liabilities or financial
obligations, except (i) nonconsensual obligations imposed by operation of law,
(ii) pursuant to the Credit Documents to which it is a party, (iii)
obligations with respect to its Capital Stock, and (iv) obligations under the
Holdings Note, or (c) own, lease manage or otherwise operate any properties or
assets (other than cash and Cash Equivalents) other than the ownership of
shares of Capital Stock of the Company.
<PAGE>
7
11. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
12. Headings. The paragraph and section headings used in
this Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
13. No Waiver; Cumulative Remedies. Neither the
Administrative Agent nor any other holder of Obligations shall by any act
(except pursuant to Section 14 hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of any Benefitted Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by any Benefitted Party of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which it would
otherwise have on any future occasion. The rights and remedies herein provided
are cumulative, may be exercised singly or concurrently and are not exclusive
of any rights or remedies provided by law.
14. Waivers and Amendments; Successors and Assigns. None of
the terms or provisions of this Guarantee may be waived, amended, supplemented
or otherwise modified except by a written instrument executed by the Guarantor
and the Administrative Agent and otherwise in accordance with subsection 11.1
of the Credit Agreement. This Guarantee shall be binding upon the successors
and assigns of the Guarantor and shall inure to the benefit of the Benefitted
Parties and their respective successors and assigns.
15. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
16. Notices. Notices by the Administrative Agent to the
Guarantor may be given by mail or by facsimile transmission, addressed to the
Guarantor at its address or transmission number set forth under its signature
hereto and shall be effective (a) in the case of mail or hand delivery, upon
delivery and (b) in the case of facsimile transmissions, when sent. The
Guarantor may change its address and transmission numbers by written notice to
the Administrative Agent.
17. Authority of Administrative Agent. The Guarantor
acknowledges that the rights and responsibilities of the Administrative Agent
under this Guarantee with respect to any action taken by the Administrative
Agent or the exercise or non-exercise by the Administrative Agent of any
option, right, request, judgment or other right or remedy provided for herein
or resulting or arising out of this Guarantee shall, as between the Benefitted
Parties, be governed by the Credit Agreement, but, as between the
Administrative Agent and the Guarantor, the
<PAGE>
8
Administrative Agent shall be conclusively presumed to be acting with full and
valid authority so to act or refrain from acting, and the Guarantor shall not
be under any obligation, or entitlement, to make any inquiry respecting such
authority.
18. SUBMISSION TO JURISDICTION; WAIVERS. (a) THE GUARANTOR
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS GUARANTEE, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE BROUGHT
IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR HEREAFTER
HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY SUCH COURT
OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN INCONVENIENT
COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR
AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE
BEEN NOTIFIED PURSUANT TO SECTION 16 HEREOF;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO EFFECT
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR SHALL
LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY
RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
(b) THE GUARANTOR (AND BY ITS ACCEPTANCE HEREOF, EACH
BENEFITTED PARTY) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE.
<PAGE>
9
IN WITNESS WHEREOF, the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer as
of the date first above written.
CONSOLIDATED CIGAR HOLDINGS INC.
By: /s/ Gary R. Ellis
--------------------------------
Title: Senior Vice President
Address for Notices:
Consolidated Cigar Holdings, Inc.
c/o Consolidated Cigar Corporation
5900 North Andrews Avenue, Suite 700
Fort Lauderdale, FL 33309
<PAGE>
SUBSIDIARIES GUARANTEE
SUBSIDIARIES GUARANTEE, dated as of March 2, 1998, made by
the Domestic Subsidiaries of Consolidated Cigar Corporation, a Delaware
corporation (the "Company") named on the signature pages hereof or that shall
become a party to this agreement pursuant to subsection 8.16 of the Credit
Agreement referred to below (each a "Guarantor" and, collectively, the
"Guarantors") in favor of The Chase Manhattan Bank, as administrative agent
(in such capacity, the "Administrative Agent") for the financial institutions
(the "Lenders") from time to time parties to the Credit Agreement, dated the
date hereof (as amended, supplemented or otherwise modified from time to time,
the "Credit Agreement") among the Company, the Lenders, the Arranger, the
Administrative Agent, the Documentation Agent, and the Syndication Agent (the
Lenders and the Administrative Agent, collectively, the "Benefitted Parties").
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have
severally agreed to make loans and other extensions of credit to the Company
upon the terms and subject to the conditions set forth therein;
WHEREAS, each Guarantor is a Subsidiary of the Company;
WHEREAS, the Company and the Guarantors are engaged in
related businesses, and each Guarantor will derive substantial direct and
indirect benefit from the making of the extensions of credit; and
WHEREAS, it is a condition precedent to the obligation of
the Lenders to make their respective loans and other extensions of credit to
the Company under the Credit Agreement that the Guarantors shall have executed
and delivered this Guarantee to the Administrative Agent, for the benefit of
the Benefitted Parties;
NOW, THEREFORE, in consideration of the premises and to
induce the Benefitted Parties to enter into the Credit Agreement and to induce
the Lenders to make their respective loans and other extensions of credit to
the Company under the Credit Agreement, the Guarantors hereby agree with the
Administrative Agent as follows:
1. Defined Terms. (a) Unless otherwise defined herein, terms which
are defined in the Credit Agreement and used herein are so used as so defined
and the following terms shall have the following meanings:
"Obligations" shall mean the Payment Obligations and all
obligations (including, without limitation, principal, interest,
fees, expenses, costs and indemnities) owing by the
<PAGE>
2
Company under each Rate Hedging Agreement with a Lender or an
Affiliate thereof.
"Termination Date" shall mean (subject to reinstatement
pursuant to Section 8) the earlier of (i) the date upon which all
Guarantors have been released by the Administrative Agent from their
respective guarantee obligations hereunder in accordance with the
terms of the Credit Agreement and (ii) the date upon which the
Obligations have been Fully Satisfied.
(b) The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole
and not to any particular provision of this Guarantee, and section and
paragraph references are to this Guarantee unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
2. Guarantee (a) Subject to the provisions of paragraph 2(b), each of
the Guarantors hereby, jointly and severally, unconditionally and irrevocably,
guarantees to the Administrative Agent, for the benefit of the Benefitted
Parties and their respective successors, indorsees, transferees and assigns,
the prompt and complete payment and performance by the Company when due
(whether at the stated maturity, by acceleration or otherwise) of the
Obligations (including, in any event, interest accruing at the then applicable
rate provided in the Credit Agreement after the maturity of the Loans and
interest accruing at the then applicable rate provided in the Credit Agreement
after the filing of any petition in bankruptcy, or the commencement of any
insolvency, reorganization or like proceeding, relating to the Company whether
or not a claim for post-petition interest is allowed in such proceeding).
(b) Anything herein or in any other Credit Document to the contrary
notwithstanding, the maximum liability of each Guarantor hereunder and under
the other Credit Documents shall in no event exceed the amount which can be
guaranteed by such Guarantor under applicable federal and state laws relating
to the insolvency of debtors.
(c) Each Guarantor further agrees to pay any and all reasonable and
documented fees, charges and expenses (including, without limitation, all
reasonable and documented fees and disbursements of counsel) which may be paid
or incurred by the Administrative Agent or any Benefitted Party in enforcing,
or obtaining advice of counsel in connection with the enforcement of, any of
their rights under this Guarantee to which such Guarantor is a party. Without
limiting the generality of the foregoing, each Guarantor's liability shall
extend to all amounts that constitute part of the Obligations and would be
owed by the Company but for the fact that they are unenforceable or not
allowable due to the existence of a bankruptcy. This Guarantee shall remain in
full force and effect until the Termination Date, notwithstanding that from
time to time prior thereto the Company may be free from any Obligations. This
Guarantee shall terminate on the Termination Date. The provisions of the first
and second sentences of this paragraph (c) shall survive the termination of
this Guarantee and the payment in full of the Obligations and the termination
of the Commitments.
<PAGE>
3
(d) Each Guarantor agrees that the Obligations may at any time and
from time to time exceed the amount of the liability of such Guarantor
hereunder without impairing this Guarantee or affecting the rights and
remedies of the Administrative Agent or any Benefitted Party hereunder.
(e) No payment or payments made by the Company, any of the other
Guarantors, any other Person or received or collected by the Administrative
Agent, or any Benefitted Party from the Company, any of the other Guarantors,
or any other Person by virtue of any action or proceeding or any set-off or
appropriation or application, at any time or from time to time, in reduction
of or in payment of the Obligations shall be deemed to modify, reduce, release
or otherwise affect the liability of any Guarantor hereunder which shall
remain obligated hereunder, notwithstanding any such payment or payments
(other than payments made by, or collected or received from, such Guarantor in
respect of the Obligations) up to the maximum liability of such Guarantor
hereunder until the Termination Date. By its acceptance of the benefits
hereof, each Benefitted Party agrees to make demand for payment from each
Guarantor on account of this Guarantee through the Administrative Agent, not
to take any action to enforce this Guarantee (other than actions contemplated
by Section 4) without the consent of the Administrative Agent and to notify
the Administrative Agent in writing of any payments received by such
Benefitted Party from any Person other than the Administrative Agent
(including, without limitation, by the exercise of any right of set-off)
pursuant to this Guarantee.
(f) Each Guarantor agrees that whenever, at any time, or from time to
time, it shall make any payment to a Benefitted Party on account of its
liability hereunder, it will notify such Benefitted Party (with a copy to the
Administrative Agent) in writing that such payment is made under this
Guarantee for such purpose.
(g) All payments made by each Guarantor hereunder shall be made, in
accordance with subsection 4.10 of the Credit Agreement, free and clear of,
and without reduction for or on account of, any present or future Taxes. If
any Taxes are required to be withheld from or in respect of any amounts
payable to any Benefitted Party hereunder, (i) the amounts so payable to such
Benefitted Party shall be increased to the extent necessary to yield to such
Benefitted Party (after payment of all Taxes) such amounts equal to the
amounts it would have received had no such withholding been made, (ii) the
applicable Guarantor shall make such withholding and (iii) the applicable
Guarantor shall pay the full amount of the Taxes to the relevant taxation
authority or other authority in accordance with applicable law. If any
Guarantor fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Administrative Agent the required receipts or other
required documentary evidence, such Guarantor shall indemnify each Benefitted
Party for any incremental taxes, interest or penalties that may become payable
by such Benefitted Party as a result of any such failure. The provisions of
this paragraph shall survive the termination of this Guarantee and the payment
in full of the Obligations and the termination of the Commitments.
3. Right of Contribution. Each Guarantor hereby agrees that to the
extent that a Guarantor shall have paid more than its proportionate share of
any payment made hereunder,
<PAGE>
4
such Guarantor shall be entitled to seek and receive contribution from and
against any other Guarantor hereunder who has not paid its proportionate share
of such payment. Each Guarantor's right of contribution shall be subject to
the terms and conditions of Section 5 hereof. The provisions of this Section 3
shall in no respect limit the obligations and liabilities of any Guarantor to
the Benefitted Parties, and each Guarantor shall remain liable to the
Benefitted Parties for the full amount guaranteed by such Guarantor hereunder.
4. Right of Set-off. Each Guarantor hereby irrevocably authorizes
each Benefitted Party at any time and from time to time when an Event of
Default has occurred and is continuing without notice to such Guarantor or any
other Guarantor, any such notice being hereby waived by each Guarantor, to
set-off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by such Benefitted Party to or for the credit or the account of such
Guarantor, or any part thereof in such amounts as such Benefitted Party may
elect, on account of the liabilities of such Guarantor hereunder and claims of
every nature and description of such Benefitted Party against such Guarantor,
in any currency, whether arising hereunder, under the Credit Agreement, the
Notes, the Applications, the Letters of Credit or any other Credit Document as
such Benefitted Party may elect, whether or not such Benefitted Party has made
any demand for payment and although such liabilities and claims may be
contingent or unmatured. Each Benefitted Party shall notify such Guarantor
promptly of any such set-off made by it and the application made by it of the
proceeds thereof, provided that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of such
Benefitted Party under this Section are in addition to other rights and
remedies (including, without limitation, other rights of set-off) which such
Benefitted Party may have.
5. No Subrogation. Notwithstanding any payment or payments made by
any of the Guarantors hereunder or any set-off or application of funds of any
of the Guarantors by any Benefitted Party, no Guarantor shall be entitled to
be subrogated to any of the rights of any Benefitted Party against the
Company, any other Guarantor or any other guarantor or any collateral security
or guarantee or right of offset held by any Benefitted Party for the payment
of the Obligations, nor shall any Guarantor seek or be entitled to seek any
contribution or reimbursement from the Company, any other Guarantor or any
other guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Benefitted Parties by the Company on account of the
Obligations are Fully Satisfied. If any amount shall be paid to any Guarantor
on account of such subrogation rights at any time when all of the Obligations
shall not have been Fully Satisfied, such amount shall be held by such
Guarantor in trust for the Administrative Agent (on behalf of the Benefitted
Parties), segregated from other funds of such Guarantor, and shall, forthwith
upon receipt by such Guarantor, be turned over to the Administrative Agent (on
behalf of the Benefitted Parties) in the exact form received by such Guarantor
(duly indorsed by such Guarantor to the Administrative Agent, if required), to
be applied against the Obligations, whether matured or unmatured, in such
order as the Administrative Agent may determine.
6. Amendments, etc. with respect to the Obligations. Each Guarantor
shall remain
<PAGE>
5
obligated hereunder notwithstanding that, without any reservation of rights
against any Guarantor and without notice to or further assent by any
Guarantor, any demand for payment of any of the Obligations made by any
Benefitted Party may be rescinded by such Benefitted Party and any of the
Obligations continued, and the Obligations, or the liability of any other
party upon or for any part thereof, or any collateral security or guarantee
therefor or right of offset with respect thereto, may, from time to time, in
whole or in part, be renewed, extended, amended, modified, accelerated,
compromised, waived, surrendered or released by any Benefitted Party and the
Credit Agreement, any Notes, any Application, any Letter of Credit, any other
Credit Document and any other documents executed and delivered in connection
therewith may be amended, modified, supplemented or terminated, in whole or in
part, as the Lenders may deem advisable from time to time and in accordance
with the Credit Agreement, and any collateral security, guarantee or right of
offset at any time held by any Benefitted Party for the payment of the
Obligations may be sold, exchanged, waived, surrendered or released. No
Benefitted Party, nor any other holder of the Obligations, shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by
it as security for the Obligations or for this Guarantee or any property
subject thereto.
7. Guarantee Absolute and Unconditional. Each Guarantor waives any
and all notice of the creation, renewal, extension or accrual of any of the
Obligations and notice of or proof of reliance by any Benefitted Party upon
this Guarantee or acceptance of this Guarantee, the Obligations, and any of
them, shall conclusively be deemed to have been created, contracted or
incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Company and any of the Guarantors, on
the one hand, and the Benefitted Parties, on the other shall likewise be
conclusively presumed to have been had or consummated in reliance upon this
Guarantee. Each Guarantor waives diligence, presentment, protest, demand for
payment and notice of default or nonpayment to or upon the Company or any of
the Guarantors with respect to the Obligations. This Guarantee shall be
construed as a continuing, absolute and unconditional guarantee of payment
without regard to (a) the validity or enforceability of the Credit Agreement,
any Note, any Application, any Letter of Credit, any other Credit Document or
any of the documents executed in connection therewith, any of the Obligations
or any collateral security therefor or guarantee or right of offset with
respect thereto at any time or from time to time held by any Benefitted Party,
(b) any defense (including, without limitation, any statute of limitations),
set-off or counterclaim (other than a defense of payment or performance) which
may at any time be available to or be asserted by the Company against any
Benefitted Party, (c) any change in the time, manner or place of any
application of collateral security, or proceeds thereof, to all or any of the
Obligations, or any manner of sale or other disposition of any collateral
security for all or any of the Obligations or any other assets of the Company
or any of its Subsidiaries, (d) any change, restructuring or termination of
the corporate structure or existence of the Company or any of its
Subsidiaries, or (e) any other circumstance whatsoever (with or without notice
to or knowledge of the Company or such Guarantor) which constitutes, or might
be construed to constitute, an equitable or legal discharge of the Company for
the Obligations, or of such Guarantor under this Guarantee, in bankruptcy or
in any other instance. When any Benefitted Party is pursuing its rights and
remedies hereunder against any Guarantor, such Benefitted Party may, but shall
be under no obligation to, pursue such rights and remedies as it may have
against the Company or any other Person or against any
<PAGE>
6
collateral security or guarantee for the Obligations or any right of offset
with respect thereto, and any failure by such Benefitted Party to pursue such
other rights or remedies or to collect any payments from the Company or any
such other Person or to realize upon any such collateral security or guarantee
or to exercise any such right of offset, or any release of the Company or any
such other Person or of any such collateral security, guarantee or right of
offset, shall not relieve such Guarantor of any liability hereunder, and shall
not impair or affect the rights and remedies, whether express, implied or
available as a matter of law, of the Benefitted Parties against such
Guarantor.
8. Reinstatement. This Guarantee shall continue to be effective, or
be reinstated, as the case may be, if at any time payment, or any part
thereof, of any of the Obligations is rescinded or must otherwise be restored
or returned by any Benefitted Party upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Company or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or
conservator of, or trustee or similar officer for, the Company or any
Guarantor or any substantial part of its property, or otherwise, all as though
such payments had not been made.
9. Payments. Each Guarantor hereby agrees that amounts payable by it
hereunder will be paid to the Administrative Agent without set-off or
counterclaim in U.S. Dollars at the office of the Administrative Agent located
at 270 Park Avenue, New York, New York 10017 or at such other office as the
Administrative Agent shall designate in writing to such Guarantor.
10. Representations and Warranties. Each Guarantor severally
represents and warrants that:
(a) it is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
corporate power and authority and the legal right to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged;
(b) it has the corporate power and authority and the legal right to
execute and deliver, and to perform its obligations under, this Guarantee, and
has taken all necessary corporate action to authorize its execution, delivery
and performance of this Guarantee;
(c) this Guarantee constitutes a legal, valid and binding obligation
of such Guarantor enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the enforcement of creditors' rights
generally and by general equitable principles;
(d) the execution, delivery and performance of this Guarantee will
not violate any Contractual Obligation or material Requirement of Law of such
Guarantor and will not result in or require the creation or imposition of any
Lien on any of the material properties or assets of such Guarantor pursuant to
the provisions of any Contractual Obligation of such Guarantor;
(e) no consent or authorization of, filing with, or other act by or
in respect of, any
<PAGE>
7
arbitrator or Governmental Authority and no consent of any other Person
(including, without limitation, any stockholder or creditor of such Guarantor)
is required in connection with the execution, delivery, performance, validity
or enforceability of this Guarantee, except for consents which have been
obtained prior to the date hereof and remain in full force and effect;
(f) no litigation, investigation or proceeding of or before any
arbitrator or Governmental Authority is pending or, to the knowledge of such
Guarantor, threatened against such Guarantor or against any of its properties
or assets (i) with respect to this Guarantee or any of the transactions
contemplated hereby or (ii) which would be reasonably likely to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company and its
Subsidiaries taken as a whole;
(g) it has good title in all its personal properties and assets, and
none of such property is subject to any Lien of any nature whatsoever except
Liens of a type permitted by subsection 8.2 of the Credit Agreement;
(h) it has filed or caused to be filed all material tax returns,
which to its knowledge are required to be filed by it and has paid all taxes
shown to be due and payable on said returns or on any assessments made against
it (other than those being contested in good faith by appropriate proceedings
for which adequate reserves (in accordance with GAAP) have been provided on
the books of such Guarantor);
Each Guarantor agrees that the foregoing representations and
warranties shall be deemed to have been made by such Guarantor on the date of
each extension of credit under the Credit Agreement on and as of such date of
such extension of credit as though made hereunder on and as of such date.
11. Severability. Any provision of this Guarantee which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
12. Headings. The paragraph and section headings used in
this Guarantee are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation
hereof.
13. No Waiver; Cumulative Remedies. Neither the
Administrative Agent nor any other holder of Obligations shall by any act
(except pursuant to Section 14 hereof), delay, indulgence, omission or
otherwise be deemed to have waived any right or remedy hereunder or to have
acquiesced in any Default or Event of Default or in any breach of any of the
terms and conditions hereof. No failure to exercise, nor any delay in
exercising, on the part of any Benefitted Party, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by any Benefitted Party
<PAGE>
8
of any right or remedy hereunder on any one occasion shall not be construed as
a bar to any right or remedy which it would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any rights or
remedies provided by law.
14. Waivers and Amendments; Successors and Assigns. None of the terms
or provisions of this Guarantee may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by each Guarantor
and the Administrative Agent and otherwise in accordance with subsection 11.1
of the Credit Agreement. This Guarantee shall be binding upon the successors
and assigns of each Guarantor and shall inure to the benefit of the Benefitted
Parties and their respective successors and assigns.
15. Additional Guarantors. Each of the parties hereto agrees that, to
give effect to the provisions of subsection 8.16 of the Credit Agreement, each
Person that after the date hereof becomes a Domestic Subsidiary of the Company
(other than the Guarantor(s) party hereto on the date of the initial execution
hereof) and has assets the fair market value of which is greater than $100,000
may become party to this Subsidiaries Guarantee by delivering to the
Administrative Agent, the Lenders and each other Guarantor a Guarantee
Amendment, in substantially the form of Annex 1 hereto, duly executed by such
person, together with such documents called for by said subsection 8.16. Each
of the parties hereto authorizes the Agent, the Banks and each other Guarantor
to attach each such Guarantee Amendment to this Subsidiaries Guarantee. Upon
the execution and delivery of such Guarantee Amendment by such Person, such
Person shall become a Guarantor hereunder.
16. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND CONSTRUED
AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
17. Notices. Notices by the Administrative Agent to any Guarantor may
be given by mail or by facsimile transmission, addressed to such Guarantor at
its address or transmission number set forth under its signature hereto and
shall be effective (a) in the case of mail or hand delivery, upon delivery and
(b) in the case of facsimile transmissions, when sent. Any Guarantor may
change its address and transmission numbers by written notice to the
Administrative Agent.
18. Authority of Administrative Agent. Each Guarantor acknowledges
that the rights and responsibilities of the Administrative Agent under this
Guarantee with respect to any action taken by the Administrative Agent or the
exercise or non-exercise by the Administrative Agent of any option, right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Guarantee shall, as between the Benefitted Parties, be
governed by the Credit Agreement, but, as between the Administrative Agent and
such Guarantor, the Administrative Agent shall be conclusively presumed to be
acting with full and valid authority so to act or refrain from acting, and no
Guarantor shall be under any obligation, or entitlement, to make any inquiry
respecting such authority.
19. SUBMISSION TO JURISDICTION; WAIVERS. (a) EACH GUARANTOR
<PAGE>
9
HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(i) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS GUARANTEE, OR FOR RECOGNITION
AND ENFORCEMENT OF ANY JUDGMENT IN RESPECT HEREOF, TO THE
NON-EXCLUSIVE GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW
YORK, THE COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF
NEW YORK, AND APPELLATE COURTS FROM ANY THEREOF;
(ii) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES ANY OBJECTION THAT IT MAY NOW OR
HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR PROCEEDING IN ANY
SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS BROUGHT IN AN
INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE SAME;
(iii) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH UNDER ITS SIGNATURE BELOW OR
AT SUCH OTHER ADDRESS OF WHICH THE ADMINISTRATIVE AGENT SHALL HAVE
BEEN NOTIFIED PURSUANT TO SECTION 16 HEREOF;
(iv) AGREES THAT NOTHING HEREIN SHALL AFFECT THE RIGHT TO
EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
SHALL LIMIT THE RIGHT TO SUE IN ANY OTHER JURISDICTION; AND
(v) WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW,
ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY LEGAL ACTION OR
PROCEEDING REFERRED TO IN THIS SUBSECTION ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES.
(b) EACH GUARANTOR (AND BY ITS ACCEPTANCE HEREOF, EACH
BENEFITTED PARTY) HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY
IN ANY LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH (A) ABOVE.
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has caused this
Guarantee to be duly executed and delivered by its duly authorized officer as
of the date first above written.
TRIPLE C MARKETING INC.
By:
-------------------------------
Title:
Address for Notices:
Triple C Marketing Inc.
c/o Consolidated Cigar Corporation
5900 North Andrews Avenue, Suite 700
Fort Lauderdale, FL 33309
CONGAR INTERNATIONAL CORPORATION
By:
-------------------------------
Title:
Address for Notices:
Congar International Corporation
c/o Consolidated Cigar Corporation
5900 North Andrews Avenue, Suite 700
Fort Lauderdale, FL 33309
<PAGE>
ANNEX 1
GUARANTEE AMENDMENT
This Guarantee Amendment is delivered pursuant to Section 15
of the Subsidiaries Guarantee dated as of March 2, 1998 (the "Subsidiaries
Guarantee") between certain Domestic Subsidiaries of Consolidated Cigar
Corporation, a Delaware corporation, that are Guarantors party thereto and The
Chase Manhattan Bank, as administrative agent for the lenders referred to
therein.
The undersigned hereby agrees that this Guarantee Amendment
may be attached to the Subsidiaries Guarantee and that, upon the execution and
delivery of this Guarantee Amendment as provided in said Section 15, the
undersigned shall become a "Guarantor" as such term is used in the
Subsidiaries Guarantee.
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this
Guarantee Amendment to be duly executed on this ____ day of _______, ____.
[NAME OF DOMESTIC SUBSIDIARY]
By: /s/ Gary R. Ellis
--------------------------------
Title: Senior Vice President
Address for Notices:
[Address]
<PAGE>
CONSOLIDATED CIGAR CORPORATION
RETIREMENT PLAN
PREAMBLE
Immediately prior to September 30, 1997, Consolidated Cigar
Corporation (the "Company") participated in the ABEX Inc. Retirement Plan (the
"ABEX Plan"). The ABEX Plan, as applied to Cigar Participants, consisted of a
Basic Plan Document which contained general and administrative provisions
applicable to the entire ABEX Plan, an Appendix I, which set forth the
benefits provided to certain specified participants in the ABEX Plan, and an
Appendix II, which set forth the benefits provided to the Cigar Participants
(as defined below).
Effective as of the end of September 30, 1997, the Company
adopted this Consolidated Cigar Corporation Retirement Plan (the "Plan") as a
spin-off from and continuation of and successor to the ABEX Plan with respect
to the Cigar Participants, and this Plan received a transfer of certain assets
and liabilities from the ABEX Plan on account of the Cigar Participants.
The Plan is intended to be tax-exempt and qualified under
the provisions of section 401(a) and other applicable provisions of the Code,
and to comply with all applicable provisions of ERISA.
Effective as of the end of September 30, 1997, the Company
hereby establishes this Plan, reading as set forth on the Attachments hereto,
which consists of the ABEX Plan's Basic Plan Document and Appendix II to the
ABEX Plan, subject to the following modifications for periods after September
30, 1997:
1. The "Administrative Committee" as defined in Section 1.3
of the Plan, shall be understood to refer to the Cigar Administrative
Committee of not less than two and not more than seven persons appointed from
time to time by the Cigar Board to serve at its pleasure and designated by the
Cigar Board to administer, interpret and construe the Plan as provided in
Article V.
2. The "Company" or "Companies" as defined in Section 1.13
of the Plan, shall be understood to refer to Cigar, any of its subsidiaries or
affiliates which adopt the Plan as a whole or as to one or more divisions or
classifications in accordance with Section 6.3, and any successor corporation
which continues the Plan under Section 6.6, acting through their respective
officers. "Company" when used in this Plan shall refer to such adopting
entities either individually or collectively, as the context may require.
<PAGE>
2
3. The "MCG Investment Committee," as referred to in Section
1.17 of the Plan, shall be understood to refer to the Cigar Investment
Committee of not less than three nor more than seven persons appointed from
time to time by the Cigar Board to serve at its pleasure and designated by the
Cigar Board to have the investment responsibilities under the Plan described
in Article V.
4. The "MCG Board," as defined in Section 1.23 of the Plan,
shall be understood to refer to the Cigar Board or the Executive Committee of
the Cigar Board.
5. The "Plan," as defined in Section 1.26 of the Plan, shall
be understood to refer to this Consolidated Cigar Corporation Retirement Plan.
6. The "Plan Sponsor," as defined in Section 1.29 of the
Plan, shall be understood to refer to the Company.
7. All references in Article V of the Plan to "plan
administrator" shall mean the Consolidated Cigar Corporation.
8. All references to "MCG" in Articles V and VI of the Plan
shall instead be references to the Consolidated Cigar Corporation.
9. The term "Cigar Participants" shall refer to all
employees, former employees and beneficiaries of deceased former employees of
the Company and its subsidiaries who participate in the Plan.
10. Benefits for the Cigar Participants shall continue to be
determined under Appendix II.
Consolidated Cigar Corporation
By:
--------------------------
Date: December __, 1997
<PAGE>
THE ABEX INC.
RETIREMENT PLAN
BASIC DOCUMENT
Amended and Restated
Effective as of December 31, 1995
<PAGE>
TABLE OF CONTENTS
ARTICLE I
DEFINITIONS........................................................3
Section 1.1. General..............................................3
Section 1.2. Abex Component.......................................3
Section 1.3. Administrative Committee.............................3
Section 1.4. Aggregate Group......................................3
Section 1.5. Basic Document.......................................3
Section 1.6. Cigar................................................3
Section 1.7. Cigar Component......................................3
Section 1.8. Cigar Domestic Plan..................................4
Section 1.9. Cigar Plans..........................................4
Section 1.10. Cigar Puerto Rico Plan..............................4
Section 1.11. Code................................................4
Section 1.12. Committee...........................................4
Section 1.13. Company; Companies..................................4
Section 1.14. Determination Date..................................4
Section 1.15. Employee............................................4
Section 1.16. ERISA...............................................4
Section 1.17. Investment Committee................................4
Section 1.18. Key Employee........................................5
Section 1.19. Mafco Consolidated Group............................5
Section 1.20. Master Trust........................................5
Section 1.21. Maximum Permissible Amount..........................5
Section 1.22. MCG.................................................5
Section 1.23. MCG Board...........................................5
Section 1.24. Minimum Benefit.....................................5
Section 1.25. Participant.........................................5
Section 1.26. Plan................................................5
Section 1.27. Plan Administrator..................................5
Section 1.28. Plan Merger.........................................5
Section 1.29. Plan Sponsor........................................5
Section 1.30. Plan Year...........................................6
Section 1.31. Pre-Merger Abex Plan................................6
Section 1.32. Trust...............................................6
Section 1.33. Trust Agreement.....................................6
Section 1.34. Trust Fund..........................................6
Section 1.35. Trustee.............................................6
ARTICLE II
FUNDING OF BENEFITS................................................7
Section 2.1. Funding Policy and Method............................7
i
<PAGE>
Page
Section 2.2. Company Contributions................................7
Section 2.3. Reduction of Company Contributions...................7
ARTICLE III
TRUST AGREEMENT AND TRUST FUND.....................................8
Section 3.1. Trust Agreement......................................8
Section 3.2. Trust Fund...........................................8
ARTICLE IV
CERTAIN LIMITATIONS ON BENEFITS....................................9
Section 4.1. Special Definitions..................................9
Section 4.2. Initial Limitation on Benefits......................11
Section 4.3. Limitations on Benefit Distributions of
25 Most Highly-Compensated Employees............13
Section 4.4. Combined Limitation.................................14
Section 4.5. Discontinuance of Provisions........................14
ARTICLE V
PLAN ADMINISTRATION...............................................15
Section 5.1. Establishment of the Administrative Committee.......15
Section 5.2. Establishment of the Investment Committee...........15
Section 5.3. Organization of the Committees......................15
Section 5.4. Powers of the Administrative Committee..............15
Section 5.5. Powers of the Investment Committee..................17
Section 5.6. Duties of the Administrative Committee..............17
Section 5.7. Actions by a Committee..............................18
Section 5.8. Actuarial Tables and Studies........................18
Section 5.9. Accounts............................................18
Section 5.10. Discretionary Action...............................18
Section 5.11. Action Taken in Good Faith.........................18
Section 5.12. Indemnification....................................18
Section 5.13. Claims Procedure...................................19
Section 5.14. Claims Review Procedure............................19
Section 5.15. Responsibilities of Named Fiduciaries
Other than the Committees.....................19
Section 5.16. Allocation of Responsibilities.....................19
Section 5.17. Designation of Persons to Carry Out
Responsibilities of Named Fiduciaries...........19
ii
<PAGE>
Page
ARTICLE VI
AMENDMENT AND TERMINATION; PARTICIPATION AND
WITHDRAWAL BY COMPANIES; PLAN MERGERS.............................21
Section 6.1. Authority to Amend or Terminate.....................21
Section 6.2. Effect of Termination...............................21
Section 6.3. Participation by Companies..........................22
Section 6.4. Withdrawal of a Company.............................22
Section 6.5. Merger with Other Plans.............................22
Section 6.6. Consolidation or Merger of MCG or Cigar.............22
ARTICLE VII
TOP-HEAVY PROVISIONS..............................................23
Section 7.1. Certain Top-Heavy Plans.............................23
Section 7.2. Determination Date..................................23
Section 7.3. Calculation of Benefits.............................23
Section 7.4. Aggregation Rules...................................24
Section 7.5. Special Vesting.....................................24
Section 7.6. Minimum Benefit.....................................25
Section 7.7. Limitation on Benefits to Employees.................25
Section 7.8. Discontinuance of This Article......................25
ARTICLE VIII
GENERAL PROVISIONS................................................26
Section 8.1. Uniform Administration..............................26
Section 8.2. Source of Payment...................................26
Section 8.3. Payment of Expenses.................................26
Section 8.4. No Right to Employment..............................26
Section 8.5. Inalienability of Benefits..........................26
Section 8.6. Return of Company Contributions.....................27
Section 8.7. Payment Due an Incompetent..........................27
Section 8.8. Missing Recipients..................................27
Section 8.9. Errors in Payment...................................27
Section 8.10. Multiple Defined Benefit Plans......................27
Section 8.11. Notices, etc........................................28
Section 8.12. Multiple Capacities.................................28
Section 8.13. Severability........................................28
Section 8.14. Construction........................................28
Section 8.15. Limitation of Third Party Rights....................29
Section 8.16. Invalid Provisions..................................29
Section 8.17. One Plan............................................29
Section 8.18. Use and Form of Words...............................29
iii
<PAGE>
THE ABEX INC.
RETIREMENT PLAN
BASIC DOCUMENT
PREAMBLE
The Abex Inc. Retirement Plan was originally adopted,
effective January 1, 1990, as a continuation of and successor to The Henley
Group, Inc. Retirement Plan. The plan was amended and restated from time to
time, including effective as of January 1, 1994 to change the name of the plan
to the Abex Inc. Retirement Plan, to reflect certain changes to the applicable
provisions of ERISA and the Code and to make certain other changes. The Abex
Inc. Retirement Plan was amended and restated effective as of June 15, 1995,
to reflect that, effective as of such date, MCG became the plan sponsor as a
successor to Pneumo Abex Corporation, pursuant to a Transfer Agreement dated
as of June 15, 1995 among Power Control Technologies Inc., MCG, Pneumo Abex
Corporation and PCT International Holdings Inc.
Effective as of the end of December 31, 1995, the
Consolidated Cigar Corporation Domestic Employees Defined Benefit Pension Plan
(the "Cigar Domestic Plan") and the Consolidated Cigar Corporation Employees
Defined Benefit Pension Plan (Puerto Rico) (the "Cigar Puerto Rico Plan")
(collectively, the "Cigar Plans") were merged with and into the Abex Inc.
Retirement Plan with the Abex Inc. Retirement Plan being the surviving plan
(such surviving plan referred to herein as the "Plan"). Effective as of such
date, the Plan became a "single plan" (within the meaning of Treasury
regulations section 1.414(l)-1(b)(1)) although the surviving plan has several
distinct benefit structures (referred to herein as the Abex Component and the
Cigar Component, as defined below) which apply to different groups of
participants based on their respective participating employers and that the
surviving plan has several plan documents.
The Plan, as amended and restated effective as of December
31, 1995, consists of this Basic Document, which contains the general
provisions of the Plan, and the appendices attached hereto, Appendix I - Abex
Component of the Abex Inc. Retirement Plan and Appendix II - Cigar Component
of the Abex Inc. Retirement Plan. The provisions of the Abex Inc. Retirement
Plan relating to the amount, form and timing of benefits and benefit
distributions shall continue to apply in this Plan through the application of
Appendix I, but solely with respect to participants (and their beneficiaries)
of the Abex Inc. Retirement Plan (before the merger). The provisions of the
Cigar Plans relating to the amount, form and timing of benefits and benefit
distributions shall continue to apply in this Plan through the application of
Appendix II, but solely with
<PAGE>
respect to participants (and their beneficiaries) of the Cigar Plans (before
the merger) and with respect to employees (and their beneficiaries) of Cigar
and its adopting subsidiaries who after the merger become eligible to
participant in the Plan in accordance with Appendix II.
It is not the intention of this restatement to modify the
program of benefits affecting participants (and their beneficiaries) but
rather to clarify the operation and administration of the Plan after the
merger, subject to the following. The component of the Plan relating solely to
participants who are domestic employees of Consolidated Cigar Corporation is
amended, effective as of December 31, 1996, to limit the ability of eligible
participants to receive lump sum distributions under the Plan to benefits
accrued as of December 31, 1996, and to limit the ability of eligible
participants to receive early retirement benefits in accordance with the "Rule
of 65" to benefits accrued as December 31, 1996.
The Plan is intended to be tax-exempt and qualified under
the provisions of section 401 and other applicable provisions of the Code, and
with all applicable provisions of ERISA.
2
<PAGE>
ARTICLE I
DEFINITIONS
Section I.1. General. Whenever the following terms are used
in the Plan with the first letter capitalized, they shall have the meaning
specified below unless the context clearly indicates to the contrary.
Capitalized terms that are not defined in the Basic Document shall have the
meaning set forth in Appendix I or Appendix II, as appropriate. Unless the
context clearly indicates to the contrary, section references are to sections
of this Basic Document.
Section I.2. Abex Component. "Abex Component" shall mean the
component of the Plan which sets forth the provisions relating to the amount,
form and timing of benefits and benefit distributions, including, without
limitation, eligibility, participation, vesting and other provisions that
apply specifically to individuals who participated in the Abex Inc. Retirement
Plan immediately prior to the Plan Merger and other individuals who become
eligible to participate in the Plan thereafter by reason of satisfying the
eligibility requirements set forth in the Abex Component. The terms of the
Abex Component are set forth in Appendix I to this Basic Document.
Section I.3. Administrative Committee. "Administrative
Committee" shall mean the MCG Administrative Committee of not less than two
and not more than seven persons appointed from time to time by the MCG Board
to serve at its pleasure and designated by the MCG Board to administer,
interpret and construe the Plan as provided in Article V.
Section I.4. Aggregate Group. "Aggregate Group" shall mean
the plan or plans required to be considered with this Plan for purposes of
satisfying the requirements of section 401(a)(4) and section 410 of the Code.
Section I.5. Basic Document. "Basic Document" shall mean
this document which contains the general provisions of the Plan applicable to
both the Abex Component and the Cigar Component.
Section I.6. Cigar. "Cigar" shall mean Consolidated Cigar
Corporation, a Delaware corporation, or any successor thereto.
Section I.7. Cigar Component. "Cigar Component" shall mean
the component of the Plan which sets forth the provisions relating to the
amount, form and timing of benefits and benefit distributions, including,
without limitation, eligibility, participation, vesting and other provisions
that apply specifically to individuals who participated in either of the Cigar
Plans immediately prior to the Plan Merger and other individuals who become
eligible to participate in the Plan thereafter by reason of
3
<PAGE>
satisfying the eligibility requirements set forth in the Cigar Component. The
terms of the Cigar Component are set forth in Appendix II to this Basic
Document.
Section I.8. Cigar Domestic Plan. "Cigar Domestic Plan"
shall mean the Consolidated Cigar Corporation Domestic Employees Defined
Benefit Pension Plan as in effect immediately prior to the Plan Merger.
Section I.9. Cigar Plans. "Cigar Plans" shall mean the Cigar
Domestic Plan and the Cigar Puerto Rico Plan as in effect immediately prior to
the Plan Merger.
Section I.10. Cigar Puerto Rico Plan. "Cigar Puerto Rico
Plan" shall mean the Consolidated Cigar Corporation Employees Defined Benefit
Pension Plan (Puerto Rico) as in effect immediately prior to the Plan Merger.
Section I.11. Code. "Code" shall mean the Internal Revenue
Code of 1986, as amended.
Section I.12. Committee. "Committee" shall mean the
Administrative Committee or the Investment Committee.
Section I.13. Company; Companies. As the context requires,
"Company" or "Companies" shall mean MCG, Cigar, any of their respective
subsidiaries or affiliates which adopt the Plan as a whole or as to one or
more divisions or classifications in accordance with Section 6.3, and any
successor corporation which continues the Plan under Section 6.6, acting
through their respective officers. "Company" when used in this Plan shall
refer to such adopting entities either individually or collectively, as the
context may require.
Section I.14. Determination Date. "Determination Date" shall
mean the date specified in Section 7.2.
Section I.15. Employee. "Employee" shall mean an Employee as
defined in either Appendix I or Appendix II.
Section I.16. ERISA. "ERISA" shall mean the Employee
Retirement Income Security Act of 1974, as amended.
Section I.17. Investment Committee. "Investment Committee"
shall mean the MCG Investment Committee of not less than three nor more than
seven persons appointed from time to time by the MCG Board to serve at its
pleasure and designated by the MCG Board to have the investment
responsibilities under the Plan described in Article V; provided, however,
that notwithstanding any provision in the Plan to the contrary, to the extent
that and for so long as assets of the Plan are invested in the Master Trust
such assets shall be invested in accordance with the directions of the
investment
4
<PAGE>
committee established pursuant to the terms and provisions of the
Master Trust with the powers, authority and responsibilities set forth
therein, which powers, authority and responsibilities shall supersede any
other powers, authority and responsibilities set forth in the Plan relating to
the investment of Plan assets held by the Master Trust whether by the
Investment Committee of the Plan or by any other person, and with respect to
the investment of Plan assets invested in the Master Trust the investment
committee of the Master Trust shall constitute the Investment Committee of the
Plan.
Section I.18. Key Employee. "Key Employee" shall mean an
Employee described in subsection 7.1.3 of the Plan and in section 416 of the
Code.
Section I.19. Mafco Consolidated Group. Mafco Consolidated
Group shall mean Mafco Consolidated Group Inc., a Delaware corporation, or any
successor thereto, which was known as Abex Inc. prior to June 15, 1995, the
date on which C&F Holdings Inc. was merged into Abex Inc. Abex Inc. was the
parent of Pneumo Abex Corporation, the previous sponsor of the Abex Inc.
Retirement Plan.
Section I.20. Master Trust. "Master Trust" shall mean the
master trust established pursuant to the Master Trust Agreement between Mafco
Holdings Inc. and The Northern Trust Company.
Section I.21. Maximum Permissible Amount. "Maximum
Permissible Amount" shall mean the amount, as adjusted, specified in Section
4.2.
Section I.22. MCG. "MCG" shall mean MCG Intermediate
Holdings Inc., a Delaware corporation (or any successor thereto), which is a
subsidiary of Mafco Consolidated Group.
Section I.23. MCG Board. "MCG Board" shall mean the Board of
Directors of MCG or the Executive Committee of the Board of Directors of MCG.
Section I.24. Minimum Benefit. "Minimum Benefit" shall mean
the benefit described in Section 7.6.
Section I.25. Participant. "Participant" shall have the
meaning set forth in Appendix I or Appendix II, as applicable.
Section I.26. Plan. "Plan" shall mean the Abex Inc.
Retirement Plan as amended and restated herein, which includes this Basic
Document and Appendix I and Appendix II attached hereto.
Section I.27. Plan Administrator. "Plan Administrator" shall
have the meaning set forth in Section 5.1.
5
<PAGE>
Section I.28. Plan Merger. "Plan Merger" shall mean the
merger as of the end of December 31, 1995 of the Cigar Plans with and into the
Abex Inc. Retirement Plan, with the Abex Inc. Retirement Plan being the
surviving plan.
Section I.29. Plan Sponsor. The "Plan Sponsor" shall mean
MCG.
Section I.30. Plan Year. "Plan Year" shall mean the calendar
year, including such years preceding the adoption of the Plan.
Section I.31. Pre-Merger Abex Plan. "Pre-Merger Abex Plan"
shall mean the Abex Inc. Retirement Plan as in effect immediately prior to the
Plan Merger.
Section I.32. Trust. "Trust" shall mean the trust
established pursuant to the Trust Agreement.
Section I.33. Trust Agreement. "Trust Agreement" shall mean
the trust agreement under the Plan as it may be amended from time to time,
providing for the investment and administration of the Trust Fund. By this
reference the Trust Agreement is incorporated herein.
Section I.34. Trust Fund. "Trust Fund" shall mean the fund
established under the Trust Agreement by contributions made pursuant to the
Plan and from which any amounts payable under the Plan are to be paid.
Section I.35. Trustee. "Trustee" shall mean the trustee
under the Trust Agreement.
6
<PAGE>
ARTICLE II
FUNDING OF BENEFITS
Section II.1. Funding Policy and Method. The Administrative
Committee shall establish a funding policy and method consistent with the
objectives of the Plan and the requirements of ERISA. Participants shall
neither be required nor permitted to make contributions under the Plan.
Section II.2. Company Contributions. The Company shall
contribute and pay to the Trustee, to be held and administered in trust, such
amounts at such times as shall be required by the funding policy and method
established pursuant to Section 2.1 and as shall be in accordance with the
rules promulgated by the Administrative Committee pursuant to Section 5.6 in
effectuation of such funding policy and method.
Section II.3. Reduction of Company Contributions.
Forfeitures arising under the Plan from termination of employment, death or
for any other reason shall not be applied to increase the benefits any person
would receive from the Plan, but shall instead be used to reduce subsequent
Company contributions to the Plan.
7
<PAGE>
ARTICLE III
TRUST AGREEMENT AND TRUST FUND
Section III.1. Trust Agreement. MCG has adopted the Master
Trust with the Trustee, providing for the administration of the Trust Fund, in
such form and containing such provisions as deemed appropriate, including, but
not by way of limitation, a provision that it shall be impossible at any time
prior to the satisfaction of all liabilities under the Plan with respect to
Participants and their beneficiaries for any part of the accumulated share of
Plan in the Master Trust Fund to be used for or diverted to purposes other
than for the exclusive purpose of providing benefits to Participants and their
beneficiaries and defraying reasonable expenses of administering the Plan. The
Master Trust shall constitute the Trust Agreement for the Plan and shall be a
part of the Plan, and the rights and duties of any person under the Plan shall
be subject to all applicable terms and provisions of the Master Trust.
Section III.2. Trust Fund. The Trust Fund shall be held by
the Trustee, pursuant to the terms of the Master Trust, for the exclusive
purposes of providing benefits to Participants and their beneficiaries and
defraying reasonable expenses of administering the Plan, to the extent such
expenses are not paid by the Company, and no assets of the Plan shall inure to
the benefit of the Company except to the extent permitted by ERISA; provided,
however, that any contribution made as a result of a mistake of fact may be
returned within one year from the date of contribution to the Company which
made the contribution. No person shall have any interest in or right to any
part of the earnings of the Trust Fund, or any right in, or to, any part of
the assets thereof, except as and to the extent expressly provided in the Plan
and in the Trust Agreement.
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ARTICLE IV
CERTAIN LIMITATIONS ON BENEFITS
Section IV.1. Special Definitions. For purposes of this
Article IV, the following capitalized terms shall have the following
respective meanings:
MCG/Cigar Group: (i) each member of the controlled group of
corporations (within the meaning of section 1563(a) of the Code,
determined without regard to section 1563(a)(4) and (e)(3)(C) thereof
and substituting for the phrase "at least 80 percent" each place it
appears in section 1563(a)(1) the phrase "more than 50 percent")
which includes MCG or Cigar; (ii) each trade or business (whether or
not incorporated) which is under common control (within the meaning
of section 414(c) of the Code and the regulations prescribed
thereunder and substituting for the phrase "at least 80 percent" each
place it appears in section 1563(a)(1) the phrase "more than 50
percent") with MCG or Cigar; and (iii) each member of any affiliated
service group (within the meaning of section 414(m) of the Code)
which includes MCG or Cigar.
Defined Contribution Plan: any pension, profit-sharing or
stock bonus plan of the MCG/Cigar Group which (a) satisfies the
applicable qualification requirements of the Code and (b) provides
for an individual account for each participant thereunder and for
benefits based solely on the amount contributed to the participant's
account, and any income, expenses, gains and losses, and any
forfeitures of accounts of other participants which may be allocated
to such participant's account.
Defined Contribution Plan Fraction: a fraction, the
numerator of which is the sum of the Participant's annual additions
as of the close of the Limitation Year under all Defined Contribution
Plans (whether or not terminated), and the denominator of which is
the sum of the lesser of the following amounts determined for such
year and for each prior year of service with the MCG/Cigar Group--
(A) 1.25 times the dollar limitation in effect
under Code section 415(c)(1)(A) for such year (determined
without regard to section 415(c)(6)) , or
(B) 1.4 times the amount which may be taken into
account under Code section 415(c)(1)(B) with respect to such
Participant for such year.
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Defined Benefit Plan: any pension, profit-sharing or stock
bonus plan of the MCG/Cigar Group which (a) satisfies the applicable
qualification requirements of the Code and (b) is not a Defined
Contribution Plan.
Defined Benefit Plan Fraction: a fraction, the numerator of
which is the sum of the Participant's projected annual benefits under
all Defined Benefit Plans of the MCG/Cigar Group (whether or not
terminated) and the denominator of which is the lesser of--
(A) 1.25 times the dollar limitation of Code
section 415(b)(1)(A) in effect for the Plan Year, or
(B) 1.4 times the Participant's average
compensation for the three consecutive Plan Years that
produce the highest average.
Aggregate Employee Contribution: for any Participant with
respect to any Plan Year, the aggregate of all contributions other
than "rollover amounts" or "rollover contributions" (as such terms
are defined in section 402(c), 403(a)(4), 403(b)(8) or 408(d)(3) of
the Code) and other than "deductible employee contributions" (as such
term is defined in section 72(o)(5) of the Code) made by such
Participant for such Plan Year under all Defined Contribution Plans.
Aggregate Employer Contribution: for any Participant with
respect to any Plan Year, the sum of:
(A) all amounts allocated to the account of such
Participant in respect of forfeitures, and in respect of
contributions made by one or more members of the MCG/Cigar
Group under all Defined Contribution Plans, plus
(B) the Aggregate Employee Contribution of such
Participant for such Plan Year, plus
(C) amounts described in sections 415(l)(1) and
419A(d)(2) of the Code.
Aggregate Annual Benefit: for any Participant, the aggregate
of his projected benefits under all Defined Benefit Plans where each
such projected benefit is expressed as a benefit payable annually in
the form of a straight life annuity (with no ancillary benefits) and
where benefits attributable to any participant contributions or
rollover contributions (as defined in sections 402(c), 403(a)(4) and
408(d)(3) of the Code) are excluded.
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Social Security Retirement Age: The age used as the
retirement age under section 216(l) of the Social Security Act,
applying such section without regard to the age increase factor and
as if the early retirement age under section 216(l)(2) of the Social
Security Act were age 62.
Limitation Year: The calendar year.
Compensation: The Participant's wages, salaries, fees for
professional services, other amounts received (without regard to
whether or not an amount is paid in cash) for personal services
actually rendered in the course of employment with a Company to the
extent that the amounts are includable in gross income (including,
but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits, and
reimbursements or other expense allowances under a nonaccountable
plan (as described in Treasury Regulation section 1.62-2(c)) and any
additional items of compensation specified in section 1.415-2(d)(2)
of the Treasury Regulations promulgated under Code section 415, but
excluding any amounts which are not includable as compensation under
section 1.415-2(d)(3) of the Treasury Regulations promulgated under
Code section 415.
Section IV.2. Initial Limitation on Benefits.
Subsection IV.2.1. Initial Limitation on Benefits Generally.
Notwithstanding any other provision in the Plan, a Participant's benefit under
the Plan, assuming payment in the form of a single life annuity commencing on
his normal retirement date, as of the end of any Plan Year shall not exceed in
value an amount which would cause his Aggregate Annual Benefit as of the end
of such Plan Year to exceed the smaller of the following (the "Maximum
Permissible Amount"):
(i) $90,000; or
(ii) 100% of the Participant's average annual compensation
during the period of consecutive calendar years (not more
than three (3)) during which such Participant both was an
active participant in one or more Defined Benefit Plans and
had the greatest aggregate compensation from the MCG/Cigar
Group;
provided, however, that the amount set forth in clause (i) above shall be
deemed to be automatically increased (without the necessity for an amendment
of the Plan) to the full extent permitted under regulations promulgated from
time to time by the Secretary of the Treasury or his delegate pursuant to
section 415(d) of the Code. Notwithstanding the foregoing, (1) in the case of
a Participant who has completed less than 10 years of participation in the
Plan, his Aggregate Annual Benefit shall not be deemed to exceed the
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limitation specified in (i) above as of the end of any Limitation Year unless
it also exceeds the product of the amount determined under (i) above
multiplied by a fraction, the numerator of which is his number of years (or
parts thereof) of participation in the Plan and the denominator of which is
10, (2) in the case of a Participant who has completed less than 10 years of
service with one or more members of the MCG/Cigar Group, his Aggregate Annual
Benefit shall not be deemed to exceed the limitation specified in (ii) above
as of the end of any Limitation Year unless it also exceeds the product of the
amount determined under (ii) above multiplied by a fraction, the numerator of
which is his number of years (or parts thereof) of service with one or more
members of the MCG/Cigar Group and the denominator of which is 10, and (3) in
the case of a Participant who has at no time been a participant in a Defined
Contribution Plan, his Aggregate Annual Benefit shall not be deemed to exceed
the limitations specified in (i) and (ii) above as of the end of any
Limitation Year unless it also exceeds $10,000 as of the end of such
Limitation Year or as of the end of any prior Limitation Year and, if such
Participant has completed less than 10 years of service with one or more
members of the MCG/Cigar Group, the $10,000 limitation shall be reduced to the
product obtained by multiplying $10,000 by a fraction, the numerator of which
is the Participant's years (or parts thereof) of service with one or more
members of the MCG/Cigar Group and the denominator of which is 10. The
fractions referred to in clauses (1) and (2) of the preceding sentence shall
in no event be less than one-tenth (1/10) and the limitations referred to in
the preceding sentence shall be applied separately with respect to each
benefit increase under the Plan, but only to the extent specified in
regulations promulgated by the Secretary of the Treasury or his delegate
pursuant to section 415(b)(5)(D) of the Code. For purposes of this Section
4.2, survivor benefits payable to a Participant's spouse under a joint and
survivor form of retirement income shall not be taken into account except to
the extent that the annual rate of such survivor benefits exceeds the annual
rate of the benefits payable as such retirement income during the joint lives
of the Participant and his spouse.
Subsection IV.2.2. Certain Actuarial Adjustments. If the
payment of retirement income under the Plan commences before the Social
Security Retirement Age, the Maximum Permissible Amount (beginning when such
retirement income begins) referred to in subsection 4.2.1 may not exceed the
lesser of (i) the actuarial equivalent of a $90,000 benefit commencing at the
Social Security Retirement Age determined in accordance with regulations
(which shall be consistent with the reduction for old-age insurance benefits
commencing before the Social Security Retirement Age under the Social Security
Act) promulgated by the Secretary of the Treasury or his delegate pursuant to
section 415(b)(2)(C) of the Code or (ii) 100 percent of the Participant's
average Compensation for the 3 consecutive calendar years during which such
Participant both was an active participant in the Plan and had the greatest
aggregate compensation from the MCG/Cigar Group. To determine actuarial
equivalence, the interest rate assumption shall be the greater of the rate
otherwise specified for such purposes under the Plan or 5 percent. If the
payment of retirement income under the Plan commences after
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the Social Security Retirement Age, the benefit (beginning when such
retirement income begins) may not exceed the lesser of (i) the actuarial
equivalent of a $90,000 benefit beginning at the Social Security Retirement
Age or (ii) 100 percent of the Participant's average Compensation for the 3
consecutive calendar years during which such Participant both was an active
participant in the Plan and had the greatest aggregate compensation from the
MCG/Cigar Group. To determine the actuarial equivalence of benefits beginning
after the Social Security Retirement Age, the interest rate assumption to be
used shall be the lesser of the rate otherwise specified in the Plan for such
purposes or five percent (5%).
Subsection IV.2.3. Pre-1987 Accrued Benefit. If the Current
Accrued Benefit of a Participant in The Henley Group, Inc. Retirement Plan, as
of January 1, 1987, exceeds the benefit limitations under Section 4.2.1 then
the provisions of Section 6.3.3 of the Pre-Merger Abex Plan shall govern.
Section IV.3. Limitations on Benefit Distributions of 25
Most Highly- Compensated Employees.
Subsection IV.3.1. Limitation on Benefits. In the event of
termination of the Plan, the benefit of any "Highly Compensated Employee"
and/or "Former Highly Compensated Employee" (both within the meaning of Code
section 414(q) and applicable regulations thereunder) shall be limited to a
benefit that is nondiscriminatory under Code section 401(a)(4).
Subsection IV.3.2. Restricted Benefits. In the event of
termination of this Plan, the provisions of this Section 4.3 shall apply to
restrict the annual benefit under the Plan to any Participant or Former
Participant who is among the twenty-five (25) highest paid Highly Compensated
Employees and/or Former Highly Compensated Employees (including an Employee
who is not presently a Participant but who may later become a Participant)
with the greatest compensation in the current or any prior year to the
following amount: the payments that would be made to such Employee under a
single life annuity that is the Actuarial Equivalent of the sum of the
Employee's Accrued Benefit (as defined in Appendix I or Appendix II, as
applicable) and the Employee's "other benefits" under the Plan, within the
meaning of the regulations under Code section 401(a)(4), including any
periodic income, any withdrawal values payable to a living Employee or former
Employee and any death benefits not provided for by insurance on the
Employee's or former Employee's life.
Subsection IV.3.3. Unrestricted Benefits. Notwithstanding
the foregoing, the restrictions of this Section 4.3 shall not apply to any
Employee described in subsection 4.3.2 if:
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(a) after payment of the benefit for such Employee, the
value of Plan assets equals or exceeds one hundred ten percent (110%)
of the value of current liabilities as defined in Code section
412(l)(7); or
(b) the value of the benefits for such Employee is less than
one percent (1%) of the value of current liabilities, within the
meaning of Code section 412(l)(7), before distribution; or
(c) the value of the benefits payable to or on behalf of
such Employee under the Plan does not exceed $3,500.
Section IV.4. Combined Limitation.
Subsection IV.4.1. Combined Limitation Generally. After the
Aggregate Employer Contribution to be made and the Aggregate Annual Benefit to
be paid with respect to a Participant for a Plan Year has been determined in
accordance with the applicable provisions of all Defined Contribution Plans
and Defined Benefit Plans in which such Participant is a participant, the
following sum shall be computed as of the end of such Plan Year:
(a) the Defined Contribution Plan Fraction determined for
the Plan Year and giving effect to all prior plan years under any
Defined Contribution Plan; plus
(b) the Defined Benefit Plan Fraction determined for the
Plan Year and giving effect to the Participant's benefits under all
Defined Benefit Plans.
If the foregoing sum exceeds 1.0 after the determination of the Maximum
Permissible Amount thereunder (including limitations prescribed for compliance
with section 415(e) of the Code), the aggregate of all amounts allocated to
such Participant's accounts in any Defined Benefit Plan for such Plan Year
shall be reduced until such sum does not exceed 1.0.
Subsection IV.4.2. Special Rules. For purposes of subsection
4.4.1,
(A) the Aggregate Employer Contribution of a Participant for
any Limitation Year beginning before January 1, 1987 shall not be
recomputed to include all Aggregate Employee Contributions of a
Participant, and
(B) an amount shall be subtracted from the numerator of the
Defined Contribution Plan Fraction (not exceeding such numerator) as
prescribed in regulations promulgated from time to time by the
Secretary of the Treasury or his delegate so that the sum of the
Defined Benefit Plan Fraction and the Defined
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Contribution Plan Fraction does not exceed 1.0 for any Limitation Year
beginning before January 1, 1987.
Subsection IV.4.3. Pre-1983 Signal Prior Plan Benefit. In
the case of an individual who was a Participant of the Signal Prior Plan, as
defined in Appendix I (or in any plan which merged with the Signal Plan on or
before January 1, 1983), the provisions of Section 6.4.7 of the Pre-Merger
Abex Plan shall apply.
Section IV.5. Discontinuance of Provisions. Any provisions
of this Article IV shall be null and void without amendment to the Plan to the
extent that the limitations herein set forth are no longer necessary to
prevent the prohibited discrimination that may occur in the event of an early
termination of the Plan or are no longer otherwise required by applicable law.
ARTICLE V
PLAN ADMINISTRATION
Section V.1. Establishment of the Administrative Committee.
The general administration of the Plan and the responsibility for carrying out
its provisions shall be placed in the Administrative Committee. Any member of
the Administrative Committee may resign by delivering his written resignation
to MCG and the secretary of the Administrative Committee. The Administrative
Committee shall be responsible for the daily administration of the Plan, and
MCG shall be the "plan administrator" within the meaning of section 3(16)(A)
of ERISA and section 414(g) of the Code. For purposes of ERISA, the
Administrative Committee shall be a "named fiduciary" under the Plan.
Section V.2. Establishment of the Investment Committee. The
responsibility for the formulation of the general investment practices and
policies of the Plan and its related Trust Fund and for effectuating such
practices and policies shall be placed in the Investment Committee. Subject to
any contrary provisions in the Trust Agreement, any member of the Investment
Committee may resign by delivering his written resignation to MCG and the
secretary of the Investment Committee. For purposes of ERISA, the Investment
Committee shall be a "named fiduciary" under the Plan.
Section V.3. Organization of the Committees. The following
provisions shall apply subject to any contrary provision in the Trust
Agreement concerning the Investment Committee. The members of the Committee
shall elect a chairman from their number, and shall also elect a secretary who
may be but need not be one of the members of the Committee. No member of a
Committee who is also an Employee receiving regular compensation as such shall
receive any compensation for his services as a member of such Committee. No
bond or other security shall be required of any member of a Committee in any
jurisdiction. No member of a Committee shall, in such capacity,
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act or participate in any action directly affecting his own benefits under the
Plan other than an action which affects the benefits of Participants
generally.
Section V.4. Powers of the Administrative Committee. The
powers of the Administrative Committee shall include, but are not limited to,
the following:
(a) appointing such committees with such powers as it shall
determine, including an executive committee to exercise all powers of
the Administrative Committee between meetings of the Administrative
Committee;
(b) determining the times and places for holding meetings of
the Administrative Committee and the notice to be given of such
meetings;
(c) employing such agents and assistants, such counsel (who
may be counsel to the Company) and such clerical, medical, accounting
and actuarial services or advisers as the Administrative Committee
may require in carrying out the provisions of the Plan;
(d) authorizing one or more of their number or any agent to
make any payment, or to execute or deliver any instrument, on behalf
of the Administrative Committee, except that all requisitions for
funds from, and requests, directions, notifications and instructions
to the Trustee shall be signed either by two members of the
Administrative Committee or by one member and the secretary thereof
or as the Administrative Committee otherwise prescribes;
(e) fixing and determining the proportion of expenses of the
Plan from time to time to be paid by the Companies and requiring
payment thereof;
(f) establishing one or more subcommittees in each location
at which MCG, Cigar or any of their subsidiaries or affiliates does
business, appointing the members of any such subcommittees, in such
number and for such service as the Administrative Committee shall
deem appropriate, and delegating any power or duty granted to the
Administrative Committee by the Plan to any such subcommittees;
(g) appointing and removing the Trustee pursuant to the
trust agreement, except as otherwise provided in the Master Trust;
(h) receiving and reviewing reports from the Trustee as to
the financial condition of the Trust Fund, including its receipts and
disbursements;
(i) executing and filing with the appropriate governmental
agencies such registration and other statements, forms, applications,
notifications, and other
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documents or information as the Administrative Committee may from
time to time deem appropriate in connection with the Plan;
(j) approving the adoption of the Plan by any subsidiary or
affiliate of the Company in accordance with Section 6.3;
(k) amending the Plan to the extent provided in Section 6.1;
(l) in its discretion, (i) determining all questions
concerning eligibility, elections, contributions and benefits under
the Plan, (ii) construing all terms of the Plan, including any
uncertain terms, and (iii) determining all questions concerning
administration of the Plan; and
(m) delegating all of its administrative powers and duties
with respect to the Plan to any other individual or entity designated
from time to time by the Administrative Committee, and authorizing
such individual or entity to delegate to any other individual or
entity such powers, duties and responsibilities for the
administration and operation of the Plan as specified from time to
time.
Section V.5. Powers of the Investment Committee. The powers
of the Investment Committee shall include, but not be limited to, the
following:
(a) directing the Trustee, or appointing one or more
investment managers to direct the Trustee, subject to the conditions
set forth in the Trust Agreement and in paragraph (b) below, in all
matters concerning the investment of the Trust Fund;
(b) authorizing one or more of their number or any agent to
make any payment, or to execute or deliver any instrument, on behalf
of the Investment Committee, except that all requisitions for funds
from, and requests, directions, notifications and instructions to the
Trustee shall be signed either by two members of the Investment
Committee or by one member and the secretary thereof;
(c) receiving and reviewing reports from the Trustee as to
the financial condition of the Trust Fund, including its receipts and
disbursements;
(d) employing such agents and assistants, such counsel (who
may be counsel to the Company or to MCG) and such clerical,
accounting, actuarial and investment services or advisers as the
Investment Committee may require in carrying out its responsibilities
under the Plan.
Section V.6. Duties of the Administrative Committee. The
Administrative Committee shall have the general responsibility for
administering the Plan
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and carrying out its provisions. Subject to the limitations of the Plan, the
Administrative Committee from time to time shall establish rules for the
administration of the Plan and the transaction of its business and shall
promulgate such rules as may be necessary to effectuate the funding policy and
method established pursuant to Section 2.1. As to all matters of
administration, interpretation and application not reserved to the Company or
MCG, the determination of the Administrative Committee as to any disputed
question shall be made in the discretion of the Administrative Committee and
shall be conclusive. Any determination made by the Administrative Committee
under the Plan or in connection with its administration or interpretation
shall be given deference in the event it is subject to judicial review and
shall be overturned only if it is arbitrary and capricious. It shall be the
duty of the Administrative Committee to notify the Trustee in writing of the
amount of any benefit which shall be due to any Participant or Former
Participant and in what form and when such benefit is to be paid. The
Administrative Committee may at any time or from time to time with respect to
the Plan require the Trustee by a written direction to purchase one or more
annuities, in specific amounts, in the names of Participants, their spouses,
their contingent annuitants, and/or their beneficiaries from an insurance
company designated by the Administrative Committee.
Section V.7. Actions by a Committee. A majority of the
members of a Committee at the time in office shall constitute a quorum for the
transaction of business at any meeting. Resolutions or other actions made or
taken by a Committee shall require the affirmative vote of a majority of the
members of such Committee attending a meeting, or by a majority of members in
office by writing without a meeting.
Section V.8. Actuarial Tables and Studies. The
Administrative Committee shall adopt from time to time such actuarial tables
as may be required in connection with the Plan. As an aid to the
Administrative Committee in adopting tables and to the Company in fixing the
rates of its contribution payable under the Plan, the actuary (who shall be
enrolled by the Joint Board for the Enrollment of Actuaries established under
ERISA) designated by the Administrative Committee shall make periodical
actuarial studies in relation to the Plan, and shall recommend tables to the
Administrative Committee and rates of contribution to the Company.
Section V.9. Accounts. The Administrative Committee shall
maintain accounts showing the fiscal transactions of the Plan and shall keep
in convenient form such data as may be necessary for the effective operation
and administration and actuarial valuations of the Plan.
Section V.10. Discretionary Action. Whenever in the
administration of the Plan any discretionary action is required by a
Committee, such action shall be uniform in nature as applied to all persons
similarly situated.
Section V.11. Action Taken in Good Faith. To the extent
permitted by ERISA, the members of the Committees, the Company, and their
officers and directors
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shall be entitled to rely upon all tables, valuations, certificates, and
reports, if any, furnished by the actuary described at Section 5.8, upon all
certificates and reports made by any accountant or by the Trustee, upon all
opinions given by any legal counsel selected or approved by a Committee, and
upon all opinions given by any investment adviser selected or approved by the
Investment Committee, and the members of the Committees, the Company, and
their officers and directors shall be fully protected in respect of any action
taken or suffered by them in good faith in reliance upon any such tables,
valuations, certificates, reports, opinions or other advice of any actuary,
accountant, Trustee, investment adviser or legal counsel, and all action so
taken or suffered shall be conclusive upon each of them and upon all
Participants and Employees.
Section V.12. Indemnification. To the extent not contrary to
ERISA, the Company shall indemnify the Committees, each member of a Committee
and any other director, officer or employee of MCG, Cigar or any other
employer who is designated to carry out any responsibilities under the Plan
for any liability, joint and/or several, arising out of or connected with
their duties hereunder, except such liability as may arise from their gross
negligence or willful misconduct.
Section V.13. Claims Procedure. Claims relating to benefits
under the Plan shall be filed with the Administrative Committee on such forms
as it shall prescribe and make available on request. The Administrative
Committee shall notify the claimant of its decision within 90 days of such
filing, unless it determines that more time is needed, in which case the
Administrative Committee shall notify the claimant of the reason for the delay
and notify the claimant of its decision within 180 days of the filing of the
claim. In the event a claim is denied, written notice thereof shall be mailed
or delivered to the claimant, specifically setting forth the reasons for the
denial, citing the relevant provisions of the Plan and, if appropriate,
explaining how the claimant can perfect his claim.
Section V.14. Claims Review Procedure. Any person whose
claim filed pursuant to Section 5.13 has been denied may request the
Administrative Committee to give further consideration to his claim. A form
for making such a request shall be prescribed by the Administrative Committee
and furnished by the secretary of the Administrative Committee upon request. A
claimant seeking such review shall complete and file such form, together with
a statement of his position, with the Administrative Committee no later than
90 days after the mailing or delivery of the written notice of denial provided
for in Section 5.13. The Administrative Committee shall inform the claimant in
writing of its decision regarding his claim and the specific reason therefor
within 60 days after the filing of such claim (or within 120 days if it
determines more time is needed),. Any such decision of the Administrative
Committee shall be binding upon the claimant.
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Section V.15. Responsibilities of Named Fiduciaries Other
than the Committees. The Trustee shall have such responsibilities with respect
to the operation of the Plan as are set forth in the Trust Agreement. Any
investment adviser which the Investment Committee may appoint pursuant to
Section 5.5 shall have the responsibility to direct the Trustee in investing
and reinvesting the Trust Fund (or that portion thereof specified by the
Investment Committee in the instrument appointing such adviser) and to report
the book value and fair market value of each asset in the Trust Fund (or such
portion thereof ) to the Committees periodically, as such responsibilities may
be more fully described in the Trust Agreement.
Section V.16. Allocation of Responsibilities. The
description of the responsibilities and powers of the Committees and the
description of the responsibilities of the Trustee contained in the foregoing
provisions of this Article V shall constitute, for purposes of ERISA,
procedures for allocating responsibilities for the operation and
administration of the Plan among named fiduciaries.
Section V.17. Designation of Persons to Carry Out
Responsibilities of Named Fiduciaries. The Committees, the Trustee and any
investment adviser which the Investment Committee may appoint pursuant to
Section 5.5 may, except as to responsibilities involving management and
control of assets held in the Trust Fund, designate one or more other persons
to carry out any or all of their respective responsibilities under the Plan,
provided that such designation shall be made in writing, filed with the Plan's
records and made available for inspection upon request by any Participant (as
defined in either Appendix I or Appendix II, as applicable) or beneficiary
under the Plan.
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ARTICLE VI
AMENDMENT AND TERMINATION; PARTICIPATION AND
WITHDRAWAL BY COMPANIES; PLAN MERGERS
Section VI.1. Authority to Amend or Terminate. MCG hopes and
expects to continue the Plan indefinitely but reserves the right to terminate,
or to modify, alter or amend the Plan from time to time to any extent that it
may, in its sole and complete discretion, deem advisable including, but
without limiting the generality of the foregoing, any amendment deemed
necessary to qualify or to ensure the continued qualification of the Plan
under the Code. The foregoing right shall be exercised only by action of the
MCG Board, except that the Administrative Committee, by a written instrument,
duly executed by a majority of its members, may make (a) any amendment which
may be necessary or desirable to ensure the continued qualification of the
Plan and its related trust under the Code or which may be necessary to comply
with the requirements of ERISA, or any regulations or interpretations issued
by the Department of Labor or the Internal Revenue Service with respect to the
requirements of ERISA or the Code, (b) any amendment which is required by the
provisions of any collective bargaining agreement between the Company and its
employees and (c) any other amendment which will not involve an estimated
annual cost under the Plan (determined at the time of the amendment in a
manner consistent with the requirements of ERISA) in excess of $200,000. No
such amendment shall increase the duties or responsibilities of the Trustee
without its consent thereto in writing. No such amendment shall have the
effect of diverting the whole or any part of the principal or income of the
Trust Fund to purposes other than for the exclusive benefit of Participants
and others having an interest in the Plan, prior to the satisfaction of all
liabilities with respect to them. Except for amendments requirement by law,
MCG shall not adopt any amendment which materially increases benefits under
Appendix II without the written consent of Consolidated Cigar Corporation.
Section VI.2. Effect of Termination. Upon the termination or
partial termination of the Plan (within the meaning of section 411(d)(3) of
the Code), the rights of all affected Participants to their respective accrued
benefits under the Plan shall become nonforfeitable to the extent then funded,
subject to such requirements as the Internal Revenue Service shall impose in
order to prevent discrimination (including any applicable provisions of
Section 4.3). In the event of termination, the Administrative Committee shall
direct the Trustee as to the allocation of the applicable assets of the Plan,
in accordance with the following provisions of this Section 6.2. After
providing for the expenses of the Plan, the assets remaining shall be used and
applied for the benefit of its Employees, former Employees who are
Participants, and the beneficiaries of the foregoing in the manner prescribed
by section 4044 of ERISA (or corresponding provision of any subsequent
applicable law in effect at the time); provided that, if it is determined that
any allocation made pursuant to this Section 6.2 (without regard to this
21
<PAGE>
sentence) results in discrimination prohibited by section 401(a)(4) of the
Code, then, if required to prevent disqualification of the Plan (or any trust
under the Plan) under section 401(a) of such Code, the assets allocated under
subsections 4044(a)(4)(B), (a)(5) and (a)(6) of ERISA shall be reallocated to
the extent necessary to avoid such discrimination. After such allocation has
been made, all remaining assets of the Plan shall be distributed to MCG if all
liabilities of the Plan with respect to its Employees, former Employees who
are Participants, and the beneficiaries of the foregoing have been satisfied
and the distribution does not contravene any applicable provision of law.
Whether or not a "partial termination" within the meaning of
this Section 6.2 has occurred in any given situation shall be determined by
the Administrative Committee in light of existing Internal Revenue Service
guidelines and other relevant authorities. However, in the event of the
disposition of a particular business operation, or the shutdown thereof, under
conditions which do not constitute a "partial termination," the Administrative
Committee may declare that such disposition or shutdown shall nevertheless be
treated as a "partial termination" for purposes of this Plan. Any such
declarations shall be made in a manner which does not result in discrimination
prohibited by section 401(a)(4) of the Code.
Section VI.3. Participation by Companies. MCG or the
Administrative Committee may approve the adoption of the Plan by any
subsidiary or affiliate of MCG or Cigar upon appropriate action by such
subsidiary or affiliate. In such event, or if any individuals become Employees
of a Company as a result of the acquisition of all or a part of the assets or
business of another company, MCG or the Administrative Committee may, subject
to the provisions of ERISA and the qualification requirements of the Code,
determine to what extent, if any, credit and benefits under the Abex Component
or Cigar Component shall be granted for previous service with such subsidiary,
affiliate or other company.
Section VI.4. Discontinuation by a Company. Any Company may,
by appropriate action taken by it, discontinue its participation in the Plan,
in which event its employees shall not accrue additional benefits after the
date of such discontinuance.
Section VI.5. Merger with Other Plans. The Plan shall not be
merged or consolidated with, nor transfer any of its assets and liabilities
to, any other plan unless each Participant would (if the Plan then terminated)
receive a benefit immediately after the merger, consolidation or transfer
which is equal to or greater than the benefit he would have been entitled to
receive immediately before the merger, consolidation or transfer (if the plan
had then terminated).
Section VI.6. Consolidation or Merger of MCG or Cigar. In
the event of the consolidation or merger of MCG or Cigar with or into any
other corporation, or the sale by MCG or Cigar of substantially all of its
assets, the resulting successor may
22
<PAGE>
continue the Plan by adopting the same by resolution of its board of directors
and by executing a proper supplemental agreement to the Trust Agreement with
the Trustee. If within 90 days from the effective date of such consolidation,
merger or sale of assets, such new corporation does not adopt the Plan, the
rights of all affected Participants to their respective accrued benefits under
the Plan shall be nonforfeitable to the extent funded as of the effective date
of such consolidation, merger or sale of assets.
23
<PAGE>
ARTICLE VII
TOP-HEAVY PROVISIONS
Section VII.1. Certain Top-Heavy Plans.
Subsection VII.1.1. Generally. If, for any Plan Year, the
sum of the present values of the Basic Accrued Benefits (as defined in Section
7.3) of all Participants in the Plan who are "Key Employees" (as such term is
defined in subsection 7.1.3) of the Company exceeds 60 percent of the sum of
the present values of the Basic Accrued Benefits of all Participants in the
Plan and the Plan satisfies the other requirements of section 416 or any other
successor section of the Code, then the Plan will be a "Top-Heavy Plan," as
such term is defined in section 416(g) of the Code and the limitations
specified in this Article VII and in section 416 of the Code shall apply to
the Plan for such Plan Year.
Subsection VII.1.2. Benefits Excluded. For purposes of
determining whether either the Plan is a Top-Heavy Plan, for Plan Years
beginning after December 31, 1984, the Basic Accrued Benefit of an Employee,
or the accounts of an Employee, who has not performed any service for the
Company at any time during the 5 year period ending on the Determination Date
shall be excluded.
Subsection VII.1.3. Key Employee Defined. For purposes of
this Article VII, a "Key Employee" of the Company is an Employee who (a) is an
officer of the Company having an annual compensation greater than 50 percent
of the amount in effect under Code section 415(b)(1)(A) for any Plan Year, (b)
is among the 10 employee-shareholders of the Company whose interests are the
largest and who have annual compensation from the Company greater than the
amount in effect under Code 415(c)(1)(A) for any Plan Year, (c) owns a five
percent (5%) or greater interest in the Company, or owns a one percent (1%) or
greater interest in the Company and receives annual compensation of more than
$150,000, or (d) was an employee named in any one of the above categories
within any one of the preceding 4 Plan Years.
Section VII.2. Determination Date. For each Plan Year to
which Section 7.1 applies, the determination of the value of a Participant's
Basic Accrued Benefit in the Plan shall be made on the last day of the
preceding Plan Year, or on such other dates as the Secretary of the Treasury
may, by regulations, prescribe.
Section VII.3. Calculation of Benefits. For purposes of
calculating the value of a Participant's Basic Accrued Benefit, solely for
purposes of Subsection 7.1.1, a Participant's Basic Accrued Benefit as of the
Determination Date shall include
24
<PAGE>
(a) all accumulated employer and all non-deductible Employee
contributions, but shall not include any deductible Employee
contributions,
(b) the sum of all amounts distributed to the Participant
during the 5 years preceding the Determination Date, and
(c) any additional amounts as the Secretary of the Treasury
may, by regulations, prescribe; provided, however, that any amounts
contributed as rollover contributions (as defined in section 402(c),
403(a) or 408(d) of the Code) shall not be included in (a) above,
except as the Code or regulations thereunder may require.
Section VII.4. Aggregation Rules.
Subsection VII.4.1. Required Aggregation. If, on the
Determination Date, any member of the MCG/Cigar Group maintains one or more
other plans which must be considered with this Plan for purposes of satisfying
the requirements of section 401(a)(4) and section 410 of the Code (the
"Aggregate Group"), then any valuation made pursuant to Section 7.1 shall
treat the Aggregate Group as one plan. The Aggregate Group shall also include
each plan maintained by the MCG/Cigar Group in which a Key Employee
participates. The Aggregate Group shall also include each terminated plan of
the MCG/Cigar Group if it was maintained within the last 5 years ending on the
Determination Date for the Plan Year in question and would, but for the fact
it is terminated, be part of a required aggregation group for such Plan Year.
If, for a Plan Year, the Aggregate Group, considered as one plan, is a
Top-Heavy Plan, then each plan in the Aggregate Group shall be a Top-Heavy
Plan.
Subsection VII.4.2. Permissive Aggregation. If, on the
Determination Date, any member of the MCG/Cigar Group maintains one or more
plans which are not required to be considered together for purposes of
satisfying the requirements above, the Company may treat the plans as one plan
for purposes of the valuation of benefits under Section 7.1. No plan
aggregated with another plan or plans at the election of the Company shall be
deemed a Top-Heavy Plan solely by virtue of such election.
Section VII.5. Special Vesting. For any Plan Year in which
the Plan is Top-Heavy under Section 7.1, the vesting provisions specified in
Appendix I or Appendix II shall be inapplicable for such Plan Year, and a
Participant's right to receive benefits under this Plan shall become vested in
accordance with the following table:
Years of Vesting Service Vesting Percentage
- ------------------------ ------------------
less than 2 0
2 20
25
<PAGE>
3 40
4 60
5 or more 100
Section VII.6. Minimum Benefit. For any Plan Year in which
the Plan is a Top-Heavy Plan under Section 7.1, a Participant who is not a
"Key Employee" must accrue a minimum benefit, expressed as a single life
annuity (with no ancillary benefits) commencing at normal retirement age,
which is not less than the "Applicable Percentage" of Participant's "Average
Compensation" for the "Testing Period." For purposes of this Section 7.6, (1)
the Applicable Percentage is the lesser of (a) 2 percent for each year of a
Participant's Vesting Service (excluding years beginning before January 1,
1984 and years in which the Plan was not a Top-Heavy Plan under subsection
7.1.1) or (b) 20 percent; (2) a Participant's Average Compensation is
calculated on the basis of a period of not more than 5 consecutive years
during which a Participant received his highest aggregate Compensation from
the Company; and (3) the Testing Period shall include all Plan Years except
(i) Plan Years beginning before January 1, 1984, or (ii) Plan Years beginning
after the close of the last Plan Year in which the Plan was a Top-Heavy Plan
under subsection 7.1.1. For purposes of this Section 7.6, the minimum benefit
for a Top-Heavy Plan shall be calculated in accordance with regulations, now
or hereinafter promulgated, under section 416 of the Code.
Section VII.7. Limitation on Benefits to Employees. Subject
to the exception provided below, if, for any Plan Year, this Plan is a
Top-Heavy Plan under Section 7.1, then the overall limitation imposed by
section 415(e) of the Code in the case of an Employee who is a Participant in
both a Defined Benefit Plan and a Defined Contribution Plan, if applicable,
shall be applied by substituting "1.0" for "1.25 in paragraphs (2)(B) and
(3)(B) of section 415(e) of the Code as the overall limitation.
Subsection VII.7.1. Exception. The change in the 415(e)
limitation specified in Section 7.7 above shall not be applicable to a Plan
for a Plan Year in which the Plan is a Top-Heavy Plan if, with respect to any
Plan within the Aggregate Group, (a) the sum of the present values of the
Basic Accrued Benefits of all Participants who are Key Employees of any
Defined Benefit Plan or the sum of the account balances of all Participants
who are Key Employees of any Defined Contribution Plan does not exceed 90
percent of a similar sum for all Participants of such plans, and (b) the
Applicable Percentage described in Section 7.6 above is modified by replacing
"twenty percent (20%), increased by one (1) percentage point (but not by more
than ten (10)) for each Plan Year in which a plan is a Top-Heavy Plan" for
"twenty percent (20%)".
Section VII.8. Discontinuance of This Article. In the event
that the provisions of this Article VII are no longer necessary to qualify the
Plan under the Code, this Article shall thereupon be void without the
necessity of further amendment of the Plan.
26
<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
Section VIII.1. Uniform Administration. Whenever in the
administration of the Plan any action by a Committee is required with respect
to eligibility or classification of Employees, or benefits, such action shall
be uniform in nature as applied to all persons similarly situated.
Section VIII.2. Source of Payment. Benefits under this Plan
shall be payable out of the Trust Fund or through the use of annuity contracts
purchased with assets of the Trust Fund, and neither MCG, Cigar nor any
Company shall have any obligation, responsibility or liability to make any
direct payment of benefits due under the Plan. Neither MCG, nor any Company
nor the Trustee makes any guarantee to Participants against the loss or
depreciation in value of the Trust Fund or guarantees the payment of any
benefits hereunder. No person shall have any right under the Plan with respect
to the Trust Fund, or against the Trustee, MCG, or any Company, except as
specifically provided herein or in ERISA.
Section VIII.3. Payment of Expenses. All expenses that shall
arise in connection with the administration of this Plan and the Trust
Agreement, including, but not limited to, the compensation of the Trustee and
of any actuary, accountant, counsel, investment adviser, other expert or other
person who shall be employed by a Committee in connection with the
administration or investment thereof, shall be paid from the Trust Fund unless
paid by the Companies; provided, however, that no person who is employed
full-time by any Company shall receive any compensation from the Plan except
for reimbursement of expenses properly and actually incurred.
Section VIII.4. No Right to Employment. Nothing herein
contained shall be deemed to give an Employee the right to be retained in the
service of his employer or to interfere with the rights of his employer to
discharge him at any time.
Section VIII.5. Inalienability of Benefits. Except as may be
otherwise provided by applicable law or pursuant to a qualified domestic
relations order as defined in section 414(p) of the Code, benefits provided
under this Plan shall not, prior to the actual receipt thereof by the person
entitled thereto, be subject in any manner to anticipation, assignment,
alienation, sale, transfer, pledge, encumbrance, charge, attachment,
garnishment, execution, levy or other legal or equitable process, whether
voluntary or involuntary, and any attempt to anticipate, assign, alienate,
sell, transfer, pledge, encumber, charge, attach, garnish, execute or levy
upon or otherwise dispose of any right to benefits hereunder shall be void.
The Trust Fund shall not in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person entitled to
benefits hereunder.
27
<PAGE>
Section VIII.6. Return of Company Contributions.
Contributions by the Company are expressly conditioned upon the (i) initial
qualification of the Plan under section 401 of the Code, and (ii)
deductibility of such contributions under section 404 of the Code.
Contributions shall be returned to the Company within one year after (a) the
date of denial of the initial qualification of the Plan, (b) the disallowance
of a deduction, but only to the extent the deduction is disallowed, or (c) the
payment of a contribution by mistake of fact.
Section VIII.7. Payment Due an Incompetent. If the
Administrative Committee determines that any person to whom a payment is due
hereunder is unable to care for his affairs because of physical or mental
disability or because he is under 18 years of age, it shall have the authority
to cause payments becoming due to such person to be made to another for his
benefit, without responsibility of the Administrative Committee or the Trustee
to see to the application of such payments, and any payment made pursuant to
such authority shall, to the extent thereof, operate as a complete discharge
of the obligations of the Company, the Administrative Committee, the Trustee
and the Trust Fund.
Section VIII.8. Missing Recipients. In the event any amount
shall become payable hereunder to a Participant, retired Participant,
contingent annuitant, Beneficiary (as such capitalized terms are defined in
Appendix I or Appendix II, as applicable) or the legal representative of any
of the foregoing and if after written notice from the Administrative Committee
sent by registered mail to such person's last known address as shown in the
Administrative Committee's records such person or his personal representative
shall not have presented himself to the Administrative Committee within 5
years after the mailing of such notice, then the Administrative Committee may
determine that such person's interest in the Plan has terminated and the
amounts otherwise payable shall be forfeited and shall be reapplied in
accordance with Article II of the Plan; provided, however, that if such person
presents himself after the expiration of the aforesaid period and provides
proper identification satisfactory to the Administrative Committee, then such
person's forfeited benefit, shall be reinstated and benefits determined in
accordance with Article III of Appendix I or Article V of Appendix II, as
applicable, shall commence to be paid. Unless required by law, in no event
shall benefits under the Plan be paid retroactively for the period during
which such benefits were payable but unclaimed.
Section VIII.9. Errors in Payment. If any error shall result
in the payment to any Participant or other person of more or less than he
would have received but for such error, the Administrative Committee shall be
authorized to correct such error and to adjust the payments as far as possible
in such manner that the actuarial equivalent of the benefits to which such
Participant or other person was correctly entitled shall be paid.
28
<PAGE>
Section VIII.10. Multiple Defined Benefit Plans.
Notwithstanding subsection 4.2.3 of Appendix I (regarding transfers between
defined benefit plans of a participating Company for the Abex Component) in
the event a group of Employees who are Participants in a Defined Benefit Plan
(as defined in Section 4.1) shall become covered by another Defined Benefit
Plan established by the MCG/Cigar Group (as defined in Section 4.1), the
Company may authorize the Administrative Committee to direct the Trustee to
pay over and deliver to the trustee of such other plan such of the assets of
the original Defined Benefit Plan as the Administrative Committee may
determine, but in no event shall the assets so transferred exceed that
proportion of the original Defined Benefit Plan's assets which the actuarially
determined liability for the accrued benefit credited to the Employees of such
group (on a termination basis) bears to the liability for all accrued benefits
thereunder (on a termination basis).
Section VIII.11. Notices, etc.
Subsection VIII.11.1. By Employee. Wherever provision is
made in the Plan for the filing of any notice, application, election or
designation, such action shall, except where expressly provided herein to the
contrary, be evidenced by the execution of such form, and on such notice, as
the Administrative Committee may specify for the purpose and shall be
effective upon receipt unless the Plan otherwise provides.
Subsection VIII.11.2. To Employee. Any communication,
statement, or notice addressed to any Employee or claimant at his latest post
office address as filed with the Company or the Administrative Committee will,
on deposit in the United States mail with postage prepaid, be binding upon
such Employee or claimant for all purposes of the Plan and neither the Trustee
nor the Company shall be obligated to undertake a search to ascertain the
whereabouts of any Employee or claimant.
Section VIII.12. Multiple Capacities. Any person or group of
persons may serve in more than one fiduciary capacity with respect to the
Plan.
Section VIII.13. Severability. In case any provisions of
this Plan shall be held illegal or invalid for any reason, the illegality or
invalidity shall not affect the remaining provisions of the Plan, but shall be
fully severable, and the Plan shall be construed and enforced as if the
illegal or invalid provisions had never been inserted in the Plan.
Section VIII.14. Construction. The Plan shall be construed
and enforced according to the laws of the State of New York except to the
extent otherwise required by ERISA or necessary for qualification under the
Code. Headings of Articles, Sections and Subsections herein contained are
included solely for convenience of reference, and if there be any conflict
between such headings and the text hereof, the text shall control. It is
intended that the Plan in all respects conform to and be administered and
interpreted in
29
<PAGE>
a manner consistent with the requirements of ERISA and the requirements for
qualification under the Code. Accordingly, any provision required to be
included herein, in order that the Plan so conform, shall be deemed to be
included in the Plan, whether or not expressly set forth.
Section VIII.15. Limitation of Third Party Rights. Nothing
expressed or implied in the Plan is intended or will be construed to confer
upon or give to any person, firm, or association other than the Company, the
Participants or beneficiaries (as such capitalized terms are defined in
Appendix I or Appendix II, as applicable), and their successors in interest,
any right, remedy, or claim under or by reason of this Plan except pursuant to
a Qualified Domestic Relations Order as defined in section 414(p) of the Code.
Section VIII.16. Invalid Provisions. In case any provision
of this Plan is held illegal or invalid for any reason, the illegality or
invalidity will not affect the remaining parts of the Plan. The Plan will be
construed and enforced as if the illegal and invalid provisions had never been
included.
Section VIII.17. One Plan. This Plan may be executed in any
number of counterparts, each of which will be deemed an original and the
counterparts will constitute one and the same instrument and may be
sufficiently evidenced by any one counterpart.
Section VIII.18. Use and Form of Words. Whenever any words
are used herein in the masculine gender, they will be construed as though they
were also used in the feminine gender in all cases where that gender would
apply, and vice versa
30
<PAGE>
Whenever any words are used herein in the singular form, they will be
construed as though they were also used in the plural form in all cases where
the plural form would apply, and vice versa.
IN WITNESS WHEREOF, and as evidence of the adoption of this
amended and restated Plan, MCG has caused this instrument to be executed by
its duly authorized officer effective as of December 31, 1995.
MCG INTERMEDIATE HOLDINGS INC.
By
--------------------------------
Title:
As evidence of its participation in the Plan, Cigar has
caused this instrument to be executed by its duly authorized officer effective
as of December 31, 1995.
CONSOLIDATED CIGAR CORPORATION
By:
-------------------------------
Title:
31
<PAGE>
APPENDIX II
CIGAR COMPONENT OF THE
ABEX INC. RETIREMENT PLAN
(Amended effective as of December 31, 1995,
with certain subsequent amendments)
<PAGE>
APPENDIX II
CIGAR COMPONENT OF
THE ABEX INC. RETIREMENT PLAN
This Appendix II - Cigar Component of the Abex Inc.
Retirement Plan (the "Cigar Component" or "Appendix II") sets forth the
provisions relating to the amount, form and timing of benefits and benefit
distributions, including, without limitation, eligibility, participation,
vesting and other provisions that apply specifically with respect to
individuals who participated in either the Consolidated Cigar Corporation
Domestic Employees Defined Benefit Pension Plan or the Consolidated Cigar
Corporation Employees Defined Benefit Pension Plan (Puerto Rico) immediately
prior to the Plan Merger, and with respect to other individuals who become
eligible to participate in the Plan thereafter by reason of satisfying the
eligibility requirements set forth in this Appendix II. All other provisions
of the Plan are set forth in the Basic Document. To the extent there is any
inconsistency between the Basic Document and this Appendix II, the terms under
this Appendix II will govern.
The rights and obligations of each person covered by this
Appendix II who retired or whose employment otherwise terminated prior to the
effective date of this amended and restated Plan shall be determined in
accordance with the terms of applicable Cigar Plan as in effect as of the date
of his retirement or termination of employment, as applicable.
2
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS OF APPENDIX II
Page
<S> <C>
ARTICLE I DEFINITIONS.......................................................................3
Section 1.1 General...........................................................................3
Section 1.2 Accrued Benefit...................................................................3
Section 1.3 Active Participant................................................................4
Section 1.4 Actuarial Equivalent..............................................................4
Section 1.5 Actuarial Equivalent Value........................................................4
Section 1.6 Adjustment Factor.................................................................5
Section 1.7 Affiliated Company................................................................5
Section 1.8 Beneficiary.......................................................................5
Section 1.9 Benefit Accrual Service...........................................................5
Section 1.10 Benefit Commencement Date.........................................................5
Section 1.11 Break in Service..................................................................6
Section 1.12 Cigar Board.......................................................................6
Section 1.13 Compensation......................................................................6
Section 1.14 Computation Period................................................................6
Section 1.15 Deferred Vested Benefit...........................................................6
Section 1.16 Domestic Participant..............................................................6
Section 1.17 Early Retirement Benefit..........................................................6
Section 1.18 Early Retirement Date.............................................................6
Section 1.19 Earnings..........................................................................7
Section 1.20 Eligible Domestic Employee........................................................7
Section 1.21 Eligible Employee.................................................................7
Section 1.22 Eligible Puerto Rico Employee.....................................................7
Section 1.23 Eligibility Service...............................................................8
Section 1.24 Employee..........................................................................8
Section 1.25 Employment Commencement Date......................................................8
Section 1.26 Final Average Earnings............................................................8
Section 1.27 Highly Compensated Employee.......................................................8
Section 1.28 Hour of Service...................................................................8
Section 1.29 Joint Annuitant...................................................................8
Section 1.30 Joint and Survivor Annuity........................................................8
Section 1.31 Leased Employee...................................................................9
Section 1.32 MCG Board.........................................................................9
Section 1.33 Normal Retirement Age.............................................................9
Section 1.34 Normal Retirement Benefit.........................................................9
Section 1.35 Normal Retirement Date............................................................9
Section 1.36 One-Year Break in Service.........................................................9
Section 1.37 Participant......................................................................10
i
<PAGE>
Section 1.38 Participation....................................................................10
Section 1.39 Postponed Retirement Benefit.....................................................10
Section 1.40 Postponed Retirement Date........................................................10
Section 1.41 Predecessor Company..............................................................10
Section 1.42 Primary Social Security Benefit..................................................10
Section 1.43 Puerto Rico Participant..........................................................11
Section 1.44 Qualified Joint and Survivor Annuity.............................................11
Section 1.45 Retirement Date..................................................................11
Section 1.46 Service..........................................................................11
Section 1.47 Termination......................................................................12
Section 1.48 Termination Date.................................................................12
Section 1.49 Vesting Service..................................................................12
Section 1.50 Year of Eligibility, Vesting or Benefit Accrual Service..........................12
Section 1.51 Year of Service..................................................................12
ARTICLE II SERVICE COUNTING RULES...........................................................13
Section 2.1 Hours of Service--General Rule...................................................13
Section 2.2 Hours of Service--Equivalencies..................................................13
Section 2.3 Eligibility Service..............................................................14
Section 2.4 ServiceBGeneral Rule.............................................................14
Section 2.5 Repayment of Cash-Out............................................................15
Section 2.6 Vesting Service..................................................................15
Section 2.7 Benefit Accrual Service..........................................................15
Section 2.8 Benefit Accrual Service--Past Service............................................16
ARTICLE III ELIGIBILITY FOR PARTICIPATION AND TRANSFERS......................................17
Section 3.1 Eligibility to Become a Participant..............................................17
Section 3.2 Reemployment.....................................................................17
Section 3.3 Termination of Participation.....................................................17
Section 3.4 Transfer to Another Plan.........................................................17
Section 3.5 Benefit Offset by Associated Plan Benefit........................................18
Section 3.6 Benefits under this Plan Limited by Benefits under Other
Plans ....................................................................18
3.6.1 Nonduplication of Benefits............................................18
3.6.2 Limitation on Combined Benefits.......................................18
Section 3.7 Transfers from Union Service.....................................................18
Section 3.8 Temporary Employment with Affiliated Company.....................................19
Section 3.9 Transfers from Other Plans.......................................................19
Section 3.10 Nondiscrimination................................................................21
ARTICLE IV RETIREMENT ELIGIBILITY AND SUSPENSION OF
BENEFITS.........................................................................22
Section 4.1 Retirement.......................................................................22
Section 4.2 Suspension of Benefits--Postponed Retirement.....................................22
Section 4.3 Suspension of Benefits--Rehires..................................................22
Section 4.4 Suspension of Benefit Notice.....................................................22
ii
<PAGE>
Section 4.5 Section 203(a)(3)(B) Service.....................................................23
Section 4.6 Recommencement of Benefits.......................................................23
Section 4.7 Required Commencement at Age 70 1/2..............................................23
Section 4.8 Required Commencement--Conditions................................................23
ARTICLE V AMOUNT OF RETIREMENT BENEFIT.....................................................25
Section 5.1 Normal Retirement Benefit........................................................25
Section 5.2 Postponed Retirement Benefit.....................................................26
Section 5.3A Early Retirement Benefit for Domestic Participants...............................26
Section 5.3B Early Retirement Benefits for Puerto Rico Participants...........................27
Section 5.4 Accrued Benefit..................................................................28
Section 5.5 Deferred Vested Benefit..........................................................29
Section 5.6 Adjustment for Suspension of Benefits............................................29
ARTICLE VI VESTING..........................................................................30
Section 6.1 General Rule.....................................................................30
Section 6.2 Vesting at Normal Retirement Age.................................................30
Section 6.3 Vested Portion...................................................................30
Section 6.4 Vesting upon Plan Termination....................................................30
Section 6.5 Amendment of Vesting Schedule....................................................30
ARTICLE VII DEATH BENEFITS...................................................................31
Section 7.1 Death Benefits Following Retirement..............................................31
Section 7.2 Preretirement Death Benefits.....................................................31
ARTICLE VIII FORMS OF BENEFIT.................................................................33
Section 8.1 Qualified Joint and Survivor Annuity.............................................33
Section 8.2 Involuntary Lump Sum Payment.....................................................33
Section 8.3 Right to Elect...................................................................33
Section 8.4 Election of Forms................................................................33
Section 8.5 Optional Forms of Retirement Benefit.............................................34
Section 8.6 Beneficiaries and Joint Annuitants...............................................35
Section 8.7 Eligible Rollover Distributions..................................................36
Section 8.8 Limitation on Distributions......................................................37
</TABLE>
iii
<PAGE>
ARTICLE I
DEFINITIONS
Section I.1 General. Whenever the following terms are used
in the Plan with the first letter capitalized, they shall have the meaning
specified below unless the context clearly indicates to the contrary.
Capitalized terms that are not defined in this Appendix II shall have the
meaning set forth in the Basic Document. Unless the context clearly indicates
to the contrary, section and article references are to sections and articles
in this Appendix II.
Section I.2 Accrued Benefit. "Accrued Benefit" for purposes
of this Appendix II shall mean the amount of annual pension benefit, payable
as a straight life annuity, commencing at Normal Retirement Date, as shall be
considered accrued at any time for a Participant in accordance with the
provisions of Article V.
(a) With respect to Domestic Participants:
(i) The Accrued Benefit of a Participant with
annual Earnings in excess of $200,000 on December 31, 1988
shall be the greater of (A) or (B) below where:
(A) is the Participant's Accrued Benefit
calculated by applying the $200,000
limitation to all of his years of Benefit
Accrual Service prior to the 1989 Plan
Year and the $200,000 limit with
adjustments (as permitted under Code
section 415(d)) for each year of Benefit
Accrual Service beginning in the 1989 Plan
Year and thereafter, and
(B) is his Accrued Benefit calculated as of
December 31, 1988 without applying the
$200,000 limitation, plus his Accrued
Benefit earned after the 1988 Plan Year
calculated by applying the Plan formula
only to years of Benefit Accrual Service
earned after 1988 and by using the Final
Average Earnings determined by (A) above.
(ii) The Accrued Benefit of a Participant with
annual Earnings in excess of $150,000 on December 31, 1993
shall be the greater of (A) or (B) below where:
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(A) is the Participant's Accrued Benefit
calculated by applying the $150,000
limitation to all of his years of Benefit
Accrual Service prior to the 1994 Plan
Year and the $150,000 limit with
adjustments for each year of Benefit
Accrual Service beginning in the 1994 Plan
Year and thereafter, and
(B) is his Accrued Benefit calculated as of
December 31, 1993 under subsection (i)
above, plus his Accrued Benefit earned
after the 1993 Plan Year calculated by
applying the Plan formula only to years of
Benefit Accrual Service earned after 1993
and by using the Final Average Earnings
determined by applying the limitations of
Code section 401(a)(17).
(b) With respect to Puerto Rico Participants:
The Accrued Benefit of a Participant with annual Earnings in
excess of $150,000 on December 31, 1993 shall be the greater of (i) or (ii)
below where:
(i) is the Participant's Accrued Benefit calculated
by applying the $150,000 limitation to all of his years of
Benefit Accrual Service prior to the 1994 Plan Year and the
$150,000 limit with adjustments (as permitted under Code
section 415(d)) for each year of Benefit Accrual Service
beginning in the 1994 Plan Year and thereafter, and
(ii) is his Accrued Benefit calculated as of
December 31, 1993, plus his Accrued Benefit earned after the
1993 Plan Year calculated by applying the Plan formula only
to years of Benefit Accrual Service earned after 1993 and by
using the Final Average Earnings determined by (a) above.
Section I.3 Active Participant. "Active Participant" means a
Participant still actively employed as an Eligible Employee.
Section I.4 Actuarial Equivalent. "Actuarial Equivalent" for
purposes of this Appendix II shall mean a benefit or amount having the same
Actuarial Equivalent Value as an Accrued Benefit or other applicable benefit.
Section I.5 Actuarial Equivalent Value. "Actuarial
Equivalent Value" shall mean the single sum present value of an Accrued
Benefit or other applicable benefit, where values are calculated under
generally accepted actuarial methods and using the applicable tables, interest
rates and other factors as follows:
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(a) For purposes of calculating the single sum present value
of an Accrued Benefit or other applicable benefit, the following mortality
table and interest rate shall be used:
Mortality Table -- 1983 Group Annuity Mortality Table for males
Interest Rate -- The yield rate published by the Federal Reserve for
the first week ending in the December prior to the Plan Year in
question; provided, that the yield rates shall be for Treasury
Securities, on a weekly average basis, and adjusted for ten-year
constant maturities.
(b) In determining Actuarial Equivalent lump sum values for
cash- out of benefits of $3,500 or less, the following mortality table and the
actuarial interest rate shall be used for Terminations occurring on or after
December 31, 1995.
Mortality Table -- The table prescribed by the Secretary of the
Treasury based on the prevailing commissioner's standard table
(described in Code section 807(d)(5)(A)) used to determine group
annuity contracts issued on the date as of which present value is
being determined (without regard to any other subparagraph of Code
section 807(d)(5)).
Interest Rate -- the annual rate of interest on 30-year Treasury
securities for the December prior to the Plan Year in which such
distribution occurs.
Section I.6 Adjustment Factor. "Adjustment Factor" shall
mean the cost of living adjustment factor prescribed by the Secretary of the
Treasury under section 415(d) of the Code, applied to such items and in such
manner as the Secretary shall prescribe.
Section I.7 Affiliated Company. "Affiliated Company" means
Cigar and any of its subsidiaries or affiliates, whether or not such entities
have adopted the Plan, and any other entity which is a member of a "controlled
group of corporations," a group under "common control," or an "affiliated
service group" which includes Cigar, all as determined under Code sections
414(b), (c), (m), (o) or, solely for purposes of the Code section 415 limits,
the rules set forth in Code section 415(h).
Section I.8 Beneficiary. "Beneficiary" shall mean that
person or persons or entity or entities (including a trust) or estate that
shall be entitled to receive benefits payable pursuant to the provisions of
this Appendix II by virtue of a Participant's death, in accordance with the
provisions of Section 8.6.
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Section I.9 Benefit Accrual Service. "Benefit Accrual
Service" shall mean the period of service of a Participant which is used to
calculate the amount of the Participant's Accrued Benefit, determined in
accordance with Article II.
Section I.10 Benefit Commencement Date. "Benefit
Commencement Date" shall mean the first day of the first period (e.g. month,
quarter, year) for which a benefit is payable to an individual, even though
the first payment may not actually have been made at that date.
Section I.11 Break in Service. "Break in Service" shall mean
a Termination followed by the completion of a One-Year Break in Service.
Section I.12 Cigar Board. "Cigar Board" shall mean the Board
of Directors of Consolidated Cigar Corporation, except that any action which
could be taken by the Cigar Board may also be taken by a duly authorized
committee of the Cigar Board.
Section I.13 Compensation. "Compensation" for purposes of
this Appendix II in determining Earnings for Puerto Rico Participants, shall
mean the total wages and salary paid to a Participant by the Company for each
calendar year, including overtime and bonuses, and excluding (1) fringe
benefits and any other items in addition to wages and salaries required to be
included in a Participant's taxable income, such as (but not limited to) the
cost of life insurance, stock option exercise or disposition, and use of the
Company's facilities, and (2) Company contributions to this or any other
deferred compensation plan.
Section I.14 Computation Period. "Computation Period" shall
mean the Plan Year, except for purposes of determining eligibility, in which
case it shall mean the 12 month period commencing with the Employee's date of
hire or most recent rehire following a Break in Service. If the Eligible
Employee fails to satisfy the requirements for eligibility in that 12 month
period, the Computation Period to be used for determining eligibility for that
Eligible Employee shall thereafter be the Plan Year.
Section I.15 Deferred Vested Benefit. "Deferred Vested
Benefit" shall mean the benefit to which a vested Participant would be
entitled after a Break in Service, as calculated in accordance with Article V.
Section I.16 Domestic Participant. "Domestic Participant"
shall mean an Eligible Domestic Employee who has satisfied the participation
requirements of Article III.
Section I.17 Early Retirement Benefit. "Early Retirement
Benefit" shall mean the benefit to which a Participant would be entitled in
the event of his
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retirement prior to his Normal Retirement Date, as calculated in accordance
with Article V.
Section I.18 Early Retirement Date. "Early Retirement Date"
shall mean the first day of the calendar month coincident with or next
following the Participant's Termination Date, provided that as of such date
the Participant has attained age 55 and completed 5 years of Benefit Accrual
Service or, effective October 15, 1995, and only with respect to Domestic
Participants who are non-union, non-exempt Employees in the headquarters
office of Consolidated Cigar Corporation, the Participant's age and Years of
Service add up to at least sixty-five (65) ("Rule of 65 Early Retirement
Date").
Section I.19 Earnings.
(a) "Earnings" shall mean, for Domestic Participants, the
wages and salary paid to a Participant by the Company for any period,
including overtime, bonuses and any salary reduction elections of the
Participant that are not included in gross income of the Employees under Code
section 125 or 402(a)(8) (i.e., cafeteria plan or 401(k) contributions).
Earnings shall exclude (1) fringe benefits and any other items in addition to
wages and salaries required to be included in a Participant's taxable income,
such as (but not limited to) the cost of life insurance, stock option exercise
or disposition, and use of Company facilities; and (2) Company contributions
to this or any other deferred compensation plan.
(b) "Earnings" shall mean, for Puerto Rico Participants, for
any period, Compensation received from the Company other than Compensation in
the form of qualified or previously qualified deferred compensation, that is
includible in the Employee's gross income for that period. Earnings shall also
include contributions made by the Company or an Affiliated Company pursuant to
salary reduction elections of an Employee that are not includible in gross
income of the Employee under Code sections 125 or 402(a)(8) (i.e., cafeteria
plan or 401(k) contributions). Earnings shall exclude (1) fringe benefits and
any other items in addition to wages and salaries required to be included in a
Participant's taxable income, such as (but not limited to) the cost of life
insurance, stock option exercise or disposition, and use of Company
facilities; and (2) Company contributions to this or any other deferred
compensation plan.
Section I.20 Eligible Domestic Employee. "Eligible Domestic
Employee" shall mean an Employee who is employed in the United States by Cigar
or any affiliate of Cigar that adopts the Cigar Component of the Plan, but
does not include: (a) any person employed on an hourly basis at the Sutliff
Tobacco Company division, (b) any sales person employed in Teamsters Local
805, New York, or (c) any Leased Employee.
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Section I.21 Eligible Employee. "Eligible Employee" means an
Eligible Domestic Employee or an Eligible Puerto Rico Employee.
Section I.22 Eligible Puerto Rico Employee. "Eligible Puerto
Rico Employee" shall mean an Employee who is employed in Puerto Rico by Cigar
or any affiliate of Cigar that adopts the Cigar Component of the Plan, but
does not include any domestic Employee or any Leased Employee.
Section I.23 Eligibility Service. "Eligibility Service"
shall mean Service as counted for determining a Participant's right to become
a Participant in the Plan, as determined in accordance with Article II.
Section I.24 Employee. "Employee" for purposes of this
Appendix II shall include any person who is a common-law employee of an
Affiliated Company or a Leased Employee.
Section I.25 Employment Commencement Date. "Employment
Commencement Date" shall mean the date on which the Employee first is credited
with an Hour of Service.
Section I.26 Final Average Earnings. "Final Average
Earnings" shall mean the highest monthly amount obtainable by averaging the
monthly Earnings of a Participant paid in any 60 consecutive calendar months
(or the total number of months as an Employee if less than 60) out of the last
120 months.
In calculating Final Average Earnings, as used for
calculation of benefits under this Appendix II other than benefits accrued
prior to the first Plan Year beginning after December 31, 1988, the amount of
Earnings taken into account in any 12 month period beginning January 1, 1989
and ending December 31, 1993 shall not exceed $200,000 times the Adjustment
Factor applicable for that 12 month period. In calculating Final Average
Earnings after December 31, 1993, the amount of Earnings taken into account in
any 12 month period (whether before or after December 31, 1993) shall not
exceed $150,000 times the Adjustment Factor applicable for that 12 month
period (if any).
Section I.27 Highly Compensated Employee. "Highly
Compensated Employee" and "Highly Compensated Former Employee" shall mean an
Employee who is determined to be a Highly Compensated Employee or Highly
Compensated Former Employee under the provisions of Article IV of the Basic
Document.
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Section I.28 Hour of Service. "Hour of Service" for purposes
of this Appendix II shall mean an Hour of Service calculated in accordance
with the provisions of Article II.
Section I.29 Joint Annuitant. "Joint Annuitant" shall mean
the person who will receive retirement benefits after the death of the
Participant based on the provisions of a Joint and Survivor Annuity, as
described in Section 8.6.
Section I.30 Joint and Survivor Annuity. "Joint and Survivor
Annuity" shall mean a retirement benefit under which equal monthly
installments are payable during the joint lifetimes of the retired Participant
and the Joint Annuitant, and under which, upon the earlier death of the
retired Participant, the same amount, or 75% or 50% as elected by the
Participant prior to his Benefit Commencement Date, continues to be paid to
the Joint Annuitant for the Joint Annuitant's lifetime.
Section I.31 Leased Employee. "Leased Employee" means any
person who renders personal services to an Affiliated Company and who is
described in section 414(n)(2) of the Code by reason of providing such
services, other than a person described in section 414(n)(5) of the Code.
Section I.32 MCG Board. "MCG Board" shall mean the Board of
Directors or Executive Committee of MCG Intermediate Holdings Inc.
Section I.33 Normal Retirement Age. "Normal Retirement Age"
means the date a Participant attains age 65. A Participant's Accrued Benefit
shall be fully vested upon reaching his Normal Retirement Age.
Section I.34 Normal Retirement Benefit. "Normal Retirement
Benefit" for purposes of this Appendix II shall mean the benefit to which a
Participant would be entitled in the event of his retirement on his Normal
Retirement Date, as calculated in accordance with Article V.
Section I.35 Normal Retirement Date. "Normal Retirement
Date" for purposes of this Appendix II means the first day of the calendar
month coincident with or next following the Participant's Termination after
attainment of age 65.
Section I.36 One-Year Break in Service. "One-Year Break in
Service" shall mean a Plan Year Computation Period in which an Employee is
credited with 500 Hours of Service or less. For purposes of determining
eligibility to participate, a One-Year Break in Service shall mean the
eligibility Computation Period in which an Employee is credited with 500 Hours
of Service or less. The Computation Period used to measure eligibility service
shall also be used to measure Breaks in Service. An Employee shall not be
deemed to have incurred a One-Year Break in Service if the
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Employee is absent from Service because of an authorized leave of absence
granted in writing for medical, disability, vacation, education or such other
circumstances approved by the Administrative Committee in a uniform and
nondiscriminatory manner.
In the case of an Employee who is absent from work for any
period on or after the first day of the first Plan Year beginning after
December 31, 1984, by reason of:
(a) the pregnancy of the Employee,
(b) the birth of a child of the Employee,
(c) the placement of a child with the Employee in connection
with the adoption of such child by the Employee, or
(d) the care of a child for a period beginning immediately
following such birth or placement,
the Plan shall include, solely for purposes of determining whether the
Employee has incurred a One-Year Break in Service, the Hours of Service which
would normally have been credited to the Employee but for such absence, or in
any case in which the Administrative Committee is unable to determine the
Hours of Service which would normally have been credited to the Employee,
eight (8) Hours of Service per day of absence; provided, however, that the
total number of hours treated in this manner as Hours of Service shall not
exceed 501 Hours of Service. The hours described in the preceding sentence
shall be credited in the Plan Year in which the absence from work begins if
the Employee would be prevented from incurring a One-Year Break in Service in
such period solely because the period of absence is treated as Hours of
Service as provided, above. Otherwise, the Hours of Service shall be credited
on behalf of the Employee in the immediately following Plan Year.
Section I.37 Participant. "Participant" for purposes of this
Appendix II shall mean any Eligible Employee who is or becomes a Domestic
Participant or a Puerto Rico Participant pursuant to Article III and shall
include any individual who has separated from service or ceased to be an
Eligible Employee and for whom there is still a liability under the Plan.
Section I.38 Participation. "Participation" means Service
while an Active Participant.
Section I.39 Postponed Retirement Benefit. "Postponed
Retirement Benefit" shall mean the benefit to which a Participant would be
entitled in the event of
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his retirement after his Normal Retirement Date, as calculated in accordance
with Article V.
Section I.40 Postponed Retirement Date. "Postponed
Retirement Date" shall mean the first day of the calendar month coincident
with or next following the Participant's Termination Date, if such date is
later than the Participant's Normal Retirement Age.
Section I.41 Predecessor Company. "Predecessor Company"
shall mean, with respect to an Employee, Gulf and Western Consumer Products,
if the Employee was previously employed thereby.
Section I.42 Primary Social Security Benefit. "Primary
Social Security Benefit" shall mean the estimated monthly amount payable to a
Participant at his Normal Retirement Age under Title II of the Social Security
Act as in effect on the January 1 of the year in which occurs the earlier of
the Participant's Normal Retirement Age or his Termination, assuming that:
(a) his annual Earnings as determined by his last full
calendar year of employment would continue at the same rate until his Normal
Retirement Age; and
(b) Earnings for all years prior to such last full calendar
year decreased at an annual rate of six (6%) percent.
Notwithstanding the above, each Employee shall have the right to
supply to the Administrative Committee actual salary history for all years
prior to such last full calendar year, as obtained from the Social Security
Administration, within 90 days following the later of Termination and the time
when a Participant is notified of the benefit to which he is entitled under
this Appendix II. Upon receipt of the Participant's actual salary history,
benefits for a Participant will be adjusted by determining the Primary Social
Security Benefit with use of such actual salary history.
In determining a Participant's Normal Retirement Benefit under the
Plan, the offset required on account of his Primary Social Security Benefit
shall be calculated even though at the time such determination is made, the
Participant is not receiving or eligible to receive the Primary Social
Security Benefit on which such offset is based. In no event will a
Participant's Plan benefits be reduced on account of any increase in the
benefit levels payable under Title II of the Social Security Act, if such
increase occurs after the earlier of the date of first receipt of such benefit
or the date of the Participant's Termination.
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Section I.43 Puerto Rico Participant. "Puerto Rico
Participant" means an Eligible Puerto Rico Employee who has satisfied the
participation requirements of Article III.
Section I.44 Qualified Joint and Survivor Annuity.
"Qualified Joint and Survivor Annuity" shall mean, for a married Participant,
a Joint and Survivor Annuity with the Participant's spouse as Joint Annuitant
and a fifty percent (50%) survivor benefit. For a single Participant it shall
mean a benefit payable in the form of an annuity for the life of the
Participant. The Qualified Joint and Survivor Annuity for a married
Participant shall be at least the Actuarial Equivalent, determined under the
applicable factors set forth in the definition of "Actuarial Equivalent
Value," of the Participant's Accrued Benefit or, if greater in Actuarial
Equivalent Value, any optional form of benefit then available to the
Participant under the Plan.
Section I.45 Retirement Date. "Retirement Date" shall mean a
Participant's Normal, Early or Postponed Retirement Date.
Section I.46 Service. "Service" shall mean an Employee's
period of employment with a Company or an Affiliated Company that is counted
as "Service" in accordance with Article II. Service shall include employment
with a Predecessor Company for certain purposes, as provided, under Article
II.
Section I.47 Termination. "Termination" shall mean the
cessation of active employment with the Company or an Affiliated Company.
Section I.48 Termination Date. "Termination Date" shall mean
the first date on which an Employee ceases active employment with the Company
or any Affiliated Company or fails to return to Service within 90 days of the
expiration of any authorized leave of absence.
Section I.49 Vesting Service. "Vesting Service" for purposes
of this Appendix II shall mean Service for determining a Participant's right
to vest in his Accrued Benefit under Article VI, as counted under the rules of
Article II.
Section I.50 Year of Eligibility, Vesting or Benefit Accrual
Service. "Year of Eligibility, Vesting or Benefit Accrual Service" shall mean
a Year of Service as determined under the appropriate Computation Period for
calculating Eligibility, Vesting, or Benefit Accrual Service under the rules
of Article II.
Section I.51 Year of Service. "Year of Service" shall mean a
12 month Computation Period during which the Employee is credited with 1,000
or more Hours of Service, under the rules of Article II.
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ARTICLE II
SERVICE COUNTING RULES
Section II.1 Hours of Service--General Rule. An Employee
shall be credited with an Hour of Service for:
(a) Each hour for which a person is directly or indirectly
paid, or entitled to payment, by an Affiliated Company or a Predecessor
Company for the performance of duties. These hours shall be credited to the
person during the appropriate Computation Period in which the duties are
performed;
(b) Each hour for which a person is directly or indirectly
paid, or entitled to payment, by an Affiliated Company or a Predecessor
Company for reasons other than for the performance of duties (such as
vacation, holiday, illness, incapacity including disability, jury duty,
military duty, leave of absence or layoff). These hours shall be credited to
the Employee during the Computation Period in which the nonperformance of
duties occurs, but the total credit for any single continuous period during
which the employee performs no duties (whether or not in a single Computation
Period) of such hours shall not exceed 501 hours. The computation of non-work
hours described in this subsection will be computed in accordance with the
provisions of the Department of Labor Regulation section 2530.200b-2;
(c) Each hour for which back pay, irrespective of mitigation
of damages, has been either awarded or agreed to by an Affiliated Company or
Predecessor Company. These hours will be credited to the person for the Plan
Year to which the award or agreement pertains;
(d) Each hour for which an Employee is not paid or entitled
to pay but during which the Employee is absent for a period of military
service for which reemployment rights are protected by law, but only if the
Employee returns to employment within the time required by law; and
(e) Each hour for which an Eligible Puerto Rico Employee is
not paid or entitled to payment but during which he normally would have
performed duties for a Company during any period for which he is eligible to
receive benefits under the long-term disability plan of a Company.
Section II.2 Hours of Service--Equivalencies. In calculating
Hours of Service the Administrative Committee may, in lieu of actual hour
counting, use any of the following equivalencies for classifications of
employees for whom exact hour counting would be administratively burdensome;
provided, that, if the Administrative Committee decides to calculate Hours of
Service based upon any of the following equivalencies for any classification
of employees, the equivalencies shall be reasonable
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and nondiscriminatory, and shall be consistently applied. The equivalencies
which may be used are:
(a) Hours Worked: 870 hours worked shall be treated as
equivalent to 1000 Hours of Service and 435 hours worked shall be treated as
equivalent to 500 Hours of Service.
(b) Regular Time Hours: 750 regular time hours shall be
treated as equivalent to 1000 Hours of Service and 375 regular time hours
shall be treated as equivalent to 500 Hours of Service.
(c) Days of Employment: One day of employment for which the
Employee would have been credited under the general rules with at least one
Hour of Service shall be equivalent to 10 Hours of Service.
(d) Weeks of Employment: One week of employment for which
the Employee would have been credited under the general rules with at least
one Hour of Service shall be treated as 45 Hours of Service.
(e) Semimonthly Payroll Periods: One semi-monthly payroll
period for which the Employee would have been credited under the general rules
with at least one Hour of Service shall be treated as 95 Hours of Service.
(f) Months of Employment: One month of employment for which
the Employee would have been credited under the general rules with at least
one Hour of Service shall be treated as 190 Hours of Service.
In interpreting the foregoing equivalencies the
Administrative Committee shall rely on Department of Labor Regulations Section
2530.200b-3.
Section II.3 Eligibility Service. An Eligible Employee shall
be credited with a Year of Eligibility Service if he performs 1,000 or more
Hours of Service during the Computation Period commencing with the date of his
hire or most recent rehire following a Break in Service or, if he fails to
perform 1,000 or more Hours of Service in that Computation Period, he shall be
credited with a Year of Eligibility Service if he performs 1,000 or more Hours
of Service in any Plan Year commencing after his hire or rehire date.
Section II.4 Service--General Rule. An Employee shall be
credited with a Year of Service for purposes of this Appendix II (other than
for determining eligibility) in any Plan Year in which he completes 1,000 or
more Hours of Service. Years of Service prior to a Break in Service shall be
excluded in the following cases:
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(a) Rehire Rule - The Participant has not been credited with
one Year of Eligibility Service following his date of rehire, or
(b) Cash-out Rule - The Participant has previously received
a distribution of the present value of his entire nonforfeitable benefit,
following his Termination Date, unless the Participant has repaid in full the
distribution, with interest in accordance with Section 2.5. For the purposes
of this rule, a Participant who is not entitled to a Deferred Vested Benefit
upon his Termination Date shall be considered to be cashed out upon his
Termination Date, or
(c) Rule of Parity - The Participant was not entitled to a
Deferred Vested Benefit at his Termination Date and has incurred a number of
consecutive One-Year Breaks in Service equal to the greater of five (5) or the
number of Years of Service credited to him prior to the first of such
consecutive One-Year Breaks in Service.
Section II.5 Repayment of Cash-Out. If an Employee shall
have received a full distribution of his nonforfeitable interest in the Plan
following his Termination Date, he shall be entitled to repay the amount of
that distribution to the Plan together with compound interest at the rate of
five (5) percent per annum for any period prior to the first day of the Plan
Year beginning on or after January 1, 1988, and at the rate of 120 percent of
the applicable federal mid-term rate as in effect for the first month of the
Plan Year for any Plan Year or portion of a Plan Year that commences on or
after January 1, 1988. Any such repayment shall be made prior to the earlier
of:
(a) The fifth anniversary of the date on which the Employee
was rehired by the Company, or
(b) The close of the first period of five (5) consecutive
One-Year Breaks in Service following the Participant's Termination Date.
A Participant who is deemed to have been cashed out under
Section 2.4(b) because he was not entitled to a Deferred Vested
Benefit on his Termination Date shall be deemed to have properly made
a repayment upon again becoming a Participant. Such a deemed
repayment will not restore Years of Service which would not be
counted under the provisions of Section 2.4(c) (the Rule of Parity).
Section II.6 Vesting Service. An Employee shall be credited
with a Year of Vesting Service for each Year of Service.
Section II.7 Benefit Accrual Service. A Participant shall be
credited with a Year of Benefit Accrual Service for each Year of Service
performed while an Eligible Employee during which the Participant completed at
least 1,000 Hours of Service while a Participant.
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Section II.8 Benefit Accrual Service--Past Service. In
addition to Benefit Accrual Service calculated under Section 2.7, a
Participant shall receive an additional Year of Benefit Accrual Service for
each Year of Service performed while he was not a Participant, provided that
such Year of Service was performed with: (i) Cigar or (ii) a Predecessor
Company.
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ARTICLE III
ELIGIBILITY FOR PARTICIPATION AND TRANSFERS
Section III.1 Eligibility to Become a Participant. All
Participants who were participating in the Cigar Domestic Plan or the Cigar
Puerto Rico Plan immediately prior to the Plan Merger shall continue to
participate in the Plan on December 31, 1995, as a Domestic Participant or a
Puerto Rico Participant, respectively. Effective January 1, 1996, any other
Eligible Employee shall become a Participant (either as a Domestic Participant
if an Eligible Domestic Employee, or as a Puerto Rico Participant if an
Eligible Puerto Rico Employee) on the January 1 nearest his completion of one
year of Eligibility Service after his attainment of age 21. Notwithstanding
the foregoing, if an Eligible Employee was actively employed on December 31,
1995, the foregoing age 21 requirement shall not apply in 1996; provided,
however, that effective January 1, 1997, the age 21 requirement shall apply to
any such Eligible Employee unless he had previously satisfied the requirements
for participation in this Appendix III.
Section III.2 Reemployment.
(a) A vested Participant who terminates his employment and
is later rehired shall again commence participation in the Plan on his
reemployment date.
(b) A nonvested Participant who is reemployed prior to
completing five consecutive One-Year Breaks in Service will participate
retroactively to his date of reemployment once he has completed one year of
Eligibility Service as measured from his date of reemployment.
(c) A nonvested Participant who completes a period of five
or more One-Year Breaks in Service before his date of reemployment will be
treated as a new Employee and will recommence participation in the Plan once
he satisfies the conditions of Section 3.1. Such Participant's service prior
to his date of reemployment will be ignored in accordance with Section 2.4(c).
Section III.3 Termination of Participation. A Participant
who incurs a Break in Service at a time when he is not entitled to a
retirement benefit or to a Deferred Vested Benefit shall cease Participation
at the close of the first Plan Year in which he incurs a One-Year Break in
Service. A Participant who incurs a Break in Service and who is entitled to a
retirement benefit or a Deferred Vested Benefit shall cease Participation upon
receipt of payments equal to his total benefit provided hereunder, as a lump
sum benefit under the terms of Section 8.2 or otherwise.
Section III.4 Transfer to Another Plan. A Participant who
ceases to be an Eligible Employee without incurring a Termination shall cease
to accrue benefits
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under the Plan as of the date on which he ceased to be an Eligible Employee,
and his Accrued Benefit will be frozen as of the close of the Plan Year in
which he ceases to be an Eligible Employee, but he shall continue to be a
Participant for other purposes under the Plan and, if he continues to remain in
the employ of an Affiliated Company, shall continue to earn Vesting Service.
Section 3.5 Benefit Offset by Associated Plan Benefit. In
the event that a benefit is payable under this Plan to a Participant who is
entitled to a benefit under an "Associated Plan" (which shall be those plans,
if any, designated as such in any Supplement by any amendment to this Plan),
such Participant's benefit under this Plan shall be payable only to the extent
that the actuarial value of said benefit (determined as of his Benefit
Commencement Date) exceeds the actuarial value of his accrued benefit under
such Associated Plan (determined as if such accrued benefit were first payable
as of the Participant's Benefit Commencement Date).
Section 3.6 Benefits under this Plan Limited by Benefits
under Other Plans. In the event that a benefit is payable under this Plan to a
Participant who is entitled to benefits under (a) any other funded pension,
retirement, annuity or defined benefit retirement plan contributed to or
maintained by the Company or an Affiliated Company (other than any Associated
Plan, the Consolidated Cigar Corporation Savings or Cash Option Plan for
Employees or the Consolidated Cigar Corporation Savings or Cash Option Plan
for Union Local 401 Employees), or (b) any unfunded plan contributed to or
maintained by the Company or Affiliated Company outside of the United States:
3.6.1 Nonduplication of Benefits. If his benefits
under such other plans are determined with reference to any period for which
he is entitled to benefits under this Plan, then unless such other plan
provides an offset for benefits provided under this Plan, he shall be deemed
to have accepted the benefits provided under such other plans with respect to
such period in discharge of the actuarially equivalent value of his benefits
provided under this Plan with respect to the same period; and
3.6.2 Limitation on Combined Benefits. The
Participant's benefit under this Plan shall in no event exceed the benefit
which would have been payable under this Plan if all service credited for
benefit accrual purposes under such other plans were treated as Benefit
Accrual Service under this Plan, reduced by the actuarial equivalent of the
benefits payable under all such other plans.
Section 3.7 Transfers from Union Service . In the event that
an individual shall be transferred to employment as an Eligible Employee from
employment which is subject to union jurisdiction and which is not taken into
account under the Plan because the applicable collective bargaining agreement
does not expressly provide that he shall be eligible to participate in this
Plan ("ineligible employment"), his Service completed prior to such transfer
shall be deemed Benefit Accrual Service to the extent
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that it would qualify as Benefit Accrual Service but for the failure of such
collective bargaining agreement to provide that he shall be eligible to
participate in this Plan, if:
3.7.1 He shall complete at least five (5) years of
Benefit Accrual Service following such transfer (determined without regard to
this Section 3.7); and
3.7.2 He shall be an Eligible Employee at his
termination of employment and shall then have vested rights to a Benefit
pursuant to Sections 5.1 through 5.3B or 5.6.
Notwithstanding the foregoing, remuneration paid during such ineligible
employment shall in no event be considered Earnings.
Section 3.8 Temporary Employment with Affiliated Company. In
the event that an Eligible Employee shall be transferred to employment with an
Affiliated Company and if he shall subsequently be directly transferred back
to employment as an Eligible Employee, his Service completed and remuneration
paid while so employed by such Affiliated Company shall be deemed Benefit
Accrual Service and Earnings to the extent they would be so treated if such
employment with such Affiliated Company had been employment as an Eligible
Employee.
Section 3.9 Transfers from Other Plans.
3.9.1 If (a) an individual shall be transferred to
employment as an Eligible Employee from employment with an Affiliated Company
or the Company other than as an Eligible Employee ("Excluded Employment"), (b)
such individual was, immediately prior to such transfer, an active participant
in a Related Benefit Plan (as hereinafter defined) maintained by such
Affiliated Company or the Company, and (c) such individual completes at least
two (2) years of Benefit Accrual Service following such transfer:
3.9.1.1 There shall be taken into account as
Benefit Accrual Service under this Plan: (a) his prior Service in
Excluded Employment with such Affiliated Company or the Company which
is taken into account for purposes of benefit accrual under such
Related Benefit Plan, and (b) if determined by the Chairman, Chief
Executive Officer or President of MCG, his prior employment with an
entity which was not an Affiliated Company or the Company and which
is recognized for purposes of benefit accrual under the provisions of
such Related Benefit Plan;
3.9.1.2 To the extent that the provisions of this
Section 3.9 apply, then the provisions of Section 3.6.1 and 3.6.2
shall not apply;
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3.9.1.3 Remuneration paid by his prior employer
during any period which is taken into account as Benefit Accrual
Service under this Section 3.9.1 shall be taken into account in
determining the amount of his Earnings under this Plan (subject to
the applicable provisions of Section 1.19); and
3.9.1.4 To the extent that his benefits (whether or
not vested) under such Related Benefit Plan, determined as of the
date of transfer, are (a) determined with reference to any period
taken into account as Benefit Accrual Service under this Plan, and
(b) are not attributable to voluntary employee contributions, he
shall be deemed to have accepted such benefits with respect to such
period in discharge of the actuarially equivalent value of his
benefits provided under this Plan with respect to the same period.
3.9.2 Except as the Administrative Committee shall otherwise
provide, the provisions of this Section 3.9 shall not apply to: (a) any
transfer of employment to which Section 3.8 applies; (b) any transfer of
employment incident to a transfer of assets and liabilities from another plan
or the merger of another plan into this Plan; (c) any transfer of employment
incident to any merger, liquidation, reorganization, or transfer of assets by
or between any trade or business (whether or not incorporated), or incident to
the creation or transfer of an operating division; and (d) any transfer of
employment covered by any Supplement by any amendment to this Plan, unless and
to the extent that such Supplement expressly states that this Section 3.9
shall apply. In addition, the provisions of this Section 3.9 shall not apply
to any transfer of employment to the extent expressly excluded from operation
of this Section 3.9 by action of the Administrative Committee within one (1)
year of the individual's transfer of employment.
3.9.3 For purposes of this Section 3.9, a Related Benefit
Plan means a pension, annuity, retirement, superannuation or similar plan
(other than this Plan, a defined contribution plan (including, without
limitation, the Consolidated Cigar Corporation Savings or Cash Option Plan for
Employees and the Consolidated Cigar Corporation Savings or Cash Option Plan
for Union Local 401 Employees), an Associated Plan, the Consolidated Cigar
Corporation Benefit Restoration Plan, any other plan maintained pursuant to a
collective bargaining agreement and such other plans as the Administrative
Committee may designate), funded or unfunded, which is sponsored or maintained
or to which contributions are or have been made by the Company or an
Affiliated Company.
3.9.4 For purposes of Section 3.9.1.4, in determining the
amount of a Participant's benefits under a Related Benefit Plan as of the date
of transfer, there shall be taken into account the amount of: (a) any
distribution from such Related Benefit Plan to or in respect of a Participant
prior to the date he first began participating in this Plan (other than
benefits derived from voluntary employee contributions), and
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(b) benefits accrued, payable or paid under any other plan which reduce the
Participant's benefits under such Related Benefit Plan.
3.9.5 In the case of a Related Benefit Plan benefit payable
in other than United States currency, the Administrative Committee shall
determine the appropriate conversion factor to be used in applying the
provisions of this Section 3.9.
Section 3.10 Nondiscrimination. In no event shall any
benefits accrue under this Article III if and to the extent such benefits are
discriminatory under the Code."
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ARTICLE IV
RETIREMENT ELIGIBILITY AND
SUSPENSION OF BENEFITS
Section IV.1 Retirement. A Participant who has reached his
Retirement Date shall be entitled to retire and receive benefits in accordance
with Article V. Unless a Participant otherwise elects, retirement benefits
shall commence not later than the 60th day after the close of the Plan Year in
which the latest of the following events occurs -- (i) the Participant's most
recent termination of employment, (ii) the 10th anniversary of the year in
which the Participant commenced participation in the Plan, or (iii) the
Participant's attainment of age 65.
Section IV.2 Suspension of Benefits--Postponed Retirement. If
a Participant's Service continues after his Normal Retirement Age and such
Service after his Normal Retirement Age constitutes Section 203(a)(3)(B)
Service (as defined in Section 4.5), such Participant's benefits will be
suspended provided that the Administrative Committee notifies him that his
benefits have been suspended in the manner provided by Section 4.4.
Section IV.3 Suspension of Benefits--Rehires. If a person
receiving benefits hereunder is rehired by the Company, payment of those
benefits will be suspended as long as the rehired Employee remains employed
with the Company provided such Service constitutes Section 203(a)(3)(B)
Service (as defined in Section 4.5) and provided that the Administrative
Committee notifies him that benefits have been suspended, in the manner
provided by Section 4.4.
Section IV.4 Suspension of Benefit Notice. The notice
required under Sections 4.2 or 4.3 shall contain:
(a) a description of the specific reasons for the suspension
of benefit payments,
(b) a general description of the Plan's provisions relating
to the suspension,
(c) a copy of such provisions,
(d) a statement to the effect that applicable Department of
Labor regulations may be found in section 2530.203-3 of the Code of Federal
Regulations, and
(e) a description of the Plan's procedure for affording a
review of such suspension.
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Such notice shall be furnished by personal delivery or
first-class mail during the first calendar month in which payments are
discontinued.
Section IV.5 Section 203(a)(3)(B) Service. In accordance
with DOL Regulations section 2530.203-3, "Section 203(a)(3)(B) Service" shall
be determined on a monthly basis and an Employee shall be deemed to be in
Section 203(a)(3)(B) Service in any month in which he shall perform 40 or more
Hours of Service. An Employee shall have the right to contest the
determination of his status in accordance with the claims procedures set forth
in Section 5.13 of the Basic Document.
Section IV.6 Recommencement of Benefits. Benefits which are
suspended in accordance with Section 4.2 or 4.3 shall be paid in any month in
which the Participant is not considered to be in Section 203(a)(3)(B) Service.
If an Employee whose benefits are suspended continues or recommences
Participation in the Plan and thereafter again becomes entitled to benefits
hereunder by virtue of a new Early, Normal or Postponed Retirement, previously
suspended benefits shall not be recommenced, and the Participant shall be
entitled only to his Early, Normal or Postponed Retirement Benefit, as of the
Participant's new Early, Normal or Postponed Retirement Date, adjusted as
provided in Section 5.6.
Section IV.7 Required Commencement at Age 70 1/2.
(a) A Domestic Participant not currently receiving benefits
under the Plan who attains age 70 1/2 shall commence receiving benefits no
later than the April following the calendar year in which he attains age
70 1/2. Payments shall be made in accordance with Code section 401(a)(9) and
the regulations issued thereunder.
(b) A Puerto Rico Participants not currently receiving
benefits under the Plan who attains age 70 1/2 shall commence receiving
benefits as if he had retired on December 31 of the calendar year in which he
attains age 70 1/2, and had a Benefit Commencement Date of April 1 of the
following calendar year. Each December 31 thereafter, and upon his later actual
Postponed Retirement Date, his benefit payment shall be recalculated using his
actual Benefit Accrual Service and actual Final Average Earnings. But the
recalculated benefit payments shall be reduced by the Actuarial Equivalent of
any payments previously made to him. Any such reduction shall not cause
benefit payments to be decreased to an amount less than the amount the
Participant was receiving immediately prior to the date of recalculation, or,
in the event of a recalculation because of his attaining his actual Postponed
Retirement Date, immediately prior to his actual Postponed Retirement Date.
Section IV.8 Required Commencement--Conditions.
Notwithstanding any provision of this Appendix II to the contrary, all
distributions under the Plan shall be made in accordance with the requirements
of Code section 401(a)(9) and the
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regulations thereunder, including the incidental death benefit requirements of
1.401(a)(9)-2. The provisions of this Section 4.8 override any distribution
options under the Plan if inconsistent with the requirements of Code section
401(a)(9).
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ARTICLE V
AMOUNT OF RETIREMENT BENEFIT
Section V.1 Normal Retirement Benefit.
(a) A Participant's Normal Retirement Benefit shall be a
monthly annuity for the life of the Participant commencing upon the
Participant's Normal Retirement Date, in an amount equal to
(i) 1.515% of the Participant's Final Average
Earnings multiplied by the number of years of Benefit
Accrual Service of the Participant at Normal Retirement
Date, subject to a maximum of 33 years of Benefit Accrual
Service, minus
(ii) 1.515% of the Participant's Primary Social
Security Benefit multiplied by the number of years of
Benefit Accrual Service of the Participant at Normal
Retirement Date, subject to a maximum of 33 years of Benefit
Accrual Service.
(b) Any Participant who was also a participant in the
Sutliff Tobacco Company Administrative Employees' Pension Plan as of December
3, 1971 shall be entitled to a minimum monthly annuity for life, commencing
upon his Normal Retirement Date in an amount equal to 1.25% of the
Participant's Final Average Earnings multiplied by his years of Benefit
Accrual Service.
(c) The Normal Retirement Benefit produced by subsection (a)
or (b) above shall be reduced by
(i) any retirement annuity purchased (a) for a
Domestic Participant, under the Gulf & Western Consumer
Products Salaried Employees Retirement Plan as of March 8,
1983, and (b) for a Puerto Rico Participant, under the Gulf
& Western Consumer Products Salaried Employees Retirement
Plan (Puerto Rico) as of March 8, 1983,
(ii) the Actuarial Equivalent monthly retirement
annuity attributable to any benefits received under the
terms of the Consolidated Cigar Supplemental Income Security
Plan, and
(iii) for Domestic Participants only: the Actuarial
Equivalent monthly retirement annuity provided by the
Employer Contribution Account under the Consolidated Cigar
Corporation Savings or Cash Option Plan for Employees
determined as of the Participant's Termination Date (or for
benefit calculations performed after April 1,
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1996, the Actuarial Equivalent monthly retirement annuity
provided by the Employer Contribution Account under the
Consolidated Cigar Corporation Savings or Cash Option Plan
for Employees or the Consolidated Cigar Corporation Savings
or Cash Option Plan for Employees of Union Local 401
determined as of the Participant's Termination Date).
(d) In no event shall a Participant's total Normal
Retirement Benefit from the Plan and the Gulf & Western Consumer Products
Salaried Employees Retirement Plan (or for Puerto Rico Participants, the Gulf
& Western Consumer Products Salaried Employees Retirement Plan (Puerto Rico)),
plus the Actuarial Equivalent benefits from the Consolidated Cigar
Supplemental Income Security Plan at Normal Retirement Age, be less than the
total of his retirement benefits payable under the Plans on or after his Early
Retirement Date.
(e) For Domestic Participants only: Effective January 1,
1996, in no event shall a Domestic Participant's Normal Retirement Benefit
when offset by the Actuarial Equivalent monthly retirement annuity provided by
the Employer Contribution Account under the Consolidated Cigar Corporation
Savings or Cash Option Plan for Employees of Union Local 401 be less than his
Accrued Benefit as of December 31, 1995.
Section V.2 Postponed Retirement Benefit. If a Participant
continues in Service after his Normal Retirement Date, he shall be entitled to
a Postponed Retirement Benefit of a monthly annuity for life commencing at his
Postponed Retirement Date. The amount of each monthly payment shall be
determined under Section 5.1 but with Benefit Accrual Service and Final
Average Earnings credited to the Participant's Postponed Retirement Date.
Section V.3A Early Retirement Benefit for Domestic
Participants. The following shall apply to eligible Domestic Participants:
A Participant who retires from Service prior to his Normal
Retirement Date but on or after attaining age 55, and who has completed at
such time 5 years of Benefit Accrual Service, shall be entitled to an Early
Retirement Benefit of an annual annuity for life, payable monthly, commencing
at the date which would have been the Participant's Normal Retirement Date had
he not retired early, in an amount calculated under Section 4.1. At the
election of the Participant, the Participant may receive his Early Retirement
Benefit as an annuity commencing at his Early Retirement Date, or at any date
thereafter, in a reduced amount. To determine a Participant's Early Retirement
Benefit, his Normal Retirement Benefit is calculated under Section 5.1. His
monthly annuity is then reduced for early commencement as provided in Table I
for each month by which his Benefit Commencement Date precedes his Normal
Retirement Date.
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Effective October 15, 1995, a Participant who terminates
employment on or after his Rule of 65 Early Retirement Date, or who terminated
employment prior to his Rule of 65 Early Retirement Date but then qualifies
for a "Rule of 65 Early Retirement Benefit" (as defined in the next sentence)
as a result of his increase in age, may elect an early retirement payment date
at any time on or after his Rule of 65 Early Retirement Date at which time his
"Rule of 65 Early Retirement Benefit" shall commence. A Participant's "Rule of
65 Early Retirement Benefit" shall be the Accrued Benefit of the Participant
accrued as of December 31, 1996, reduced by one-half percent (1/2%) for each of
the first sixty (60) months and one fourth (1/4%) for each of the next sixty
months by which commencement of benefits precedes the Participant's Normal
Retirement Date provided that, in the event a Participant's benefits commence
prior to having his attained age fifty-five (55), his Accrued Benefit shall be
further reduced by an appropriate actuarial adjustment. Such Rule of 65 Early
Retirement Benefit shall be in a form in accordance with Article VIII.
Section 5.3B Early Retirement Benefits for Puerto Rico
Participants. The following shall apply to Puerto Rico Participants:
A Participant who retires from Service prior to his Normal
Retirement Date but on or after attaining age 55, and who has completed at
such time 5 years of Benefit Accrual Service, shall be entitled to an Early
Retirement Benefit of an annual annuity for life, payable monthly, commencing
at the date which would have been the Participant's Normal Retirement Date had
he not retired early, in an amount calculated under Section 4.1. At the
election of the Participant, the Participant may receive his Early Retirement
Benefit as an annuity commencing at his Early Retirement Date, or at any date
thereafter, in a reduced amount calculated as provided in subsections (a) and
(b) below.
(a) The Participant's Normal Retirement Benefit is
calculated under Section 5.1(a) without regard to the reductions of Section
5.1(c). His monthly annuity is then reduced for early commencement as provided
in Table I for each month by which his Benefit Commencement Date precedes his
Normal Retirement Date.
(b) The amount determined in (a) above shall be reduced by
the retirement benefit that would be payable from the annuity purchased under
the Gulf and Western Consumer Products Employees Retirement Plan as of March
8, 1983 assuming the Participant had begun to receive payments as of the date
payments are to commence under this Plan regardless of when actual payments
commence under the purchased annuity.
(c) Notwithstanding anything contained herein to the
contrary, if a retirement annuity has been purchased for a Participant under a
Gulf and Western Consumer Products Retirement Plan as of March 8, 1983 and if
the aforesaid annuity
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provides for an unsubsidized Early Retirement Benefit (using the Early
Retirement reduction factors; provided in Table II annexed hereto), then proof
from the insurer or retiree of commencement of the aforesaid annuity is
required for commencement of the Early Retirement Benefit as provided in
subsections (a) and (b) above.
If proof from the insurer or retiree of commencement of the aforesaid
annuity is not provided, then the Participant will only be eligible
for the following Early Retirement Benefit:
The amount determined in subsection (a) above shall be reduced by the
retirement benefit that would have been payable from the annuity
purchased under the Gulf and Western Consumer Products Retirement
Plan as of March 8, 1983 assuming that:
(i) The Participant had elected to receive payment as of the
date payments are to commence under this Plan (regardless of when
actual payments commence under the purchased annuity) and
(ii) Assuming that the Participant is eligible for a
subsidized Early Retirement Benefit under the aforesaid annuity using
the Early Retirement reduction factors contained in Tables III or IV
annexed hereto, based on the Participant's age as of January 1, 1976.
Section V.4 Accrued Benefit.
(a) Participant who has Attained Retirement Age: For any
Participant who has met the appropriate age and service conditions and who is
entitled to retire and receive an Early, Normal or Postponed Retirement
Benefit, the Participant's Accrued Benefit shall be the Early, Normal or
Postponed Retirement Benefit to which the Participant would be entitled if he
were to retire at such time, payable as an annuity for life commencing at
Normal Retirement Age or, if the Participant has attained his Normal
Retirement Age, as of the first of the calendar month coincident with or next
following the date of calculation.
(b) Participant who has not Attained Retirement Age: For a
Participant other than one described in Section 5.4(a), the Accrued Benefit
shall be an annuity for life, commencing at the date on which the Participant
would attain his Normal Retirement Age if he were to remain employed until his
Normal Retirement Age, in an amount equal to the benefit determined under this
Appendix II if he were to retire upon attainment of Normal Retirement Age
entitled to a deferred vested benefit under Section 5.5, using the
Participant's Benefit Accrual Service as of his Termination Date.
Section V.5 Deferred Vested Benefit.
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(a) Deferred Vested Benefit - A Participant who has incurred
a Break in Service shall be entitled to an annual pension benefit, payable as
a straight life annuity commencing at Normal Retirement Date equal to the
Participant's Accrued Benefit on his Termination Date multiplied by the
percentage vested under the provisions of Article VI, unless such Participant
has been cashed out pursuant to Section 8.2. A Participant who is receiving
benefits under the Company's long-term disability plan shall have his annual
pension benefit under this Appendix II automatically begin on his Normal
Retirement Date.
(b) Deferred Vested Benefit - Early Commencement - A
Participant entitled to a Deferred Vested Benefit who has satisfied the
service requirement for entitlement to an Early Retirement Benefit and who
subsequently satisfies the age requirements for entitlement to an Early
Retirement Benefit shall be entitled to elect to receive his Deferred Vested
Benefit at a date prior to the date on which it otherwise would be payable, in
a reduced or an Actuarial Equivalent amount calculated in accordance with
Section 5.3A or 5.3B, respectively.
Section V.6 Adjustment for Suspension of Benefits. The
otherwise payable Early, Normal or Postponed Retirement Benefit of any
Participant who had previously become entitled to an Early, Normal or
Postponed Retirement Benefit, but whose benefit payments were suspended
pursuant to the provisions of Article IV, shall be reduced by the Actuarial
Equivalent of any payments previously made to him.
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ARTICLE VI
VESTING
Section VI.1 General Rule. A Participant who incurs a Break
in Service at a time when he is not entitled to an Early, Normal or Postponed
Retirement Benefit under the provisions of Article V shall not be entitled to
benefits under the Plan except as provided under the provisions of this
Article VI.
Section VI.2 Vesting at Normal Retirement Age. A Participant
who has attained Normal Retirement Age before his Termination shall be fully
vested in his Accrued Benefit.
Section VI.3 Vested Portion. A Participant who incurs a
Termination at a time when he is not entitled to an Early, Normal or Postponed
Retirement Benefit under the provisions of Article V shall be entitled to a
Deferred Vested Benefit, payable as provided under Article V, which shall be a
portion of his Accrued Benefit calculated in accordance with the following
table:
If the Participant's The Vested
Years of Vesting Service are: Portion is:
Less than 5 0%
5 years or more 100%
Section VI.4 Vesting upon Plan Termination. In the event of
termination or partial termination of the Plan, each affected Participant
shall be 100% vested in his Accrued Benefit, but only to the extent funded and
as required by applicable law. The foregoing sentence shall not apply to a
former Participant who has been cashed out (including those deemed cashed out
under Section 2.4(b)) or who has incurred five consecutive One-Year Breaks in
Service after his Termination Date. Such a former Participant shall not be
entitled to any additional vested benefit upon termination or partial
termination.
Section VI.5 Amendment of Vesting Schedule. If the vesting
provisions of this Appendix II are amended, including an amendment caused by
the expiration of top-heavy status under the terms of Article VII of the Basic
Document, Participants with 3 or more Years of Service, or 3 or more years of
employment, whether or not consecutive, at the later of the date the amendment
is adopted or becomes effective, shall automatically be vested, from that
point forward, in the greater of the amount vested under the vesting schedule
as amended or the amount vested under the vesting schedule prior to amendment.
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ARTICLE VII
DEATH BENEFITS
Section VII.1 Death Benefits Following Retirement. In the
event a Participant dies after retirement payments have commenced, his death
benefits shall be governed by the form of benefit selected pursuant to Article
VIII.
Section VII.2 Preretirement Death Benefits.
(a) In the event any Participant with a Vested Accrued
Benefit shall die prior to the commencement of his benefits under the Plan,
the death benefit payable to the Participant's surviving Beneficiary shall be
the Actuarial Equivalent of a Pre-Retirement Survivor Annuity.
The Pre-Retirement Survivor Annuity shall be a death
benefit, payable to a surviving Beneficiary, in an amount equal to the
Actuarial Equivalent of the amount which would be payable as a joint and 50%
survivor annuity as defined below, if:
(i) in the case of a Participant who dies after his
earliest retirement date, such Participant had retired with
an immediate joint and 50% survivor annuity on the day
before the Participant's date of death, or
(ii) in the case of a Participant who died on or
before his earliest retirement date, such Participant had:
(A) separated from service on his date of
death,
(B) survived to his earliest retirement
date,
(C) retired with an immediate joint and
50% survivor annuity on his earliest retirement
date, and
(D) died on the day after the date on
which said Participant would have reached his
earliest retirement date.
Earliest retirement date shall mean the earliest date on
which the Participant could elect to receive retirement benefits under the
Plan. Payment of such benefits must commence by the date the Participant would
have attained his earliest retirement age under the Plan, unless the surviving
Beneficiary elects a later date.
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For purposes of determining the "Pre-Retirement Survivor
Annuity," the "joint and 50% survivor annuity" shall be the Actuarial
Equivalent of the Normal Retirement Benefit where such joint and survivor
benefits following the Participant's death shall continue to the Beneficiary
during the Beneficiary's lifetime at a rate equal to fifty (50%) percent of
the rate at which such benefits were payable to the Participant.
Subject to spousal consent as provided below a Participant
may elect a Beneficiary in accordance with Section 8.6, to receive the
Pre-Retirement Survivor Annuity. For a married Participant, designation of a
Beneficiary other than a spouse must be made by the Participant in writing
during the "Election Period" and shall require the spouse's consent in the
same manner provided for in Section 8.4.
The Election Period shall begin on the first day of the Plan
Year in which the Participant attains age thirty-five (35) and end on the date
of the Participant's death. In the event a Participant separates from service
prior to the beginning of the Election Period, the Election Period shall begin
on the date of such separation from service.
With regard to the election, the Administrative Committee
shall provide each Participant, within the period beginning with the first day
of the Plan Year in which the Participant attains age thirty-two (32) and
ending with the close of the Plan Year preceding the Plan Year in which the
Participant attains age thirty-five (35), a written explanation of the Spousal
Pre-Retirement Survivor Annuity containing comparable information to that
required pursuant to Section 8.4(a). If the Participant enters the Plan after
the first day of the Plan Year in which he attained age thirty-two (32), the
Administrative Committee shall provide notice, if required, no later than the
close of the second Plan Year following the entry of the Participant into the
Plan.
If the value of the Pre-Retirement Survivor Annuity is
$3,500 or less, the Administrative Committee shall direct the immediate
distribution of such amount to the Participant's Beneficiary.
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<PAGE>
ARTICLE VIII
FORMS OF BENEFIT
Section VIII.1 Qualified Joint and Survivor Annuity. At the
earliest time a Participant could become entitled to commence receiving
payments of an Early, Normal or Postponed Retirement Benefit or of a Deferred
Vested Benefit, other than an involuntary lump sum payment under the
provisions of Section 8.2, benefits shall commence in the form of a Qualified
Joint and Survivor Annuity (which, for a Participant, who has no spouse,
includes a single life annuity) unless the Participant, with the consent of
his spouse, if any, elects otherwise. Any consent of the Participant's spouse
shall be made within 90 days of the date the Qualified Joint and Survivor
Annuity would otherwise commence, and shall be executed in accordance with the
rules of Section 8.4.
Section VIII.2 Involuntary Lump Sum Payment. If at any time
a Participant has incurred a Termination but has not begun to receive benefit
payments, and is entitled to a benefit (whether Early, Normal, or Postponed)
or to a Deferred Vested Benefit, or a Beneficiary is entitled to a death
benefit hereunder, that has an Actuarial Equivalent Value of $3,500 or less,
the Actuarial Equivalent Value shall be paid to such Participant or
Beneficiary in a lump sum in lieu of, and in full satisfaction of, his benefit
under the Plan. Neither the consent of the Beneficiary, the Participant nor of
his spouse shall be necessary to make such payment. Upon the making of such
payment, neither the Beneficiary, the Participant nor his spouse shall have
any further benefit under the Plan.
Section VIII.3 Right to Elect. In lieu of the benefits
provided by Section 8.1, the Participant shall have the right to elect, prior
to his Benefit Commencement Date, an alternate form of benefit provided under
the terms of this Article VIII. If the Participant is married, any such
election may be made only with the consent of his spouse, executed as provided
under Section 8.4. Any alternative form of benefit shall be the Actuarial
Equivalent of the Participant's Accrued Benefit.
Section VIII.4 Election of Forms. A Participant may make or
revoke an election of any form of benefit to which the Participant is entitled
under this Article VIII in writing to the Administrative Committee, and such
election or revocation shall be subject to the following conditions:
(a) The Administrative Committee shall furnish to each
Participant a general written explanation in nontechnical terms of the
availability of the various optional forms of payment under the Plan within a
reasonable period of time prior to the earliest date the Participant could
retire under the Plan. A Participant has a right to receive, within 30 days
after filing a written request with the Administrative Committee, a written
explanation of the terms and conditions of the 50% Joint and
33
<PAGE>
Survivor Annuity and the financial effect upon the Participant, given in terms
of dollars per annuity payment. Requests for additional information may be
made by the Participant at any time before the 90th day prior to the Benefit
Commencement Date.
(b) An election to receive an optional form of benefit may
be made at any time during the election period. The election period is a
period of 90 days prior to the Participant's Benefit Commencement Date.
Subject to subparagraph (c) below, a Participant may make an election not to
receive the Qualified Joint and Survivor Annuity, revoke any previous
election, and if the Participant so desires, make a new election, until the
expiration of the election period.
(c) If a Participant is married, an election of a form of
benefit other than the Qualified Joint and Survivor Annuity will require the
written consent of the spouse, and such written consent must be witnessed by a
notary public or a representative of the Plan.
(d) Lump-Sum Option for Domestic Participants. Effective
October 15, 1995, a Domestic Participant who is actively employed on or after
October 15, 1995 and who is a non-union, non-exempt Employee in the
headquarters office of Consolidated Cigar Corporation who is entitled to a
retirement benefit under the Plan may elect to receive the Actuarial
Equivalent of his retirement benefit accrued as of December 31, 1996 in a
single lump-sum form of payment as of the otherwise applicable pension
commencement date. This single lump-sum form of payment may be paid in one
lump sum payment or in payments over a period certain of up to ten (10) years
in monthly, quarterly, semiannual or annual installments. For purposes of
determining lump-sum equivalence the interest rate shall be the lesser of the
interest per annum, determined on the basis of the annualized rate of interest
as reported by the Federal Reserve Board of Ten Year U.S. Treasury Notes
(adjusted for constant maturity) for the week ended closest to a date 30 days
prior to the Benefit Starting Date, and the applicable rate used by the
Pension Benefit Guaranty Corporation for determining the present value of
lump-sum distributions on Plan terminations. Age will be determined based on
nearest birthday. The Actuarial Equivalent of the lump-sum payment shall be
determined based on the Participant's Normal Retirement Benefit.
Any such lump sum distribution shall require the written
consent of the Participant's spouse in accordance with the provisions of this
Section 8.4. Any Participant who is offered a lump sum distribution under this
paragraph shall simultaneously be offered an immediate annuity.
Section VIII.5 Optional Forms of Retirement Benefit. The
optional forms which a Participant may elect are any one of the following:
(a) Joint and Survivor Annuity Option - An Actuarial
Equivalent monthly benefit payable to the Participant for life, and after his
death in the same
34
<PAGE>
amount, or 75% or 50% of such amount as specified by the Participant, to the
spouse for life. Should the Joint Annuitant die prior to the Participant's
Benefit Commencement Date, any election of this option shall be automatically
canceled. If the Participant should die prior to the Benefit Commencement
Date, no payments shall be made under this option to the Joint Annuitant, but
if the Joint Annuitant is the Beneficiary of the Participant, such Beneficiary
will be entitled to the death benefit provided under Article VII.
(b) Years Certain and Life Income Option - An Actuarial
Equivalent monthly benefit which provides retirement benefit payments to the
Participant for his lifetime with a guaranteed minimum period of ten (10)
years. In the event of the death of the Participant after the Benefit
Commencement Date, but prior to the Participant's receiving retirement benefit
payments for the ten (10) year period certain, the remaining payments will be
paid to the Participant's Beneficiary. In the event of the death of the
Participant prior to the Participant's Benefit Commencement Date, the election
of this option shall be void and of no effect.
(c) Straight Life Annuity Option - A Participant who has a
spouse may elect to have the Participant's retirement benefit payable in equal
unreduced monthly payments during the Participant's lifetime, with no further
payments to any other person after the Participant's death. If this option is
elected, the retirement benefit payable to the Participant shall be the amount
of retirement benefit determined under the applicable Section(s) of Article V.
Section VIII.6 Beneficiaries and Joint Annuitants.
(a) A Participant may only name his or her spouse as Joint
Annuitant for a Joint and Survivor Annuity option. For a years certain and
life income option, the Participant may elect, in writing, an individual or
individuals, or any entity or entities, including corporations, partnerships
or trusts, provided that such individuals and entities are ascertainable, and
the shares of each are clearly set forth. In the event any Beneficiary
predeceases the Participant or is not in existence, not ascertainable, or not
locatable at the date benefits become payable to such Beneficiary, benefits
shall be paid to such contingent Beneficiary or Beneficiaries as shall have
been named by the Participant on the Participant's original Beneficiary
election, and, if none, the contingent Beneficiary shall be the Participant's
estate.
(b) A Participant may name his spouse, his children, his
parents or his siblings to receive death benefits pursuant to Section 7.2. In
the event any Beneficiary predeceases the Participant or is not in existence,
not ascertainable, or not locatable at the date benefits become payable to
such Beneficiary, benefits shall be paid to such contingent Beneficiary or
Beneficiaries as shall have been named on the Participant's original
Beneficiary election, and, if none, the benefit shall be forfeited to the
Plan.
35
<PAGE>
Section VIII.7 Eligible Rollover Distributions.
(a) This Section 8.7 applies to distributions made on or
after January 1, 1993. Notwithstanding any provision of the Plan to the
contrary that would otherwise limit a distributee's election under this
Section 8.7, a distributee may elect, at the time and in the manner prescribed
by the Administrative Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
(b) Definitions.
(i) Eligible rollover distribution -- An eligible
rollover distribution is any distribution of all or any
portion of the balance to the credit of the distributee,
except that an eligible rollover distribution does not
include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently
than annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated
beneficiary, or for a specified period of 10 years or more;
any distribution to the extent such distribution is required
under section 401(a)(9) of the Code; and the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net
unrealized appreciation with respect to employer
securities).
(ii) Eligible retirement plan -- An eligible
retirement plan is an individual retirement account
described in section 408(a) of the Code, an individual
retirement annuity described in section 408(b) of the Code,
an annuity plan described in section 403(a) of the Code, or
a qualified trust described in section 401(a) of the Code,
that accepts the distributee's eligible rollover
distribution. However, in the case of an eligible rollover
distribution to the surviving spouse, an eligible retirement
plan is an individual retirement account or individual
retirement annuity.
(iii) Distributee -- A distributee includes an
employee or former employee. In addition, the employee's or
former employee's surviving spouse and the employee's or
former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order,
as defined in section 414(p) of the Code, are distributees
with regard to the interest of the spouse or former spouse.
(iv) Direct rollover -- A direct rollover is a
payment by the Plan to the eligible retirement plan
specified by the distributee.
36
<PAGE>
Section VIII.8 Limitation on Distributions. Notwithstanding
any provision of this Appendix II regarding payment to Beneficiaries or
Participants, or any other person, the Administrative Committee may withhold
payment to any person if the Administrative Committee determines that such
payment may expose the Plan to conflicting claims for payment. As a condition
for any payments, the Administrative Committee may require such consent,
representations, releases, waivers or other information as it deems
appropriate. The Administrative Committee may, in its discretion, comply with
the terms of any judgment or other judicial decree, order, settlement or
agreement including, but not limited to, a Qualified Domestic Relations Order
as defined in Code section 414(p).
37
<PAGE>
TABLE I
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Months Early 0 1 2 3 4 5 6 7 8 9 10 11
- ------------
Years Early
- -----------
0 1.0000 .9967 .9933 .9900 .9867 .9833 .9800 .9767 .9733 .9700 .9667 .9633
1 .9600 .9567 .9533 .9500 .9467 .9433 .9400 .9367 .9333 .9300 .9267 .9233
2 .9200 .9167 .9133 .9100 .9067 .9033 .9000 .8967 .8933 .8900 .8867 .8833
3 .8800 .8767 .8733 .8700 .8667 .8633 .8600 .8567 .8533 .8500 .8467 .8433
4 .8400 .8367 .8333 .8300 .8267 .8233 .8200 .8167 .8133 .8100 .8067 .8033
5 .8000 .7944 .7889 .7833 .7778 .7725 .7690 .7655 .7620 .7585 .7550 .7515
6 .7480 .7445 .7410 .7375 .7340 .7305 .7270 .7235 .7200 .7165 .7130 .7095
7 .7060 .7025 .6990 .6955 .6920 .6885 .6850 .6815 .6780 .6745 .6710 .6675
8 .6640 .6605 .6570 .6535 .6500 .6465 .6430 .6395 .6360 .6325 .6290 .6255
9 .6220 .6185 .6150 .6115 .6080 .6045 .6010 .5975 .5940 .5905 .5870 .5835
10 .5800
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE II
1951 Group Annuity Table (Male) 6% Interest (Set Back One Year for Males, Six Years for Females)
Early Retirement Factors - Normal Retirement Age 65
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Months Early -> 0 1 2 3 4 5 6 7 8 9 10 11
- ------------
Years Early |
- ----------- \ /
Males
0 1.0000 .9915 .9830 .9745 .9660 .9575 .9490 .9405 .9320 .9235 .9150 .9065
1 .8980 .8906 .8831 .8757 .8683 .8608 .8534 .8460 .8385 .8311 .8237 .8162
2 .8088 .8023 .7950 .7892 .7827 .7762 .7697 .7632 .7567 .7502 .7436 .7371
3 .7306 .7249 .7191 .7134 .7076 .7019 .6961 .6904 .6846 .6789 .6731 .6674
4 .6616 .6565 .6514 .6464 .6413 .6362 .6311 .6260 .6209 .6159 .6108 .6057
5 .6006 .5961 .5916 .5870 .5825 .5780 .5735 .5690 .5645 .5599 .5554 .5509
6 .5464 .5424 .5384 .5343 .5303 .5263 .5223 .5183 .5143 .5102 .5062 .5022
7 .4982 .4946 .4910 .4874 .4838 .4802 .4766 .4731 .4695 .4659 .4623 .4587
8 .4551 .4519 .4487 .4454 .4422 .4390 .4358 .4326 .4294 .4261 .4229 .4197
9 .4165 .4136 .4107 .4078 .4049 .4020 .3991 .3963 .3934 .3905 .3876 .3847
10 .3818
Females
0 1.0000 .9925 .9850 .9774 .9699 .9624 .9549 .9474 .9399 .9323 .9248 .9173
1 .9098 .9031 .8964 .8897 .8830 .8763 .8696 .8630 .8563 .8496 .8429 .8362
2 .8295 .8235 .8176 .8116 .8056 .7996 .7937 .7877 .7817 .7757 .7698 .7638
3 .7578 .7524 .7471 .7417 .7364 .7310 .7257 .7203 .7149 .7096 .7042 .698?
4 .6935 .6887 .6819 .6790 .6742 .6694 .6646 .6598 .6550 .6501 .6453 .640?
5 .6357 .6314 .6270 .6227 .6184 .6140 .6097 .6054 .6010 .5967 .5924 .5880
6 .5837 .5790 .5759 .5720 .5681 .5642 .5603 .5563 .5524 .5485 .5446 .5407
7 .5368 .5333 .5297 .5262 .5227 .5191 .5156 .5121 .5085 .5050 .5015 .4979
8 .4944 .4912 .4880 .4848 .4816 .4784 .4752 .4719 .4687 .4655 .4623 .4591
9 .4559 .4530 .4501 .4472 .4443 .4414 .4385 .4355 .4326 .4297 .4268 .4239
10 .4210
A-2: Vesteds, who terminate
Actuarial Equivalents (6%), Mercer after 1/1/78
</TABLE>
<PAGE>
TABLE III
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
MALES AND
FEMALES
Months Early -> 0 1 2 3 4 5 6 7 8 9 10 11
- ------------
|
Years Early \ /
- ----------
0 1.0000 .9965 .9930 .9895 .9860 .9825 .9790 .9755 .9720 .9685 .9650 .9615
1 .9580 .9545 .9510 .9475 .9440 .9405 .9370 .9335 .9300 .9265 .9230 .9195
2 .9160 .9125 .9090 .9055 .9020 .8985 .8950 .8915 .8880 .8845 .8810 .8775
3 .8740 .8705 .8670 .8635 .8600 .8565 .8530 .8495 .8460 .8425 .8390 .8355
4 .8320 .8285 .8250 .8215 .8180 .8145 .8110 .8075 .8040 .8005 .7970 .7935
5 .7900 .7865 .7830 .7795 .7760 .7725 .7690 .7655 .7620 .7585 .7550 .7515
6 .7480 .7445 .7410 .7375 .7340 .7305 .7270 .7235 .7200 .7165 .7130 .7095
7 .7060 .7025 .6990 .6955 .6920 .6885 .6850 .6815 .6780 .6745 .6710 .6675
8 .6640 .6605 .6570 .6535 .6500 .6465 .6430 .6395 .6360 .6325 .6290 .6255
9 .6220 .6185 .6150 .6115 .6080 .6045 .6010 .5975 .5940 .5905 .5870 .5835
10 .5800
</TABLE>
A-3: Early Retirees, who were not
at least age 55 on 1/1/76
4.2% reduction per year (NRD - age 65)
<PAGE>
TABLE IV
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Months Early -> 0 1 2 3 4 5 6 7 8 9 10 11
- ------------ |
Years Early \ /
- -----------
MALES 0 1.0000 .9967 .9933 .9900 .9867 .9833 .9800 .9767 .9733 .9700 .9667 .9633
- -----
1 .9600 .9567 .9533 .9500 .9467 .9433 .9400 .9367 .9333 .9300 .9267 .9233
2 .9200 .9167 .9133 .9100 .9067 .9033 .9000 .8967 .8933 .8900 .8867 .8833
3 .8800 .8767 .8733 .8700 .8667 .8633 .8600 .8567 .8533 .8500 .8467 .8433
4 .8400 .8367 .8333 .8300 .8267 .8233 .8200 .8167 .8133 .8100 .8067 .8033
5 .8000 .7944 .7889 .7833 .7778 .7725 .7690 .7655 .7620 .7585 .7550 .7515
6 .7480 .7445 .7410 .7375 .7340 .7305 .7270 .7235 .7200 .7165 .7130 .7095
7 .7060 .7025 .6990 .6955 .6920 .6885 .6850 .6815 .6780 .6745 .6710 .6675
8 .6640 .6605 .6570 .6535 .6500 .6465 .6430 .6395 .6360 .6325 .6290 .6255
9 .6220 .6185 .6150 .6115 .6080 .6045 .6010 .5975 .5940 .5905 .5870 .5835
10 .5800
FEMALES 0 1.0000 .9967 .9933 .9900 .9867 .9833 .9800 .9767 .9733 .9700 .9667 .9633
- -------
1 .9600 .9567 .9533 .9500 .9467 .9433 .9400 .9367 .9333 .9300 .9267 .9233
2 .9200 .9167 .9133 .9100 .9067 .9033 .9000 .8967 .8933 .8900 .8867 .8833
3 .8800 .8767 .8733 .8700 .8667 .8633 .8600 .8567 .8533 .8500 .8467 .8433
4 .8400 .8367 .8333 .8300 .8267 .8233 .8200 .8167 .8133 .8100 .8067 .8033
5 .8000 .7950 .7900 .7850 .7800 .7750 .7701 .7655 .7620 .7585 .7550 .7515
6 .7480 .7445 .7410 .7375 .7340 .7305 .7270 .7235 .7200 .7165 .7130 .7095
7 .7060 .7025 .6990 .6955 .6920 .6885 .6850 .6815 .6780 .6745 .6710 .6675
8 .6640 .6605 .6570 .6535 .6500 .6465 .6430 .6395 .6360 .6325 .6290 .6255
9 .6220 .6185 .6150 .6115 .6080 .6045 .6010 .5975 .5940 .5905 .5870 .5835
10 .5800
A-4: Early Retirees, who were
at least age 55 on 1/1/76
4.0% reduction per year between ages 60 and 65; 4.2% reduction per year prior
to age 60
</TABLE>
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARIES
ORGANIZED OR
NAME OF SUBSIDIARY INCORPORATION
Consolidated Cigar Corporation Delaware
Congar International Corporation Delaware
Cuban Cigar Brands, NV Netherlands-Antilles
Direct Products Inc. Delaware
Fabrica de Tabacos La Flor de Copan, S.A. de C.V. Honduras
Jamaica Tobacco Manufacturing Company (1995) Ltd. Jamaica
Tabacalera de Garcia, Ltd. Bermuda
Tabacos San Andres S.A. de C.V. Honduras
Triple C Marketing Inc. Delaware
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 24th day of March 1998.
/s/ Ronald O. Perelman
----------------------
RONALD O. PERELMAN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 24th day of March 1998.
/s/ Philip E. Beekman
---------------------
PHILIP E. BEEKMAN
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 24th day of March 1998.
/s/ Theo W. Folz
---------------------
THEO W. FOLZ
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 23rd day of January 1998.
/s/ Michael J. Fuchs
---------------------
MICHAEL J. FUCHS
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 24th day of March 1998.
/s/ Howard Gittis
---------------------
HOWARD GITTIS
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 21st day of January 1998.
/s/ Robert Sargent Shriver III
--------------------------------
ROBERT SARGENT SHRIVER III
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 24th day of March 1998.
/s/ Gary R. Ellis
---------------------
GARY R. ELLIS
<PAGE>
POWER OF ATTORNEY
KNOWN ALL MEN BY THESE PRESENTS, that the undersigned hereby
constitutes and appoints each of Glenn P. Dickes, Gary R. Ellis and Joram C.
Salig or any of them, each acting alone, his true and lawful attorney-in-fact
and agent, with full power of substitution, for him and in his name, place and
stead, in any and all capacities, in connection with the CONSOLIDATED CIGAR
HOLDINGS INC. (the "Corporation") Annual Report on Form 10-K for the year
ended December 31, 1997 under the Securities Exchange Act of 1934, as amended,
including, without limiting the generality of the foregoing, to sign the Form
10-K in the name and on behalf of the Corporation or on behalf of the
undersigned as a director or officer of the Corporation, and any amendments to
the Form 10-K and any instrument, contract, document or other writing, of or
in connection with the Form 10-K or amendments thereto, and to file the same,
with all exhibits thereto, and other documents in connection therewith,
including this power of attorney, with the Securities and Exchange Commission
and any applicable securities exchange or securities self-regulatory body,
granting unto said attorneys-in-fact and agents, each acting alone, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
IN WITNESS WHEREOF, the undersigned has signed these
presents this 24th day of March 1998.
/s/ James M. Parnofiello
------------------------
JAMES M. PARNOFIELLO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Cigar Holdings Inc. Condensed Consolidated Balance Sheet and
Statement of Operations and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0001017550
<NAME> CONSOLIDATED CIGAR HOLDINGS INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 3,231
<SECURITIES> 0
<RECEIVABLES> 30,977
<ALLOWANCES> (6,008)
<INVENTORY> 88,945
<CURRENT-ASSETS> 134,552
<PP&E> 57,712
<DEPRECIATION> (18,201)
<TOTAL-ASSETS> 279,433
<CURRENT-LIABILITIES> 42,801
<BONDS> 87,100
0
0
<COMMON> 307
<OTHER-SE> 54,830
<TOTAL-LIABILITY-AND-EQUITY> 279,433
<SALES> 299,067
<TOTAL-REVENUES> 299,067
<CGS> 167,285
<TOTAL-COSTS> 168,285
<OTHER-EXPENSES> 42,271
<LOSS-PROVISION> 150
<INTEREST-EXPENSE> 10,551
<INCOME-PRETAX> 78,810
<INCOME-TAX> 25,219
<INCOME-CONTINUING> 53,591
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53,591
<EPS-PRIMARY> 1.75
<EPS-DILUTED> 1.73
</TABLE>
