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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, 1996
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 1-12521
SWISHER INTERNATIONAL GROUP INC.
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(Exact name of Registrant as specified in its charter)
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<S> <C>
DELAWARE 13-3857632
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer
Identification No.)
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20 THORNDAL CIRCLE, DARIEN, CT 06820
(Address of principal executive offices)
203-656-8000
(Telephone Number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange on
Title of each class which registered
- ------------------------------------ -------------------------
Class A Common Stock, $.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 or any amendment of this
Form 10-K. [ ].
The aggregate market value of Class A Common Stock (par value $.01) held by
non-affiliates at March 21, 1997 was $81,747,275.
The number of shares of Class A Common Stock (par value $.01) outstanding
at March 21, 1997 was 6,000,000.
DOCUMENTS INCORPORATED BY REFERENCE.
Parts II and IV Annual Report to Stockholders for the year ended December 31,
1996.
Part III Proxy Statement in connection with the 1997 Annual Meeting of
Stockholders.
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PART I
ITEM 1. BUSINESS
Swisher International Group Inc. and Subsidiaries ('Swisher' or the
'Company') manufactures and sells cigars and smokeless tobacco products. Founded
in 1861, Swisher is the leading manufacturer and marketer of cigars in the
world, as measured by units sold.
Through November 6, 1995, Swisher International, Inc. was a wholly owned
subsidiary of American Maize-Products Company ('AMPCo'). On November 6, 1995, in
connection with the acquisition of AMPCo and its subsidiaries by Eridania
Beghin-Say, S.A. ('EBS'), the common stock of the Predecessor was simultaneously
sold to the Company, which was a wholly owned subsidiary of Hay Island Holding
Corporation ('Hay Island'). On December 18, 1996, the Company completed an
initial public offering ('Offering') of 6,000,000 shares of Class A Common
Stock.
PRODUCTS
Cigars
Cigar products can be divided into three principal categories: mass market
large cigars, premium cigars and little cigars. All cigars, except little
cigars, which do not have a binder, generally consist of filler tobacco that is
wrapped first with a binder and then with a wrapper.
Mass Market Large Cigars. Mass market large cigars are generally
machine-made and have a retail price of one dollar or less per cigar. Mass
market large cigars are made with filler threshed into short uniform
pieces. The more expensive mass market cigars utilize natural leaf wrapper.
Less expensive mass market large cigars use wrappers made from
reconstituted tobacco instead of a natural leaf wrapper. In 1996, the
market for mass market large cigars in the United States consisted of
approximately 2.8 billion units or 61% of the total cigar market. The
Company has the leading unit market share of the mass market for large
cigars at approximately 26% in 1996. The Company's established mass market
large cigar brands include Swisher Sweets, King Edward, Optimo, Sante Fe,
Keep Moving and El Trelles, and new-product introductions include,
Blackstone and Corral Wodiska's Cazadores. The Swisher Sweets large cigar
brand is sold in various shapes and styles including Kings, Tip Cigarillos,
Cigarillos, Perfectos, Wood Tips, Blunts and the new Swisher Sweets Outlaws
rough-cut cigar. The King Edward large cigar brand is also sold in a
variety of shapes and flavors including Wood Tips, Sweet Cherry Wood Tips,
Sweet Vanilla Wood Tips, Imperials, Specials, and Tip Cigarillos.
Premium Cigars. Premium cigars are generally hand-made and have a
retail price above one dollar per cigar. Premium cigars, generally, are
made with natural leaf tobacco wrapper, binder and long filler. Higher
grades of tobacco are generally used in premium cigars with tobacco blends
varying from brand to brand depending on the desired characteristics.
Premium cigars are made by wrapping natural leaf binder tobacco around the
long filler tobacco to create a bunch which is placed into a mold to create
the shape of the cigar. Then natural leaf wrapper tobacco is hand-rolled
around the bunch creating a hand-made premium cigar. In 1996, the market
for premium cigars in the United States represented approximately 274
million units or 6% of the total cigar market. The Company's unit share of
the premium cigar market in 1996 was approximately 10%. The Company's
established premium brands include Bering and La Primadora, and recent
product introductions include Siglo 21, Sabroso, Flor de Jalapa and La
Diligencia. The Company's premium brands are manufactured in the Dominican
Republic, Honduras and Nicaragua. The Company also has exclusive rights to
the United States distribution of the Pleiades, Casa Buena and Carlin
premium brands which are manufactured in the Dominican Republic, Canary
Islands and Nicaragua, respectively.
Little Cigars. Little cigars are mass market cigars that weigh less
than three pounds per thousand. Most little cigars consist of cut filler
tobacco, a wrapper made from reconstituted tobacco and a filter. Little
cigars are machine made and do not use a binder. Generally, little cigars
are the lowest priced products of the mass market category of cigars. In
1996, the market for little cigars in the United States represented
approximately 1.5 billion units, or 33% of the total cigar market. The
Company introduced Swisher Sweets Little Cigars in 1986, and by 1996
Swisher Sweets Little Cigars had a 40% unit market share of the little
cigar market. The Company's little cigar brands include, Swisher Sweets
Little Cigars, the industry's largest selling little cigar, and King Edward
Little Cigars. The Company believes the success of the Swisher Sweets
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Little Cigars, as with the Swisher Sweets brand in general, is attributable
to its unique taste. The Company has capitalized on the tremendous market
reception received by the Swisher Sweets Little Cigars by introducing
product extensions, such as menthols, lights and the recently introduced
cherry flavor.
The overall cigar market has experienced rapid growth in unit volume and
dollar sales since 1993, reversing the steady decline in the market from 1964 to
1993. Led by growth in mass market large and premium cigars, the overall United
States cigar market has increased at a compound annual rate of 9.8% in unit
terms, and has increased at almost twice that rate in retail dollar sales, from
1993 to 1996. Unit sales of mass market large and premium cigars has increased
at a compound annual rate of 11.1% and 35.7%, respectively, from 1993 to 1996,
while retail dollar sales of both categories have increased more rapidly due to
price increases. From 1993 to 1996, little cigar unit volume increased at a
compound annual rate of 4.8%.
Smokeless Tobacco Products
Smokeless tobacco products are made from tobacco that has been cured, aged,
fermented and then dried and flavored. The smokeless tobacco market can be
divided into two distinct categories: snuff and chewing tobacco. There are two
types of snuff, moist snuff and dry snuff. Chewing tobacco is available in three
varieties: loose leaf, plug and twist. Loose leaf is the predominant product in
the chewing tobacco category, with plug and twist representing less than 10% of
the chewing tobacco market volume in 1996. Smokeless tobacco products in the
United States are used orally and either placed between the cheek and gum as in
snuff or chewed.
Moist Snuff. Moist snuff is made from Kentucky or Tennessee dark fired
tobacco that has been aged for at least three years and then cut, flavored
and fermented for approximately eight weeks. Following fermentation, a
second flavoring process is completed before the product is packaged in
plastic or paper cans. Moist snuff, with 1996 estimated retail sales of
$1.9 billion (56.2 million pounds), is the largest segment of the smokeless
tobacco market in terms of retail sales. The Company's well-known moist
snuff brands include Silver Creek, Redwood, Cooper and Gold River. In
addition, the Company manufactures and markets private label products, such
as Bowie. The Company's branded moist snuff comes in various flavors, such
as natural, wintergreen, cherry and spearmint, and fine and long cut
varieties. The Company believes its moist snuff marketing strategy has
enabled it to consistently increase sales, as measured in pounds, from 1987
to 1996 at a compound annual rate of 17.8%, or over three times the market
growth rate of approximately 5.0%. Through its value pricing promotional
strategy, the Company emphasizes the comparable quality of its moist snuff
products at approximately one-half the price of its major competitors'
products. Moist snuff represented approximately 45% of the Company's 1996
net sales of smokeless tobacco products.
Loose Leaf Chewing Tobacco. Loose leaf chewing tobacco is made from
air cured tobacco grown primarily in Wisconsin and Pennsylvania that has
been aged for at least two years and then threshed to remove stems and
blended. The blended tobacco is flavored and packaged in foil pouches.
Retail sales of all chewing tobacco, of which over 90% is loose leaf, in
1996 were an estimated $500 million (55.5 million pounds). The Company's
products include, Mail Pouch, a brand in existence for 100 years, Lancaster
Limited-Reserve Chewing-Tobacco, Chattanooga Chew and Earl Caulfield's. The
Company also produces private label loose leaf tobacco products for certain
marketing groups and wholesalers. The Company's Earl Caulfield's loose leaf
chewing tobacco was the first chewing tobacco introduced in nontraditional
chewing tobacco flavors. The Company's unit sales of loose leaf chewing
tobacco increased by 10.4% from 1995 to 1996. The Company attributes this
growth primarily to a revised marketing strategy and to its successful
introduction of loose leaf tobacco product extensions, such as the new
flavors of Earl Caulfield's.
Dry Snuff. Dry snuff is made from Kentucky, Tennessee and Virginia
dark fired tobacco that has been aged for at least three years and then
fermented for approximately thirty days. After fermentation is completed,
the tobacco is dried and cut into a fine tobacco flour that is flavored
prior to packaging. Retail sales of dry snuff in 1996 were an estimated $76
million (4.7 million pounds). The Company sells dry snuff under numerous
brands including Tops, Navy, Railroad Mills, Superior, Buttercup, Square,
Society and Honey Bee. Although the unit market for dry snuff has declined
at a compound annual rate of approximately 6.1% over the past 10 years, the
Company has maintained a relatively constant market share and has generated
substantial cash flow from the sale of its dry snuff products.
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Although total unit consumption of smokeless tobacco products has remained
relatively stable since the late 1980s, retail dollar sales have increased at a
compound annual rate of 8.7% from $1.0 billion in 1985 to an estimated $2.5
billion in 1996 primarily due to the growth of the moist snuff category.
Consumption of moist snuff, which represents almost one-half of the pounds sold
in the smokeless tobacco market and approximately 77% of the retail sales, has
increased in terms of retail dollar sales at an estimated compound annual rate
of 11.5% from 1985 to 1996. Loose leaf chewing tobacco sales, in terms of
pounds, declined from 1985 to 1996 at a compound annual rate of 2.3%. However,
retail dollar sales of all chewing tobacco, of which over 90% is loose leaf,
increased from $381.8 million to an estimated $500 million over the same period
as a result of the industry's ability to increase product prices. Although the
mature dry snuff market has been declining in terms of pounds sold from 1985 to
1996 at an approximate 6.1% compound annual rate, dry snuff has continued to
provide a significant source of cash flow to the industry participants as a
result of the industry's ability to offset such declines with price increases.
SALES AND MARKETING
The Company utilizes targeted, regionally focused market segmentation
techniques in combination with significant market research, information systems
and a large sales force to achieve its sales and marketing objectives. The
Company sells its cigar and smokeless tobacco products through a national sales
force which covers all 50 states in the United States and is believed by the
Company to be the largest in the cigar industry. The Company employs
approximately 250 full time sales and marketing professionals. The Company's
sales force is divided into a mass market cigar and smokeless tobacco sales
force and a separate premium cigar sales force. The mass market sales force is
organized by territory and calls on direct buying accounts, such as tobacco
distributors, wholesale grocers and retail chains, as well as retailers who
purchase from such direct buying accounts. Direct retail account contact enables
the Company to introduce new products, and improve shelf coverage and placement
of point-of-sale materials for the Company's products. In addition, the Company
believes its effectiveness in developing relationships with retailers is a
competitive strength that is important to its continued growth. The Company's
mass market cigar and smokeless tobacco sales force also has a group which calls
on national and key accounts. To effectively penetrate the premium cigar
category, the Company has a separate premium cigar sales force to focus
primarily on outlets which sell premium cigars, such as smoke shops,
restaurants, cigar bars, golf club pro shops and tobacco retailers.
Most of the Company's sales are to tobacco distributors, including McLane
Company Inc. which accounted for approximately 14%, 12% and 10% of the Company's
net sales in 1996, 1995 and 1994, respectively, and grocery wholesalers, with
the remainder principally to food and drug chains, such as Food Lion, Winn
Dixie, Rite Aid, CVS and Walgreens. The Company's products are ultimately sold
through grocery and drug stores, mass merchandisers, convenience stores,
smokeshops, bars and restaurants and other stores.
The Company uses information systems and extensive market research to
develop and implement a highly targeted and regionalized marketing strategy. The
Company's sales force utilizes laptop computers to provide on-line access to
consumer account and product information while in the field. Through its
national account organization, the Company has become the category manager for
the 'other tobacco' category with several of its national and regional retail
chain accounts, allowing the Company to better market its products.
The Company is the leading exporter of American made cigars. The Company
has also licensed brands, such as King Edward, to manufacturers in The
Netherlands, England, Germany and the Canary Islands (for distribution to Spain)
for which it receives royalties. Export sales are generated through an
international network of distributors and through Swisher International,
Limited, a wholly owned duty-free sales company in the United Kingdom. The
Company estimates that its products are available in over 70 countries
worldwide. While only a small portion of the Company's revenues are generated
from export sales and royalties on licensed sales, the Company is seeking to
increase its exports in the future, as well as increase royalty revenues through
increasing the number of licensing agreements.
The Company's advertising strategy focuses largely on selected print
advertising and point-of-sale promotions. The Company's promotional programs are
primarily geared to providing price incentives such as discounts, coupons and
rebate offers to its customers and offering display fixtures to the retail
stores it services.
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TRADEMARKS AND TRADE SECRETS
Trademarks and brand name recognition are important to the Company's
business. The Company owns most of the trademarks under which its products are
sold. The Company has registered its trademarks (or has made application for
registration) in the United States and many other countries and will continue to
do so as new trademarks are developed or acquired. The Company owns or has
applications pending for numerous trademarks, including the following: Mass
Market Cigar Trademarks: Swisher Sweets, King Edward, Optimo, Santa Fe, El
Trelles, Keep Moving, Corral Wodiska's Cazadores and Blackstone; Premium Cigar
Trademarks: Bering, Siglo 21, La Primadora, Sabroso, Flor de Jalapa and La
Diligencia; Moist Snuff Trademarks: Silver Creek, Gold River, Redwood, Cooper
and Bowie; Loose Leaf Chewing Tobacco Trademarks: Mail Pouch, Chattanooga Chew,
Lancaster Limited-Reserve Chewing-Tobacco and Earl Caulfield's; Dry Snuff
Trademarks: Navy, Tops, Railroad Mills, Superior, Buttercup, Square, Society and
Honey Bee.
The Company also relies upon unpatented trade secrets for the protection of
certain intellectual property rights. There can be no assurance that the Company
will be able to prevent unauthorized use or disclosure of such information. In
addition, no assurance can be given that others will not independently develop
substantially equivalent proprietary information, or otherwise gain access to
the Company's trade secrets, or that the Company can meaningfully protect its
rights to unpatented trade secrets.
MANUFACTURING
The Company's manufacturing strategy is to strive to be the low cost
producer in its industry through continued operational improvements, to produce
high quality products and to maintain flexible manufacturing capabilities which
enable the Company to respond to changing market demands, develop new products
and extend the product line of existing brands.
The Company manufactures mass market large and little cigars at its
Jacksonville, Florida facility and smokeless tobacco products at its Wheeling,
West Virginia facility. In addition to manufacturing cigars at the Jacksonville
facility, the Company also manufactures substantially all of its boxes, packages
its cigar products and manufactures substantially all of its reconstituted
tobacco wrapper and binder.
The Company believes that its Jacksonville facility, which manufactures
approximately four million cigars daily, is the most automated cigar
manufacturing facility in the United States. As a result of the Company's
emphasis on increased automation, fewer machines are required to perform the
same manufacturing processes than were required in prior years and, at the same
time, throughput has increased. Additionally, because the Company manufactures
large quantities of certain cigar sizes, it is able to utilize high volume,
efficient equipment to manufacture these cigars in large production runs,
thereby achieving economies of scale.
The Company seeks to continue to reduce production costs and secure
additional production capacity by increasing its in-house production
capabilities. The Company has historically purchased little cigars from outside
manufacturers, but has successfully begun to manufacture its little cigars at
its Jacksonville facility and has ordered additional equipment to increase
in-house production. The Company believes that this manufacturing ability, which
is expected to be fully operational by the middle of 1997, will reduce its cost
of producing little cigars. Additionally, the Company continues to pursue
manufacturing efficiencies by actively practicing a 'total resource management'
program which includes a program whereby cross-departmental teams of employees
are organized to trouble shoot manufacturing problems and a 'Big Idea' program
whereby employees are awarded incentive bonuses for introducing and implementing
cost-saving ideas.
The Company has completed three major cost-saving initiatives to streamline
its operations, increase its manufacturing efficiencies and improve its sales
and marketing organization while reducing overall administrative costs. In 1992,
the Company consolidated its dry snuff and moist snuff manufacturing packaging
and shipping operations from its plant in Helmetta, New Jersey, which it closed,
to its Wheeling, West Virginia facility. In 1993, as a result of the merger of
Helme Tobacco Company, the Company realized significant reductions in selling,
general and administrative expenses. In 1994, the Company closed its Waycross,
Georgia cigar plant and consolidated all of its cigar manufacturing activities
into its Jacksonville, Florida facility. As a result of these consolidations,
the Company incurred pretax restructuring charges of $5.4 million in 1994,
$5.2 million in 1993 and $3.6 million in 1992, and has realized significant cost
savings in its base manufacturing and selling, general and administrative
expenses.
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Under the supervision of the Company and according to the Company's
specifications, the Company's premium products are manufactured by contractors
located in the Dominican Republic, Honduras and Nicaragua. The Company has
developed strong, long standing relationships with its premium cigar
manufacturers. In keeping with past practice, the Company and each of such
manufacturers enter into an understanding based on written budgets and price
lists prior to the beginning of each year with respect to the quantity, price
and delivery terms for such manufacturer's premium cigars. Although such
understandings are not in writing except for the budgets and price lists, in the
past such manufacturers have performed in substantial accordance with such
understandings. During 1996, one manufacturer supplied 29% of the Company's
premium cigars.
The Company believes that its cigar and smokeless tobacco product
manufacturing capacity, together with its existing contracts for the manufacture
of little cigars, is adequate for its current production needs of mass market
large and little cigars and smokeless tobacco products. Additional cigar
manufacturing equipment on order will provide for additional mass market large
and little cigar manufacturing capacity needed in the near term and reduce the
need for third party manufacture of little cigars. The Company believes that it
can increase manufacturing capacity for mass market large and little cigars by
purchasing additional manufacturing equipment and enlarging its production
facilities by expanding to Company-owned adjacent land. As a result of the
increased demand for its hand-made premium cigars, the Company had back orders
of approximately 10 million cigars as of December 31, 1996. In order to reduce
reliance on the third party manufacturers of premium cigars, the Company will be
opening its own cigar-making facility in Honduras and a joint-venture facility
in the Dominican Republic during 1997.
Tobacco is the Company's primary raw material. The Company buys tobacco for
its mass market cigars from leaf dealers which obtain the tobacco from a large
number of suppliers located inside and outside the United States, including
Brazil, Argentina, Costa Rica, Germany, Italy, the Dominican Republic, Paraguay,
the Philippines, Indonesia, Honduras and Mexico. The Company buys the tobacco
for its smokeless tobacco products from leaf dealers and farmers in the United
States. The Company does not believe that it is dependent on any single source
for tobacco for any of such products. The Company's third party premium cigar
manufacturers provide all of the tobacco necessary to produce the Company's
premium cigars. Generally, these third party manufacturers grow a large portion
of their tobacco requirements and acquire the balance from leaf dealers and
other growers throughout the world.
COMPETITION
Founded in 1861, the Company is the largest manufacturer and marketer of
cigars in the world with an 8% market share and in the United States with a 31%
market share, as measured by units sold in 1996. The other three significant
competitors in the cigar market are Consolidated Cigar Holdings Inc., a public
company, General Cigar Holdings, Inc., a public company, and Havatampa/Phillies
Cigar Corporation, a privately held corporation. In addition, Tobacco Exporters
International Limited (a subsidiary of Rothmans International, a public company)
is a significant competitor in the little cigar market. The Company's major
competitors in the smokeless tobacco products market are UST Inc., Conwood
Corporation, Brown & Williamson Tobacco Company, National Tobacco Company and
Pinkerton Group, Inc. Certain competitors of the Company are better capitalized
than the Company and may have greater financial and other resources than those
available to the Company. The Company believes that its strong market position
in the cigar industry is due to its well-known brand names, broad range of
product offerings, commitment to and reputation for manufacturing quality
cigars, marketing expertise and customer service and efficient manufacturing
operations. The Company believes that its improving position in moist snuff and
loose leaf chewing tobacco is due to its strong sales and marketing organization
and its well known brand names, broad range of product offerings and efficient
manufacturing operations.
5
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EMPLOYEES
As of December 31, 1996, the Company had approximately 1,160 full-time
employees and 50 part-time employees. The Company believes its relations with
its union and non-union employees are and will continue to be good. The Retail,
Wholesale & Department Store Union, AFL-CIO-CLC and the International
Association of Machinists and Aerospace Workers Union represent the hourly
employees at the Jacksonville facility. Both labor agreements will expire in the
first half of 1997 and the Company anticipates that new three year agreements
will be reached with such unions. There has not been a work stoppage in
Jacksonville in over 19 years. The Bakery, Confectionery and Tobacco Workers'
International Union and the International Association of Machinists and
Aerospace Workers Union represents hourly employees at the Wheeling facility.
Both labor agreements at this location were renewed for three years during 1996.
To the Company's knowledge, there has never been a work stoppage at this
facility.
REGULATION
The tobacco industry, particularly with respect to cigarettes, has been
under public scrutiny for over thirty years. Industry critics include special
interest groups, the Surgeon General and many legislators at the state and
federal levels. Much of the focus has been directed at the cigarette industry
due to its large size relative to the cigar and smokeless tobacco markets,
although the cigar and smokeless tobacco companies have also been affected by
such action.
Cigar and smokeless tobacco 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 1970s 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 recently required states, in order to receive full funding
for federal substance abuse block grants, to establish a minimum age of 18 years
for the sale of tobacco products together with an appropriate enforcement
program. In recent years, a variety of bills relating to tobacco issues have
been introduced in the Congress of the United States, including bills that would
have (i) prohibited the advertising and promotion of all tobacco products and/or
restricted or eliminated the deductibility of such advertising expenses; (ii)
increased labeling requirements on tobacco products to include, among other
things, addiction warnings and lists of additives and toxins; (iii) modified
federal preemption of state laws to allow state courts to hold tobacco
manufacturers liable under common law or state statutes; (iv) shifted regulatory
control of tobacco products and advertisements from the FTC to the FDA; (v)
increased tobacco excise taxes; and (vi) required tobacco companies to pay for
health care costs incurred by the federal government in connection with tobacco
related diseases. Hearings have been held on certain of these proposals;
however, to date, none of such proposals have been passed by Congress. Future
enactment of such proposals or similar bills could have a material adverse
effect on the sales or operations of the Company.
On August 28, 1996, the FDA published a final rule on tobacco in the
Federal Register. Specifically, the rule makes the sale of cigarettes and
smokeless tobacco to children and adolescents, i.e., anyone younger than 18
years of age, a federal violation. In addition, the rule requires manufacturers,
distributors, and retailers to comply with certain conditions regarding the
sale, distribution and promotion of tobacco products. It prohibits all free
samples and limits retail sales in most circumstances to face-to-face
transactions. As a result, vending machines and self-service displays are
prohibited, except in facilities where the retailer or operator ensures that no
person younger than 18 is present or is permitted to enter at any time. The rule
limits advertising, generally, to a black-and-white, text-only format, which the
FDA believes will ensure that advertising is not used to create demand for these
products among young people and thus undermine the restrictions on access.
Billboards and other outdoor advertising are prohibited within 1,000 feet of
schools and public playgrounds. The sale and distribution of non-tobacco items,
such as hats and tee shirts that carry cigarette logos, are prohibited, and
sponsorship of sporting and other events is limited to the corporate name only.
The provisions of the regulations will become effective between six months and
two years after August 28, 1996. This regulation could have a material adverse
effect on the Company's business.
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Although federal law has required health warnings on cigarettes since 1965
and on smokeless tobacco since 1986, there is no federal law requiring that
cigars carry such warnings. However, California requires 'clear and reasonable'
warnings to consumers who are exposed to chemicals determined by 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. There can be no assurance that such legislation introduced in other
states will not be passed in the future or that other states will not enact
similar legislation.
During 1988, the Company and 25 manufacturers of tobacco products entered
into a settlement of legal proceedings filed against them pursuant to
Proposition 65. Under the terms of the settlement, the Company and such other
defendants agreed to label retail packages or containers of cigars, pipe
tobaccos and other smoking tobaccos (other than cigarettes) manufactured or
imported for sale in California with a specified warning label. To guarantee
compliance with the California requirements, to eliminate errors in distribution
and to maintain the efficiencies of the manufacturing process, the Company and
most of its competitors have begun using the label on all of their tobacco
products shipped to customers in all states, except for a few premium cigar
customers.
Massachusetts recently enacted legislation requiring manufacturers of
cigarettes, chewing tobacco and snuff to provide the state annually with a list
of the additives (in descending order of weight) and the nicotine yield ratings
of each brand they produce, which information will, subject to certain
conditions, be made publicly available. The ingredients of the Company's
products are proprietary and disclosure could result in the manufacture and sale
of imitations. This legislation is being challenged by a number of smokeless
tobacco manufacturers, including the Company. (See 'ITEM 3. LEGAL PROCEEDINGS.')
In addition, the majority of states restrict or prohibit smoking of
cigarettes and cigars in certain public places and restrict the sale of tobacco
products to minors. Local legislative and regulatory bodies have also
increasingly moved to curtail smoking by prohibiting smoking of cigarettes and
cigars 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.,
little cigars which extinguish themselves if not continuously smoked). Passage
of this type of legislation could have a material adverse effect on the
Company's little cigar sales because of the technological difficulties in
complying with such legislation. There is currently an effort by the U.S.
Consumer Product Safety Commission to establish such standards for cigarettes.
The enabling legislation, as originally proposed, included little cigars;
however, little cigars were deleted due to the lack of information on fires
caused by these products. There can be no assurance that little cigars will be
excluded from such legislation in the future.
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 in its own guidelines in making the determination, the EPA's
final risk assessment was arbitrary and capricious. The court ruled in May 1995
that plaintiffs have standing to pursue this action. Whatever the outcome of
this litigation, issuance of the report, which is based primarily on studies of
passive cigarette smokers, may lead to further legislation designed to protect
non-smokers. (See 'ITEM 3. LEGAL PROCEEDINGS').
In manufacturing and distributing tobacco products, the Company uses,
handles and disposes of hazardous chemicals, such as petroleum products, at a
number of its facilities, and as a result is subject to environmental
regulations relating to such use, handling and disposal. Although the Company is
currently in substantial compliance with all material environmental regulations,
the Company has been subject and may continue to be subject to liability for the
cleanup of contamination and other environmental remedial actions. The Company
does not expect that such liability, or any effort to comply with present and
future environmental regulation, will have a material adverse effect on the
Company's finances or business.
7
<PAGE>
EXCISE TAXES
Cigars and smokeless tobacco products 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. 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.
Since 1986, smokeless tobacco (including dry and moist snuff and chewing
tobacco) has been subject to Federal excise tax as well. Unlike the excise tax
on large and little cigars, which taxes are based on the number (per 1000) of
cigars manufactured or imported, smokeless tobacco is taxed by weight (in pounds
or fractional parts thereof) manufactured or imported. From July 1, 1986 through
December 31, 1990, the excise tax on snuff was $0.24 per pound. Effective
January 1, 1991, the Federal excise tax rate on snuff increased to $0.30 per
pound, and again increased to $0.36 per pound, effective January 1, 1993. From
July 1, 1986 through December 31, 1990, the excise tax on chewing tobacco was
$0.08 per pound. Effective January 1, 1991 the Federal excise tax on chewing
tobacco increased to $0.10 per pound, and again increased to $0.12 per pound
effective January 1, 1993. The increase in the Federal excise tax rate on
smokeless tobacco 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 its proposed health care reform program. The Company believes
that the volume of cigars and smokeless tobacco sold would have been
dramatically reduced if excise taxes were enacted as originally proposed as part
of the Clinton Administration's health care reform program. Future enactment of
significant increases in excise taxes, such as those initially proposed by the
Clinton Administration or other proposals not linked specifically to health care
reform, would have a material adverse effect on the business, future results of
operations and cash flows 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
excise taxes. State excise taxes on cigars and smokeless tobacco products
generally range from 2% to 74.9% of the wholesale purchase price. The number of
states that impose excise taxes on cigars and smokeless tobacco products is
forty-two. California, Connecticut, Iowa, Oregon, Tennessee and Florida (with
certain exceptions) impose excise taxes on little cigars at the same rates as
cigarettes.
State cigar and smokeless tobacco 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 the Company's sales regionally. The
enactment of new state excise taxes and the increase in existing state excise
taxes are likely to have an adverse effect on regional sales as cigar and
smokeless tobacco consumption generally decline.
OTHER
This Form 10-K contains forward-looking statements that are based on
current expectations, estimates and projections about the industries in which
the Company operates, management's beliefs and assumptions made by management.
Words such as 'expects,' 'believes,' 'estimates,' variations of such words and
similar expressions are intended to identify such forward-looking statements.
These statements are not guarantees of future performance and involve certain
risks, uncertainties and assumptions which are difficult to predict.
8
<PAGE>
Therefore, actual outcomes and results may differ materially from what is
expressed or forecasted in such forward-looking statements. The Company
undertakes no obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or otherwise.
ITEM 2. PROPERTIES
As of December 31, 1996, the principal properties owned or leased by the
Company for use in its business included:
<TABLE>
<CAPTION>
OWNED APPROXIMATE
LOCATION PRINCIPAL USE OR LEASED FLOOR SPACE
- -------------------------------------------------------------- ------------------- --------- -----------
<S> <C> <C> <C>
Jacksonville, Florida......................................... Cigar Manufacturing Owned 375,357
Wheeling, West Virginia....................................... Smokeless Tobacco Owned(1) 415,781
Manufacturing
Edgerton, Wisconsin........................................... Warehouse-Smokeless Owned 166,141
Tobacco Aging
Brookneal, Virginia........................................... Warehouse-Smokeless Owned 54,000
Tobacco Aging
Hopkinsville, Kentucky........................................ Warehouse-Smokeless Owned 47,470
Tobacco Aging
Lancaster, Pennsylvania....................................... For Sale Owned 44,228
Helmetta, New Jersey.......................................... For Sale Owned 385,000
Waycross, Georgia............................................. For Sale Owned 104,000
</TABLE>
- ------------------
(1) The Company beneficially owns the property subject to a lease purchase
agreement with Ohio County, West Virginia, which permits the Company to
receive certain property and sales tax benefits.
The Company believes that its facilities are well maintained and in
substantial compliance with environmental laws and regulations.
ITEM 3. LEGAL PROCEEDINGS
Current tobacco litigation generally falls within one of three categories:
class actions, individual actions, or actions brought by individual states
generally to recover Medicaid costs allegedly attributable to tobacco-related
illnesses. The pending actions allege a broad range of injuries resulting from
the use of tobacco products or exposure to tobacco smoke and seek various
remedies, including compensatory and, in some cases, punitive damages together
with certain types of equitable relief such as the establishment of medical
monitoring funds and restitution. Recent lawsuits against the tobacco industry
have alleged a conspiracy to conceal evidence of the alleged addictive
properties of nicotine which, if successful, could have a material adverse
effect on the Company. A Florida jury recently rendered a damages verdict in
favor of a cigarette smoker. Also, a study published recently in the journal
Science reported that a chemical found in cigarette smoke has been found to
cause genetic damage in lung cells that is identical to damage observed in many
malignant tumors of the lung. This study could affect pending and future tobacco
litigation. The major tobacco companies are vigorously defending the various
tobacco actions, including by challenging the authority of state attorney
generals to bring Medicaid actions attributable to tobacco-related illnesses
and, in some states, bringing preemptive lawsuits to enjoin the state attorney
general from instituting litigation. The Liggett Group ('Liggett'), the number
five cigarette manufacturer, with a 2% share of the domestic cigarette market,
recently reported a settlement with the Attorneys General of 22 states pursuant
to which Liggett agreed, inter alia, (a) to make certain statements regarding
the effects of cigarette smoking; (b) to agree to put an 'addiction warning
label' on its cigarette packs; (c) to 'substantially' comply with the new FDA
rules; (d) to cooperate with the 22 Attorneys General in law suits pending in
their states and to turn over privileged documents; and (e) to contribute 25% of
its pretax profits to health funds for the next 25 years. It is not possible to
predict whether the Liggett settlement will have a material adverse effect on
the Company.
The Company is a defendant, along with other tobacco manufacturers,
wholesaler/retailers and other defendants, in two suits commenced by individual
plaintiffs in Lake Charles, Louisiana. Sontag v. United States Tobacco, et. al.,
State Docket No. 95-6434, USDC Case No. 96CV0100 and Lonkowski v. R.J. Reynolds,
et al., State Docket No. 96-1855, USDC Case No. 96 CV 1192. The complaints
allege fraud and misrepresentation in
9
<PAGE>
the marketing and sale of tobacco products, breach of warranty, negligence and
other claims. The plaintiffs seek unspecified damages, attorney fees and costs.
The Company believes that it has meritorious defenses and is vigorously
defending these lawsuits.
Additionally, the Company was a defendant, along with other tobacco
manufacturers, a retailer and other defendants, in a suit commenced by an
individual plaintiff in Duval County, Florida. Rix v. R.J. Reynolds, et al.,
State Case No. 96-01778-CA. The complaint alleged negligence, strict liability,
and civil conspiracy. The plantiff recently agreed to withdraw the claims
against the Company and the Company is no longer a party to the suit.
Though claims have been made against manufacturers of smokeless tobacco
products and against manufacturers of cigars, the Company is not aware of any
adverse decision or judgment having been rendered against smokeless tobacco or
cigar manufacturers. There can be no assurance, however, that the Company may
not be named as a defendant in any future suits, nor can there be any assurance
that such suits, if brought against the Company, or that the Company's existing
litigation will not result in an adverse judgment against the Company which
could have a material adverse effect on the Company's business, future results
of operations and cash flows. The Company does not carry insurance to protect
against health-related product liability because the cost of obtaining such
insurance is commercially prohibitive. Additionally, a judgment against the
Company with respect to a product and any related products, could preclude the
further sale of such products, the result of which could materially adversely
affect the Company's business.
The Company is a plaintiff, along with other smokeless tobacco
manufacturers and North Carolina wholesalers, in an action commenced in U.S.
District in North Carolina against the U.S. Food and Drug Administration and
David A. Kessler, the Commissioner of Food and Drugs. United States Tobacco, et
al. v. United States Food and Drug Administration, et al., USDC Case No. 6:95
CV0066. The counts in the complaint state inter alia that the FDA lacks the
legal authority to regulate smokeless tobacco products, that FDA regulation is
precluded by the Comprehensive Smokeless Tobacco Health Education Act of 1986
and that the FDA's regulations violate the United States Constitution. The
Company seeks a declaratory judgment and an injunction restraining the FDA from
taking any action to regulate smokeless tobacco products.
The Company is also a plaintiff, along with other smokeless tobacco
manufacturers, in an action commenced in U.S. District Court in Massachusetts
against the Attorney General and the Commissioner of Public Health of the State
of Massachusetts. United States Tobacco, et al. v. Harshburger, et al., USDC
Case No. 96-11619-GAO. The counts in the complaint state inter alia that a
Massachusetts statute requiring manufacturers to disclose the identity and
relative quantities of ingredients added to tobacco products on a brand-by-brand
basis suffers from multiple United States Constitutional infirmities. The
Company believes that the proposed statute violates the Federal Supremacy Clause
as it intrudes into an area covered by the Comprehensive Smokeless Tobacco
Health Education Act, that it violates the Takings Clause as it would destroy
the Company's trade secrets and that it violates the Due Process Clause as it
would deprive the Company of its property without prior notice or meaningful
opportunity to be heard.
In the opinion of management, the cost, if any, of resolving the specific
cases referred to above which are presently pending should not have a
significant impact on the Company's consolidated financial position, however,
the cost of resolving such litigation, if any, could have a significant effect
on the future results of operations and cash flows. There can be no assurance
that there will not be an increase in health-related litigation in the future.
With respect to litigation other than the pending cases specifically referred to
above, the costs to the Company of defending or prosecuting any prolonged
litigation or the cost of a judgment against the Company could have a material
adverse effect on the Company's business.
The Company is party to various other legal claims in respect to
environmental, tax and commercial disputes. 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 VOTE OF SECURITY HOLDERS
None.
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
This information is incorporated by reference to the Company's 1996 Annual
Report.
ITEM 6. SELECTED FINANCIAL DATA
This information is incorporated by reference to the Company's 1996 Annual
Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This information is incorporated by reference to the Company's 1996 Annual
Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
This information is incorporated by reference to the Company's 1996 Annual
Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
In September 1996, Coopers & Lybrand L.L.P. replaced Grant Thornton LLP as
the Company's independent accountants. Coopers & Lybrand L.L.P. had previously
been the independent accountants for AMPCo and were engaged in July 1995 by
AMPCo and Hay Island to audit stand alone consolidated financial statements of
the Company for the years ended December 31, 1992, 1993 and 1994 and a
consolidated special purpose balance sheet as of November 6, 1995. The decision
to engage Coopers & Lybrand L.L.P. was made with the approval of the Company's
Audit Committee.
Grant Thornton LLP was engaged to audit the Company's consolidated
financial statements as of December 31, 1995, and for the period from November
7, 1995 to December 31, 1995. In connection with the Offerings, Coopers &
Lybrand L.L.P. was subsequently appointed to replace Grant Thornton LLP as the
Company's independent accountants as of December 31, 1995, and for the periods
January 1, 1995 to November 6, 1995 and November 7, 1995 to December 31, 1995.
The Company believes, and it has been advised by Grant Thornton LLP that it
concurs in such belief, that, during the period November 7, 1995 to December 31,
1995, the Company and Grant Thornton LLP did not have any disagreement on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreement, if not resolved to the
satisfaction of Grant Thornton LLP, would have caused it to make reference in
connection with its report on the Company's financial statements to the subject
matter of the disagreement.
The report of Grant Thornton LLP on the Company's previously issued
consolidated financial statements (not appearing herein) as of December 31, 1995
and for the period from November 7, 1995 to December 31, 1995, did not contain
an adverse opinion or a disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope or accounting principles. During that period
there were no 'reportable events' within the meaning of Item 304(a)(1)(v) of
Regulation S-K promulgated under the Securities Act.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the directors
and executive officers of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ------------------------------------------------
<S> <C> <C>
William Ziegler, III............................ 68 Chairman of the Board, Chief Executive Officer
and Director
William T. Ziegler.............................. 41 Chairman of the Executive Committee, Chief
Operating Officer and Director
Timothy Mann.................................... 54 President and Director
Robert A. Britton............................... 50 Executive Vice President, Chief Financial
Officer and Director
Nicholas J. Cevera, Jr.......................... 59 Executive Vice President--Operations and
Director
J. Thomas Ryan, III............................. 49 Executive Vice President--Sales & Marketing and
Director
Justo S. Amato.................................. 62 Senior Vice President--Finance
Paul M. Arvia................................... 58 Senior Vice President--Sales
Barry L. Drugg.................................. 50 Senior Vice President--Human Resources
John E. Fraleigh................................ 58 Senior Vice President--Tobacco Procurement
Peter J. Ghiloni................................ 45 Senior Vice President--Marketing
Cynthia Z. Brighton............................. 37 Vice President--Financial Services, Treasurer
and Director
Karl H. Ziegler................................. 27 Secretary
C. Keith Hartley................................ 54 Director
Alfred F. La Banca.............................. 65 Director
Donald E. McNicol............................... 75 Director
Charles H. Mullen............................... 69 Director
John R. Tweedy.................................. 67 Director
</TABLE>
William Ziegler, III has been a Director, Chief Executive Officer and
Chairman of the Board since November 1995. From 1958 to 1995, Mr. Ziegler served
as a Director of AMPCo, from 1964 to 1995 as Chairman of the Board of AMPCo and
as Chief Executive Officer from 1976 to 1993. Mr. Ziegler is President of the E.
Matilda Ziegler Foundation for the Blind (a private foundation) and also has
served as Trustee of Connecticut College and as a member of the Board of
Directors of the Maritime Aquarium at Norwalk. Mr. Ziegler is the father of
William T. Ziegler and Cynthia Z. Brighton. Mr. Ziegler is a member of the
Executive Committee.
William T. Ziegler has been a Director and Chief Operating Officer of the
Company since November 1995. From 1991 to 1994, Mr. Ziegler served as Director
of Corporate Development for Helme Tobacco Company ('Helme'). William T. Ziegler
is the son of William Ziegler, III. William T. Ziegler is Chairman of the
Executive Committee.
Timothy Mann has been a Director since November 1995 and President of the
Company since 1986. Mr. Mann is Vice President of the Cigar Association of
America, and serves on its Board of Directors. He is also a Director of the
Tobacco Merchants' Association and a member of the National Association of
Wholesale Marketers by whom he was recently named Dean of the Industry. Mr. Mann
is a member of the Executive Committee.
Robert A. Britton was named Executive Vice President, Chief Financial
Officer and Director in October 1996. He was Vice President and Chief Financial
Officer of the Company from November 1995 to October 1996. From 1990 to 1995,
Mr. Britton served as Vice President and Treasurer of AMPCo. Mr. Britton is a
member of the Pension Committee.
12
<PAGE>
Nicholas J. Cevera, Jr. has been the Executive Vice President-Operations of
the Company since July 1986 and a Director since November 1995. Mr. Cevera
joined the Company as Vice President of Manufacturing in April 1980. Mr. Cevera
is a Director of the First Coast Manufacturers Association and the Cigar
Association of America.
J. Thomas Ryan, III has been a Director of the Company since November 1995
and Executive Vice President since April 1995. From 1985 to 1994, Mr. Ryan was
President of Helme and from 1983 to 1985 he was Senior Vice President of Helme.
Mr. Ryan serves on the Boards of the Cigar Association of America, the Smokeless
Tobacco Council, the Smokeless Tobacco Research Council, and the Tobacco
Institute.
Justo S. Amato was named Senior Vice President-Finance of Swisher
International in September, 1996 after being Vice President-Finance since 1978.
Paul M. Arvia has been Senior Vice President-Sales of Swisher International
since September 1996, after being Vice President of Sales since 1983.
Barry L. Drugg has been Senior Vice President-Human Resources since
September 1996. From July 1996 to September 1996, Mr. Drugg served as Vice
President-Personnel and Administration of Swisher International, after ten years
in the personnel department of an AMPCo affiliate. Mr. Drugg is a long time
member of the Board and the past President of the Northeast Florida Safety
Council.
John E. Fraleigh has been Senior Vice President-Tobacco Procurement for
Swisher International since October 1996. After joining the Company in 1964, he
became Vice President-Tobacco Procurement in 1976. Since 1982, Mr. Fraleigh has
been responsible for quality control and product development.
Peter J. Ghiloni has been Senior Vice President-Marketing and Sales since
September 1996. From April 1994 to September 1996, Mr. Ghiloni served as Vice
President-Marketing and Sales for Swisher International. From October 1991 to
April 1994, he served as Senior Vice President-Marketing and Sales for Helme.
Cynthia Z. Brighton has been Treasurer, Vice President-Financial Services
and Director of the Company since November 1995. From 1986 to 1993, Ms. Brighton
served as a director and corporate secretary of American Fructose Corporation
and as the corporate secretary of AMPCo from 1992 to 1994. Ms. Brighton is the
daughter of William Ziegler, III. Ms. Brighton is a member of the Pension
Committee.
Karl H. Ziegler has been Secretary of the Company since November 1995. Mr.
Karl H. Ziegler is the son of William Ziegler, III.
C. Keith Hartley has been a Director of the Company since November 1995.
Since August 1995 he has been the Managing Partner-Corporate Finance at Forum
Capital Markets L.P., an investment banking firm, and a co-manager of the
Offering. From May 1991 to August 1995, Mr. Hartley was an independent financial
consultant. From February 1990 to May 1991, Mr. Hartley served as Managing
Director of Peers & Co., a merchant banking firm. Mr. Hartley also serves as a
director of Comdisco, Inc., a lessor of high technology equipment, U.S.
Diagnostics, Inc., an operator of diagnostic imaging centers, and Phoenix
Shannon p.l.c., a manufacturer of dental instruments. Mr. Hartley is Chairman of
the Audit Committee and a member of the Executive, Pension and Compensation
Committees.
Alfred F. La Banca has been a Director of the Company since November 1995.
He is also Chairman of the Board of the Mailex Corporation in Stamford,
Connecticut and of Action Letter, Inc. in New York City, which he founded in
1961. Both Mailex Corporation and Action Letter, Inc. specialize in the
production of direct mail, data processing and outsource management for client
firms. Mr. La Banca is Chairman of the Compensation Committee and a member of
the Audit Committee.
Donald E. McNicol has been a Director of the Company since November 1995.
He is presently of counsel to the firm of Schnader Harrison Segal & Lewis. Mr.
McNicol was a partner of Hall, McNicol, Hamilton & Clark from 1956 to 1992 and
of counsel to the firm of Keck, Mahin & Cate from 1992 to 1996. Mr. McNicol
served as a Director and General Counsel of AMPCo from 1964 to 1992. Mr. McNicol
is Chairman of the Pension Committee and a member of the Executive, Compensation
and Audit Committees.
13
<PAGE>
Charles H. Mullen has been a Director of the Company since February 1997.
Mr. Mullen retired as Chairman and Chief Executive Officer of the American
Tobacco Company, which was a subsidiary of American Brands, Inc. He was also
Vice President-Tobacco and a member of the Board of Directors of American
Brands, Inc. Mr. Mullen also serves as a director of Standard Commercial
Corporation. Mr. Mullen is a member of the Audit and Compensation Committees.
John R. Tweedy has been a Director of the Company since November 1995. Mr.
Tweedy served in various management positions at AMPCo and its affiliates from
1972 until he retired as Senior Vice President of AMPCo in 1993. Mr. Tweedy is a
member of the Audit and Compensation Committees.
ITEM 11. EXECUTIVE COMPENSATION
This information is incorporated by reference to the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
This information is incorporated by reference to the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information is incorporated by reference to the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders.
14
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
ANNUAL REPORT
TO STOCKHOLDERS FORM 10-K
PAGE NUMBER PAGE NUMBER
--------------- -----------
<S> <C> <C>
(A) 1. CONSOLIDATED FINANCIAL STATEMENTS OF SWISHER INTERNATIONAL GROUP INC. AND
SUBSIDIARIES
Consolidated balance sheets 24
Consolidated statements of income 25
Consolidated statements of stockholders' equity 26
Consolidated statements of cash flows 27
Notes to consolidated financial statements 28-38
Report of Independent Accountants 39
(A) 2. FINANCIAL STATEMENT SCHEDULES
Report of Independent Accountants S-1
Financial statement schedule
II--Valuation and qualifying accounts S-2
</TABLE>
15
<PAGE>
(A) 3. EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- ------------------------------------------------------------------------------------------------------
<C> <C> <S>
3.1 -- Amended and Restated Certificate of Incorporation of the Registrant.
3.2 -- Amended and Restated Bylaws of the Registrant.
****4.1 -- Specimen stock certificate.
10.1 -- Registration Rights Agreement, dated December 17, 1996, among the Registrant and Hay Island.
10.2 -- Management Services Agreement, dated as of January 1, 1997, among the Registrant and Hay Island.
**10.3 -- Employment Agreement dated October 23, 1996 between the Registrant and Timothy Mann.
**10.4 -- Employment Agreement dated October 23, 1996 between the Registrant and J. Thomas Ryan, III.
**10.5 -- Employment Agreement dated October 23, 1996 between the Registrant and Nicholas J. Cevera, Jr.
**10.6 -- Employment Agreement dated October 23, 1996 between the Registrant and Robert A. Britton.
***10.7 -- Second Amended and Restated Credit Agreement, dated as of October 18, 1996, among the
Registrant, Swisher International and the Bank of Boston, Connecticut, as administrative agent,
and the group of financial institution parties thereto.
10.7.1 -- First Amendment Agreement, dated as of December 16, 1996, among the Registrant, Swisher
International and the Bank of Boston, Connecticut, as Administrative Agent, and the group of
financial institutions parties thereto.
**10.8 -- Management Incentive Plan.
10.9 -- 1996 Stock Option Plan.
**10.10 -- Supplemental Pension Program.
10.11 -- Tax Sharing Agreement, dated December 17, 1996, among the Registrant and its subsidiaries and
Hay Island.
13.1 -- The Registrant's Annual Report to Stockholders for the year ended December 31, 1996. Such Annual
Report, except for those portions which are expressly incorporated by reference, is furnished
for the information of the Securities and Exchange Commission and is not to be deemed 'filed' or
incorporated by reference as part of this Form 10-K.
**16.1 -- Letter regarding change in certifying accountant.
*21.1 -- List of Subsidiaries.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------------
* Incorporated by reference from the Registrant's Registration Statement on
Form S-1 (Registration No. 333-14975).
** Incorporated by reference from Amendment No. 1 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14975).
*** Incorporated by reference from Amendment No. 2 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14975).
**** Incorporated by reference from Amendment No. 3 of the Registrant's
Registration Statement on Form S-1 (Registration No. 333-14975).
16
<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, in the Town of Darien,
State of Connecticut, on the 31st day of March, 1997.
SWISHER INTERNATIONAL GROUP INC.
By: /s/ WILLIAM T. ZIEGLER
-----------------------------
William T. Ziegler
Chief Operating Officer
17
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons in the capacities and on the
date indicated.
<TABLE>
<C> <S> <C>
/s/ WILLIAM ZIEGLER, III Chairman of the Board, Chief March 31, 1997
- ------------------------------------------ Executive Officer and Director
William Ziegler, III (principal executive officer)
/s/ WILLIAM T. ZIEGLER Chairman of the Executive March 31, 1997
- ------------------------------------------ Committee, Chief Operating
William T. Ziegler Officer and Director
/s/ ROBERT A. BRITTON Executive Vice President, Chief March 31, 1997
- ------------------------------------------ Financial Officer and Director
Robert A. Britton (principal financial and
accounting officer)
/s/ TIMOTHY MANN President and Director March 31, 1997
- ------------------------------------------
Timothy Mann
/s/ J. THOMAS RYAN, III Executive Vice President-Sales March 31, 1997
- ------------------------------------------ & Marketing and Director
J. Thomas Ryan, III
/s/ NICHOLAS J. CEVERA, JR. Executive Vice President- March 31, 1997
- ------------------------------------------ Operations and Director
Nicholas J. Cevera, Jr.
/s/ CYNTHIA Z. BRIGHTON Vice President-Financial March 31, 1997
- ------------------------------------------ Services, Treasurer, and Director
Cynthia Z. Brighton
/s/ C. KEITH HARTLEY Director March 31, 1997
- ------------------------------------------
C. Keith Hartley
/s/ ALFRED F. LA BANCA Director March 31, 1997
- ------------------------------------------
Alfred F. La Banca
/s/ DONALD E. McNICOL Director March 31, 1997
- ------------------------------------------
Donald E. McNicol
/s/ CHARLES H. MULLEN Director March 31, 1997
- ------------------------------------------
Charles H. Mullen
/s/ JOHN R. TWEEDY Director March 31, 1997
- ------------------------------------------
John R. Tweedy
</TABLE>
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders of Swisher International Group Inc.
Our report on the consolidated financial statements of Swisher
International Group Inc. and subsidiaries as of December 31, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for the year ended December 31, 1996 and the period from November 7, 1995
to December 31, 1995, and the consolidated statements of operations,
stockholders' equity and cash flows of Swisher International, Inc. and
subsidiaries for the period from January 1, 1995 to November 6, 1995 and the
year ended December 31, 1994 has been incorporated by reference in this Form
10-K from Page 39 of the 1996 Annual Report to Stockholders of Swisher
International Group Inc. In connection with our audits of such financial
statements, we have also audited the related financial statement schedule for
each of the periods in the three-year period ended December 31, 1996, as listed
in the Index under Item 14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule for each of the periods in
the three-year period ended December 31, 1996 referred to above, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information required to be included therein.
Coopers & Lybrand L.L.P.
New York, New York
February 5, 1997.
S-1
<PAGE>
SCHEDULE II
SWISHER INTERNATIONAL GROUP INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COL. C
------------------------
COL. B ADDITIONS COL. E
------------ ------------------------ ----------
COL. A BALANCE AT CHARGED TO CHARGED TO COL. D BALANCE AT
- -------------------------------------------------- BEGINNING OF COST AND OTHER ---------- END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- -------------------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
For the year ended December 31, 1994............ $2,384 $ 231 -- $ (16) $2,599
For the period from January 1, 1995 to November
6, 1995...................................... 2,599 (290) -- (5) 2,304
For the period from November 7, 1995 to December
31, 1995..................................... 2,304 81 -- (20) 2,365
For the year ended December 31, 1996............ 2,365 (49) -- (533) 1,783
</TABLE>
S-2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
SWISHER INTERNATIONAL GROUP INC.
Swisher International Group Inc. (the "Corporation"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify as follows:
1. The present name of the Corporation is Swisher International Group
Inc. The Corporation was originally incorporated under the name "Royal American
Holding Corporation." and its original certificate of incorporation was filed
with the office of the Secretary of State of the State of Delaware on October
31, 1995.
2. This Amended and Restated Certificate of Incorporation was duly
adopted by the Board of Directors of the Corporation (the "Board") and by the
sole stockholder of the Corporation in accordance with Sections 228, 242, and
245 of the DGCL.
3. This Amended and Restated Certificate of Incorporation restates and
integrates and further amends the certificate of incorporation of the
Corporation, as heretofore amended (the "Certificate of Incorporation").
4. Upon the filing (the "Effective Time") of this Certificate of
Incorporation pursuant to the DGCL, each share of the Corporation's common
stock, $1.00 par value per share, issued and outstanding immediately prior to
the Effective Time (the "Old Common Stock") shall be reclassified as and changed
into 281,000 validly issued, fully paid, and non-assessable shares of Class B
Common Stock authorized by Article FOURTH of the Certificate of Incorporation
(totaling 28,100,000 shares of Class B Common Stock), without any action by the
holder thereof (the "Reclassification"). Each share certificate that theretofore
represented a share or shares of Old Common Stock shall thereafter represent the
reclassified share or shares of Class B Common Stock.
5. The text of the Certificate of Incorporation is amended and restated
in its entirety as follows:
FIRST: The name of the Corporation is Swisher International Group Inc.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 15 North Street, in the City of Dover, County of Kent. The
name of its registered agent at that address is Nationwide Information Services,
Inc.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the DGCL.
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FOURTH:
(a) Authorized Capital Stock. The total number of shares of
stock that the Corporation shall have authority to issue is One Hundred Three
Million One Hundred Thousand (103,100,000) shares, consisting of (1)
Seventy-Five Million (75,000,000) shares of Class A Common Stock, par value $.01
per share (the "Class A Common Stock") and (2) Twenty-Eight Million One Hundred
Thousand 28,100,000 shares of Class B Common Stock, par value $.01 per share
(the "Class B Common Stock"). The Class A Common Stock and Class B Common Stock
shall hereinafter collectively be called "Common Stock." The number of
authorized shares of any class or classes of Common Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the voting power of the Common
Stock of the Corporation entitled to vote generally in the election of directors
irrespective of the provisions of Section 242(b)(2) of the DGCL or any
corresponding provision hereinafter enacted.
(b) Terms of Common Stock. All shares of Class A Common Stock
and Class B Common Stock will be identical and will entitle the holders thereof
to the same rights and privileges, except as otherwise provided herein.
(1) Voting Rights. The holders of shares of Class A
Common Stock and of Class B Common Stock shall have the following voting rights:
(i) Each share of Class A Common Stock shall entitle
the holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Corporation.
(ii) Each share of Class B Common Stock shall entitle
the holder thereof to ten votes on all matters submitted to a vote of the
stockholders of the Corporation.
(iii) Except as otherwise required by applicable law,
the holders of shares of Class A Common Stock and the holders of shares of Class
B Common Stock shall vote together as one class on all matters submitted to a
vote of stockholders of the Corporation.
(2) Dividends and Distributions. The holders of
shares of Class A Common Stock and Class B Common Stock will be entitled to
receive dividends and other distributions in cash, property or shares of stock
of the Corporation as may be declared thereon by the Board of Directors of the
Corporation out of assets or funds of the Corporation legally available
therefor, subject to any other provision of this Article FOURTH, Section (b)(2).
If at any time a dividend or other distribution in cash or other property is
paid on Class A Common Stock or Class B Common Stock, a like dividend or other
distribution in cash or other property will also be paid on Class B Common Stock
or Class A Common Stock, as the case may be, in an equal amount per share. In
the case of dividends or other distributions payable in Class A Common Stock or
Class B Common Stock including distributions pursuant to stock splits or
divisions of Class A Common Stock or Class B Common Stock which occur
2
<PAGE>
after the first date upon which the Corporation has issued shares of both Class
A Common Stock and Class B Common Stock, only shares of Class A common Stock
shall be distributed with respect to Class A Common Stock and only shares of
Class B Common Stock shall be distributed with respect to Class B Common Stock.
Whenever a dividend or distribution, including distributions pursuant to stock
splits or divisions of the Class A Common Stock or Class B Common Stock, is
payable in shares of Class A Common Stock or Class B Common Stock, the number of
shares of each class of Common Stock payable per share of such class of Common
Stock shall be equal in number. In the case of dividends or other distributions
consisting of other voting securities of the Corporation, the Corporation shall
declare and pay such dividends in two separate classes of such voting
securities, identical in all respects, except that the voting rights of each
such security paid to the holders of Class A Common Stock shall have one-tenth
of the voting rights of each such security paid to the holders of Class B Common
Stock, and such security paid to the holders of Class B Common Stock shall
convert into the security paid to the holders of Class A Common Stock upon the
same terms and conditions applicable to the Class B Common Stock. In the case of
dividends or other distributions consisting of securities convertible into, or
exchangeable for, voting securities of the Corporation, the Corporation shall
provide that such convertible or exchangeable securities and the underlying
securities be identical in all respects (including, without limitation, the
conversion or exchange rate), except that the voting rights for the underlying
securities of the convertible or exchangeable security paid to the holders of
Class A Common Stock shall be one-tenth of the voting rights of each underlying
security of the convertible or exchangeable security paid to the holders of the
Class B Common Stock, and such underlying securities paid to the holders of
Class B Common Stock shall convert into the underlying securities paid to the
holders of Class A Common Stock upon the same terms and conditions applicable to
the Class B Common Stock. Notwithstanding anything to the contrary set forth
herein, the dividend declared on December 17, 1996 shall be paid only to the
holders of the Class B Common Stock.
(3) Transfer of Class B Common Stock.
(i) No Class B Holder (as defined below) may
voluntarily or involuntarily transfer (as defined below) any of such Class B
Holder's interest in his, her or its shares of Class B Common Stock (including,
without limitation, the power to vote or provide a consent with respect to his,
her or its shares of Class B Common Stock by proxy or otherwise, except for
proxies given to any Permitted Transferee (as defined below) of the Class B
Holder or to a person designated by the Board of Directors of the Corporation
who is soliciting proxies on behalf of the Corporation), and the Corporation and
the transfer agent for the Class B Common Stock, if any (the "Transfer Agent"),
shall not register the transfer of such shares of Class B Common Stock, except
to the Corporation or to a Permitted Transferee; provided, however, such
restrictions on transfer shall not apply to a merger, consolidation or business
combination of the Corporation with or into another corporation, whether or not
the Corporation is the surviving corporation. For the purposes of this Article
FOURTH, a "Permitted Transferee" shall include only the following persons: (A)
Mr. William Ziegler, III and his estate, guardian, conservator or committee; (B)
each descendant of Mr. William
3
<PAGE>
Ziegler, III (a "Ziegler Descendant") and their respective estates, guardians,
conservators or committees; (C) each Family Controlled Entity; and (D) the
trustees, in their respective capacities as such, of each Family Controlled
Trust. For purposes of this Article FOURTH, the term "Family Controlled Entity"
shall mean (A) any not-for-profit corporation if at least 80% of its board of
directors is composed of Mr. William Ziegler, III and/or Ziegler Descendants;
(B) any other corporation if at least 80% of the value of its outstanding equity
is owned by Permitted Transferees; (C) any partnership if at least 80% of the
value of its partnership interests are owned by Permitted Transferees; and (D)
any limited liability or similar company if at least 80% of the value of the
company is owned by Permitted Transferees. For purposes of this Article FOURTH,
the term "Family Controlled Trust" shall mean (A) the trusts set forth on
Schedule A hereto and (B) any trust the primary beneficiaries of which are Mr.
William Ziegler, III, Ziegler Descendants and/or charitable organizations
(collectively, "Ziegler Beneficiaries"). For purposes of this provision, the
primary beneficiaries of a trust will be deemed to be Ziegler Beneficiaries if,
under the maximum exercise of discretion by the trustee in favor of persons who
are not Ziegler Beneficiaries, the value of the interests of such persons in
such trust, computed actuarially, is 20% or less. The factors and methods
prescribed in Section 7520 of the Internal Revenue Code of 1986, as amended, for
use in ascertaining the value of certain interests shall be used in determining
a beneficiary's actuarial interest in a trust for purposes of applying this
provision. For purposes of this provision, the actuarial value of the interest
in a trust of any person in whose favor a testamentary power of appointment may
be exercised shall be deemed to be zero. For purposes of this provision, in the
case of a trust created by a Ziegler Descendant, the actuarial value of the
interest in such trust of any person who may receive trust property only at the
termination of the trust and then only in the event that, at the termination of
the trust, there are no living issue of such Ziegler Descendant shall be deemed
to be zero. Upon any purported transfer of shares of Class B Common Stock not
permitted under this Amended and Restated Certificate, all shares of Class B
Common Stock purported to be so transferred will be deemed to be converted into
shares of Class A Common Stock, and stock certificates formerly representing
such shares of Class B Common Stock will thereupon and thereafter be deemed to
represent such number of shares of Class A Common Stock as equals the number of
shares of Class A Common Stock into which such shares of Class B Common Stock
could be converted pursuant to Article FOURTH, Section (b)(4), below.
(ii) Notwithstanding anything to the contrary set
forth herein, any Class B Holder may pledge such Class B Holder's shares of
Class B Common Stock to a financial institution pursuant to a bona fide pledge
of such shares as collateral security for indebtedness due to the pledgee;
provided, that, such shares shall remain subject to the provisions of this
Article FOURTH, Section (b)(3) and may not be transferred to, or voted by, the
pledgee, except as otherwise permitted by the provisions of Article FOURTH,
Section (b)(3). In the event of foreclosure or other similar action by the
pledgee, such pledged shares of Class B Common Stock may only be transferred to
a Permitted Transferee or converted into shares of Class A Common Stock, as the
pledgee may elect.
(iii) For purposes of this Section (b)(3):
4
<PAGE>
(A) the relationship of any person that is derived by
or through legal adoption shall be considered a natural relationship;
(B) a minor who is a descendant of Mr. William
Ziegler, III and for whom shares of Class B Common Stock are held pursuant to a
Uniform Gifts to Minors Act or similar law shall be considered a Class B Holder
of such shares and the custodian who is the record holder of such shares shall
not be considered a Class B Holder;
(C) An incompetent stockholder who is a Permitted
Transferee but whose shares are owned or held by a guardian or conservator shall
be considered a Class B Holder of such shares and such guardian or conservator
who is the holder of such shares shall not be considered a Class B Holder;
(D) unless otherwise specified, the term "person"
means and includes natural persons, corporations, partnerships, unincorporated
associations, firms, joint ventures, trusts and all other entities; and
(E) except as provided in clauses (B) and (C) above,
the term "Class B Holder" shall mean in respect of any share of Class B Common
Stock, the record holder of such share; provided, however, that if such record
holder is a nominee, the Class B Holder shall be the first person in the chain
of ownership of such share of Class B Common Stock who is not holding such share
solely as a nominee.
(iv) The Corporation may, in connection with
preparing a list of stockholders entitled to vote at any meeting of
stockholders, or as a condition to the transfer or the registration of shares of
Class B Common Stock on the Corporation's books, or at any other time, require
the furnishing of such affidavits or other proof as it deems necessary to
establish that a Class B Holder is a Permitted Transferee. Upon the
determination by the Board of Directors of the Corporation or a committee
thereof that a Class B Holder is not a Permitted Transferee, each share of Class
B Common Stock held by such Class B Holder shall thereupon be converted
automatically into one (1) fully paid and nonassessable share of Class A Common
Stock pursuant to the procedures set forth in Article FOURTH, Section
(b)(4)(iii).
(v) Each certificate representing shares of Class B
Common Stock shall be endorsed with a legend that states that shares of Class B
Common Stock are not transferable other than to certain transferees and are
subject to certain restrictions as set forth in this Amended and Restated
Certificate of Incorporation filed by the Corporation with the Secretary of
State of the State of Delaware.
(vi) The term "Transfer," as used in this Article
FOURTH, shall mean transfer, sell, grant, proxy, appoint, assign, devise,
distribute or bequeath.
(4) Conversion of Common Stock.
5
<PAGE>
(i) If, on the record date for any meeting of
stockholders of the Corporation, the number of shares of Class B Common Stock
then outstanding constitutes less than 10% of the aggregate number of shares of
Common Stock then outstanding, as determined by the Board of Directors of the
Corporation, each share of Class B Common Stock then issued or outstanding shall
thereupon be converted automatically as of such record date into one (1) fully
paid and nonassessable share of Class A Common Stock and will have one vote per
share at such meeting. Upon making such determination, notice of such automatic
conversion shall be given by the Corporation by means of a press release and
written notice to all Class B Holders and shall be given as soon as practicable,
but no later than the next meeting of stockholders of the Corporation, and the
Secretary of the Corporation shall be instructed to, and shall promptly request
from each Class B Holder that each holder promptly deliver, and each holder
shall promptly deliver, the certificate representing each such share of Class B
Common Stock to the Corporation for exchange hereunder, together with
instruments of transfer, in form satisfactory to the Corporation and Transfer
Agent, duly executed by such holder or such holder's duly authorized attorney,
and together with transfer tax stamps or funds therefore, if required pursuant
to Section (b)(4)(vii).
(ii) Each Class B Holder shall be entitled to
convert, at any time and from time to time, any or all of the shares of such
holder's Class B Common Stock, on a one-for-one basis, into the same number of
fully paid and nonassessable shares of Class A Common Stock. Such right shall be
exercised by the surrender of the certificate or certificates representing the
shares of Class B Common Stock to be converted to the Corporation at any time
during normal business hours at the principal executive offices of the
Corporation or at the office of the Transfer Agent, accompanied by a written
notice of the holder of such shares stating that such holder desires to convert
such shares, or a stated number of the shares represented by such certificate or
certificates, into an equal number of shares of the Class A Common Stock, and
(if so required by the Corporation or the Transfer Agent) by instruments of
transfer, in form satisfactory to the Corporation and to the Transfer Agent,
duly executed by such holder or such holder's duly authorized attorney, and
transfer tax stamps or funds therefor, if required pursuant Article FOURTH to
Section (b)(4)(vii).
(iii) As set forth in Article FOURTH Section
(b)(3)(iii), upon the determination by the Board of Directors of the Corporation
or a committee thereof that a Class B Holder is not a Permitted Transferee, each
share of Class B Common Stock, or any beneficial interest therein, held by such
Class B Holder shall thereupon be converted automatically into one (1) fully
paid and nonassessable share of Class A Common Stock. A determination by the
Board of Directors of the Corporation that a Class B Holder is not a Permitted
Transferee and therefore a conversion is required shall be conclusive. Upon
making such a determination, the Secretary of the Corporation shall be
instructed to, and shall promptly request from the holder of record of each such
share of Class B Common Stock that each such holder promptly deliver, and each
such holder shall promptly deliver, the certificate representing each such share
of Class B Common Stock to the Corporation for exchange hereunder, together with
instruments of transfer, in form satisfactory to the Corporation and Transfer
Agent, duly executed by such holder or such holder's duly authorized attorney,
and
6
<PAGE>
together with transfer tax stamps or funds therefore, if required pursuant to
Article FOURTH, Section (b)(4)(vii).
(iv) As promptly as practicable following the
surrender for conversion of a certificate representing shares of Class B Common
Stock in the manner provided in Article FOURTH, Section (b)(4)(i), (ii) or
(iii), as applicable, and the payment in cash of any amount required by the
provisions of Article FOURTH, Section (b)(4)(vii), the Corporation will deliver
or cause to be delivered at the office of the Transfer Agent, a certificate or
certificates representing the number of full shares of Class A Common Stock
issuable upon such conversion, issued in such name or names as such holder may
direct. In the case of a conversion under Article FOURTH, Section (b)(4)(i),
such conversion shall be deemed to have been made on the record date for such
meeting of stockholders on which the condition set forth in Article FOURTH,
Section (b)(4)(i) is determined by the Board of Directors of the Corporation to
have occurred. In the case of a conversion under Article FOURTH, Section
(b)(4)(ii), such conversion shall be deemed to have been effected immediately
prior to the close of business on the date of the surrender of the certificate
or certificates representing shares of Class B Common Stock. In the case of a
conversion under Article FOURTH, Section (b)(4)(iii), such conversion shall be
deemed to have been made on the date of transfer. Upon the date any conversion
under Section (b)(4)(i) is made or effected, all rights of the holder of such
shares as such holder shall cease, and the person or persons in whose name or
names the certificate or certificates representing the shares of Class A Common
Stock are to be issued shall be treated for all purposes as having become the
record holder or holders of such shares of Class A Common Stock. Upon the date
any conversion under Section (b)(4)(ii) is made or effected, all rights of the
holder of such shares as such holder shall cease, and the person or persons in
whose name or names the certificate or certificates representing the shares of
Class A Common Stock are to be issued shall be treated for all purposes as
having become the record holder or holders of such shares of Class A Common
Stock; provided, however, that if any such surrender and payment occurs on any
date when the stock transfer books of the Corporation shall be closed, the
person or persons in whose name or names the certificate or certificates
representing shares of Class A Common Stock are to be issued shall be deemed the
record holder or holders thereof for all purposes immediately prior to the close
of business on the next succeeding day on which the stock transfer books are
open. Upon the date any conversion under Article FOURTH, Section (b)(4)(iii) is
made, all rights of the holder of such shares as such holder shall cease, and
the new owner or owners of such shares shall be treated for all purposes as
having become the record holder or holders of such shares of Class A Common
Stock.
(v) In the event of a reclassification or other
similar transaction as a result of which the shares of Class A Common Stock are
converted into another security, then a Class B Holder shall be entitled to
receive upon conversion the amount of such security that such holder would have
received if such conversion had occurred immediately prior to the record date of
such reclassification or other similar transaction. No adjustments in respect of
dividends shall be made upon the conversion of any share of Class B Common
Stock; provided, however, that if a share shall be converted subsequent to the
record date for the
7
<PAGE>
payment of a dividend or other distribution on shares of Class B Common Stock
but prior to such payment, then the registered holder of such share at the close
of business on such record date shall be entitled to receive the dividend or
other distribution payable on such share on such date notwithstanding the
conversion thereof or the Corporation's default in payment of the dividend due
on such date.
(vi) The Corporation covenants that it will at all
times reserve and keep available out of its authorized but unissued shares of
Class A Common Stock, solely for the purpose of issuance upon conversion of the
outstanding shares of Class B Common Stock, such number of shares of Class A
Common Stock that shall be issuable upon the conversion of all such outstanding
shares of Class B Common Stock; provided, that, nothing contained herein shall
be construed to preclude the Corporation from satisfying its obligations in
respect of the conversion of the outstanding shares of Class B Common Stock by
delivery of purchased shares of Class A Common Stock which are held in the
treasury of the Corporation. The Corporation covenants that if any shares of
Class A Common Stock required registration with or approval of any governmental
authority under any federal or state law before such shares of Class A Common
Stock may be issued upon conversion, the Corporation will cause such shares to
be duly registered or approved, as the case may be. The Corporation will
endeavor to use its best efforts to list the shares of Class A Common Stock
required to be delivered upon conversion prior to such delivery upon each
national securities exchange upon which the outstanding Class A Common Stock is
listed at the time of such delivery. The Corporation covenants that all shares
of Class A Common Stock that shall be issued upon conversion of the shares of
fully paid and nonassessable Class B Common Stock will, upon issue, be fully
paid and nonassessable.
(vii) The issuance of certificates for shares of
Class A Common Stock upon conversion of shares of Class B Common Stock shall be
made without charge to the holders of such shares for any stamp or other similar
tax in respect of such issuance; provided, however, that, if any such
certificate is to be issued in a name other than that of the holder of the share
or shares of Class B Common Stock converted, then the person or persons
requesting the issuance thereof shall pay to the Corporation the amount of any
tax that may be payable in respect of any transfer involved in such issuance or
shall establish to the satisfaction of the Corporation that such tax has been
paid.
(viii) Shares of Class B Common Stock that are
converted into shares of Class A Common Stock as provided herein shall continue
to be authorized shares of Class B Common Stock and available for reissue by the
Corporation; provided, however, that no shares of Class B Common Stock shall be
reissued except as expressly permitted by Article FOURTH of this Amended and
Restated Certificate of Incorporation.
(ix) The Class A Common Stock has no conversion
rights.
(5) Stock Splits. The Corporation shall not in any
manner subdivide (by any stock split, stock dividend, reclassification,
recapitalization or otherwise) or combine
8
<PAGE>
(by reverse stock split, reclassification, recapitalization or otherwise) the
outstanding shares of one class of Common Stock unless the outstanding shares of
all classes of Common Stock shall be proportionately subdivided or combined.
(6) Options, Rights or Warrants.
(i) The Corporation shall not make any offering of
options, rights or warrants to subscribe for shares of Class B Common Stock. The
Corporation may make offerings of options, rights or warrants to subscribe for
shares of any other class or classes of capital stock (other than Class B Common
Stock) to all holders of Class A Common Stock or Class B Common Stock if an
identical offering is made simultaneously to the holders of the other class. All
such options, rights or warrants offerings shall offer the respective holders of
Class A Common Stock and Class B Common Stock the right to subscribe at the same
rate per share.
(ii) Subject to Article FOURTH, Sections (b)(4)(v)
and (b)(6)(i), the Corporation shall have the power to create and issue, whether
or not in connection with the issuance and sale of any shares of stock or other
securities of the Corporation, rights or options entitling the holders thereof
to purchase from the Corporation any shares of its capital stock of any class or
classes at the time authorized (other than Class B Common Stock), such rights or
options to have such terms and conditions, and to be evidenced by or in such
instrument or instruments, as shall be approved by the Board of Directors.
(7) Mergers, Consolidation, Etc. In the event of any
corporate merger, consolidation, purchase or acquisition of property or stock,
or other reorganization in which any consideration is to be received by the
holders of shares of Class A Common Stock or the holders of shares of Class B
Common Stock, the holders of shares of Class A Common Stock and the holders of
shares of Class B Common Stock will receive the same consideration on a per
share basis; except that, if such consideration shall consist in any part of
voting securities (or of options or warrants to purchase, or of securities
convertible into or exchangeable for, voting securities), the holders of shares
of Class B Common Stock may receive, on a per share basis, voting securities
with ten times the number of votes per share as those voting securities to be
received by the holders of shares of Class A Common Stock (or options or
warrants to purchase, or securities convertible into or exchangeable for, voting
securities with ten times the number of votes per share as those voting
securities issuable upon exercise of the options or warrants, or into which the
convertible or exchangeable securities may be converted or exchanged, received
by the holders of shares of Class A Common Stock).
(8) Liquidation Rights. In the event of any
dissolution, liquidation or winding up of the affairs of the Corporation,
whether voluntary or involuntary, after payment or provision for payment of the
debts and other liabilities of the Corporation, the remaining assets and funds
of the Corporation, if any, shall be divided among and paid ratably to the
holders of the Class A Common and the Class B Common Stock treated as a single
class.
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<PAGE>
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors:
(a) Powers of the Board of Directors. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors selected as provided by law and this Certificate of Incorporation and
the By-Laws of the Corporation. In furtherance, and not in limitation, of the
powers conferred by the laws of the State of Delaware, the Board of Directors is
expressly authorized to:
(1) adopt, amend, alter, change or repeal By-Laws of
the Corporation; provided, however, that no By-Law hereafter adopted shall
invalidate any prior act of the Corporation that would have been valid if such
new By-Laws had not been adopted; and
(2) subject to the By-Laws as from time to time in
effect, determine the rules and procedures for the conduct of the business of
the Board of Directors and the management and direction by the Board of
Directors of the business and affairs of the Corporation, including the power to
designate and empower committees of the Board of Directors, to elect, or
designate and empower officers and other agents of the Corporation, and to
determine the time and place of, the notice requirements for, and the manner of
conducting, Board meetings, as well as other notice requirements for, and the
manner of taking, Board action.
(b) Number of Directors. The number of Directors shall be
determined from time to time by the Board of Directors of the Corporation by the
affirmative vote of directors constituting at least a majority of the entire
board. The use of the phrase "entire board" refers to the total number of
directors which the Corporation would have if there were no vacancies.
(c) Personal Liability. No director shall be personally liable
to the Corporation or any of its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the DGCL or (iv) for
any transaction from which the director derived an improper personal benefit. If
the DGCL is amended hereafter to authorize the further elimination or limitation
of liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent authorized by the DGCL, as
so amended. Any repeal or modification of this Article FIFTH by the stockholders
of the Corporation shall not adversely affect any right or protection of a
director of the Corporation existing at the time of such repeal or modification
with respect to acts or omissions occurring prior to such repeal or
modification.
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(d) Committees. A majority of a quorum of directors may
designate one or more committees, each committee to consist of one or more of
the directors of the corporation. The Board may designate one or more directors
as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. The ByLaws may provide that
in the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, or in the By-Laws of the Corporation,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no committee shall have the power or authority in reference to
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the stockholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws of the Corporation; and, unless the
resolution or By-Laws expressly so provide, no such committee shall have the
power or authority to declare a dividend or authorize the issuance of stock.
(e) Sale of Substantially All the Assets. When and as
authorized by the stockholders in accordance with statute the Board may sell,
lease or exchange all or substantially all of the property and assets of the
Corporation, including its goodwill and its corporate franchises, upon such
terms and conditions and for such consideration, which may consist in whole or
in part of money or property including shares of stock in, or other securities
of, any other corporation or corporations, as the Board of Directors shall deem
expedient and for the best interests of the Corporation.
(f) General Powers. In addition to the powers and authority
hereinbefore or by statute expressly conferred upon them, the directors are
hereby empowered to exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, subject, nevertheless, to the
provisions of the DGCL, this Certificate of Incorporation and any By-Laws
adopted by the stockholders; provided, however, that no By-Laws hereafter
adopted by the stockholders shall invalidate any prior act of the directors
which would have been valid if such By-Laws had not been adopted.
(g) Section 203. The Corporation expressly elects not to be
governed by Section 203 of the DGCL.
(h) Vacancies. Except as otherwise required by law, any
vacancy in the Board of Directors for any reason and any newly created
directorship resulting by reason of any increase in the number of directors may
be filled by the Board of Directors, by resolution adopted by the affirmative
vote of a majority of the remaining directors then in office, even though less
than a quorum (or by a sole remaining director); provided, however, that if not
so
11
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filled, any such vacancy shall be filled by the stockholders at the next annual
meeting or at a special meeting called for that purpose. Any director so
appointed shall hold office until the next meeting of stockholders at which
directors of the class for which such director has been chosen are to be elected
and until his or her successor is elected and qualified.
(i) Removal of Directors. Any or all of the directors may be
removed, with or without cause, at any time by a majority of the votes cast by
the stockholders then entitled to vote generally in the election of directors,
voting together as a single class, at a special meeting called for that purpose.
Any director may be removed for cause by the action of the directors at a
special meeting called for that purpose. For the purposes of this Section (i) of
Article FIFTH, "cause" shall mean the failure of a director to substantially
perform such director's duties to the Corporation (other than any such failure
resulting from incapacity due to physical or mental illness) or the wilful
engaging by a director in gross misconduct injurious to the Corporation.
SIXTH: Meetings of stockholders may be held within or without the State
of Delaware, as the By-Laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the DGCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board or in the By-Laws.
SEVENTH: The Corporation shall indemnify its directors and officers to
the fullest extent authorized or permitted by law, as now or hereafter in
effect, and such right to indemnification shall continue as to a person who has
ceased to be a director or officer of the Corporation and shall inure to the
benefit of his or her heirs, executors and personal and legal representatives;
provided, however, that, except for proceedings to enforce rights to
indemnification, the Corporation shall not be obligated to indemnify any
director or officer (or his or her heirs, executors or personal or legal
representatives) in connection with a proceeding (or part thereof) initiated by
such person unless such proceeding (or part thereof) was authorized or consented
to by the Board of Directors. The right to indemnification conferred by this
Article SEVENTH shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any proceeding in
advance of its final disposition.
The Corporation may, to the extent authorized from time to time by the
Board of Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article SEVENTH to directors and officers of the Corporation.
The rights to indemnification and to the advance of expenses conferred
in this Article SEVENTH shall not be exclusive of any other right which any
person may have or hereafter acquire under this Certificate of Incorporation,
the By-Laws, any statute, agreement, vote of stockholders or disinterested
directors or otherwise.
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Any repeal or modification of this Article SEVENTH by the stockholders
of the Corporation shall not adversely affect any rights to indemnification and
to the advancement of expenses of a director or officer of the Corporation
existing at the time of such repeal or modification with respect to any acts or
omissions occurring prior to such repeal or modification.
EIGHTH: The Board of Directors shall have the power to adopt, amend or
repeal the By-Laws by the affirmative vote of at least a majority of the
directors then in office. The affirmative vote of the holders of not less than a
majority of the voting power of all shares of capital stock of the Corporation
then entitled to vote generally in the election of directors, voting as a single
class, shall be required to adopt, amend or repeal the By-Laws (notwithstanding
the fact that approval by a lesser percentage may be permitted by the DGCL).
NINTH: The Corporation hereby reserves the right from time to time to
amend, alter, change or repeal any provision contained in this Certificate of
Incorporation in any manner permitted by law and all rights and powers conferred
upon stockholders, directors and officers herein are granted subject to this
reservation. In addition to any vote otherwise required by law, any such
amendment, alteration, change or repeal shall require approval of both (a) the
Board of Directors by the affirmative vote of a majority of the members then in
office and (b) the holders of a majority of the voting power of all the shares
of capital stock of the Corporation entitled to vote generally in the election
of directors, voting together as a single class.
TENTH:
(a) Action by Stockholders. Any action required or permitted
to be taken by the holders of the issued and outstanding stock of the
Corporation may be effected at an annual or special meeting of stockholders duly
called and held in accordance with law and this Certificate of Incorporation and
the By-Laws, or, as long as any shares of Class B Common Stock are outstanding,
without a meeting, by written consent, setting forth the action so taken, signed
by the holders of outstanding shares entitled to vote thereon having not less
than the minimum number of votes that would be necessary to authorize or take
such action at a stockholders' meting at which all shares entitled to vote
thereon were present. If no shares of Class B Common Stock are outstanding, such
written consent shall require the signature by holders of all outstanding shares
entitled to vote thereon.
(b) Special Meetings of Stockholders. Except as otherwise
required by law, special meetings of stockholders may be called only by the
Chairman of the Board of Directors, the Chief Executive Officer, the Chief
Operating Officer or by the Board of Directors pursuant to a resolution adopted
by the affirmative vote of a majority of the entire Board. The holders of a
majority of the voting power of all the shares of capital stock of the
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Corporation entitled to vote generally in the election of directors, voting
together as a single class, shall have the right to request that the Chairman of
the Board call a special meeting of the stockholders.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Incorporation to be duly executed this 17th day of December, 1996.
SWISHER INTERNATIONAL GROUP INC.
By: /s/ William Ziegler, III
-----------------------------------
Name: William Ziegler, III
Title: Chief Executive Officer
By: /s/ Karl H. Ziegler
-----------------------------------
Name: Karl H. Ziegler
Title: Secretary
14
AMENDED AND RESTATED
BY-LAWS
OF
SWISHER INTERNATIONAL GROUP INC.
December 17, 1996
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
ARTICLE I
OFFICES..................................................................................................1
Section 1. Registered Office...................................................................1
Section 2. Other Offices.......................................................................1
ARTICLE II
MEETINGS OF STOCKHOLDERS.................................................................................1
Section 1. Place of Meetings...................................................................1
Section 2. Annual Meetings.....................................................................1
Section 3. Special Meetings....................................................................1
Section 4. Quorum..............................................................................2
Section 5. Voting..............................................................................2
Section 6. List of Stockholders Entitled to Vote...............................................2
Section 7. Consent of Stockholders in Lieu of Meeting..........................................3
Section 8. Stock Ledger........................................................................3
Section 9. Inspectors of Election..............................................................3
ARTICLE III
DIRECTORS................................................................................................4
Section 1. Number and Election of Directors....................................................4
Section 2. Vacancies...........................................................................4
Section 3. Duties and Powers...................................................................4
Section 4. Meetings............................................................................5
Section 5. Quorum..............................................................................5
Section 6. Meetings by Means of Conference Telephone...........................................5
Section 7. Action by Written Consent...........................................................6
Section 8. Compensation........................................................................6
Section 9. Interested Directors................................................................6
ARTICLE IV
COMMITTEES...............................................................................................6
Section 1. Constitution and Powers.............................................................6
Section 2. Executive Committee.................................................................7
Section 3. Compensation Committee..............................................................7
Section 4. Audit Committee.....................................................................7
Section 5. Pension Committee...................................................................7
Section 6. Organization........................................................................7
Section 7. Meetings............................................................................8
Section 8. Quorum and Manner of Acting.........................................................8
Section 9. General.............................................................................8
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ARTICLE V
OFFICERS.................................................................................................8
Section 1. General.............................................................................8
Section 2. Election............................................................................8
Section 3. Voting Securities Owned by the Corporation..........................................8
Section 4. Chairman of the Board of Directors..................................................9
Section 5. Chief Executive Officer.............................................................9
Section 6. Chief Operating Officer.............................................................9
Section 7. President..........................................................................10
Section 8. Executive Vice Presidents..........................................................10
Section 9. Chief Financial Officer............................................................10
Section 10. Senior Vice Presidents............................................................11
Section 11. Vice Presidents...................................................................11
Section 12. Secretary.........................................................................11
Section 13. Treasurer.........................................................................12
Section 14. Assistant Secretaries.............................................................12
Section 15. Assistant Treasurers..............................................................12
Section 16. Other Officers....................................................................12
ARTICLE VI
STOCK...................................................................................................13
Section 1. Form of Certificates...............................................................13
Section 2. Signatures.........................................................................13
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates..................................13
Section 4. Transfers..........................................................................14
Section 5. Limitations on Transfer............................................................14
Section 6. Record Date........................................................................14
Section 7. Beneficial Owners..................................................................14
ARTICLE VII
NOTICES.................................................................................................15
Section 1. Notices............................................................................15
Section 2. Waivers of Notice..................................................................15
ARTICLE VIII
GENERAL PROVISIONS......................................................................................15
Section 1. Dividends..........................................................................15
Section 2. Disbursements......................................................................15
Section 3. Fiscal Year........................................................................16
Section 4. Corporate Seal.....................................................................16
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ARTICLE IX
INDEMNIFICATION.........................................................................................16
Section 1. Power to Indemnify in Actions, Suits or Proceedings other Than
Those by or in the Right of the Corporation....................................................16
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in the
Right of the Corporation.......................................................................16
Section 3. Authorization of Indemnification...................................................17
Section 4. Good Faith Defined.................................................................17
Section 5. Indemnification by a Court.........................................................17
Section 6. Expenses Payable in Advance........................................................18
Section 7. Nonexclusivity of Indemnification and Advancement of Expenses
..............................................................................................18
Section 8. Insurance..........................................................................18
Section 9. Certain Definitions................................................................18
Section 10. Survival of Indemnification and Advancement of Expenses...........................19
Section 11. Limitation on Indemnification.....................................................19
Section 12. Indemnification of Employees and Agents...........................................19
ARTICLE X
AMENDMENTS OF BY-LAWS...................................................................................19
Section 1. Amendments of By-Laws..............................................................19
Section 2. Entire Board of Directors..........................................................20
</TABLE>
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<PAGE>
BY-LAWS
(as amended and restated)
OF
SWISHER INTERNATIONAL GROUP INC.
(hereinafter called the "Corporation")
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be located in the City of Dover, County of Kent, State of Delaware.
Section 2. Other Offices. The Corporation may also have offices at such
other places both within and without the State of Delaware as the board of
directors of the Corporation (the "Board Of Directors") may from time to time
determine or the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Place of Meetings. All meetings of stockholders for the
election of directors or for any other purpose shall be held either within or
without the State of Delaware, at such time and place as shall be designated
from time to time by the Board of Directors and stated in the notice of the
meeting or in a duly executed waiver of notice thereof.
Section 2. Annual Meetings. The annual meeting of stockholders (the
"Annual Meeting of the Stockholders") shall be held on such date and at such
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, at which meetings the stockholders shall
elect a Board of Directors by a majority of all the shares entitled to vote at
the meeting, and transact such other business as may properly be brought before
the meeting. Written notice of the Annual Meeting of Stockholders stating the
place, date and hour of the meeting shall be given to each stockholder of record
entitled to vote at such meeting not less than ten (10) nor more than sixty (60)
days before the date of the meeting, either personally or by mail.
Section 3. Special Meetings. Unless otherwise prescribed by law or by
the certificate of incorporation of the Corporation (as amended and/or restated
from time to time, the "Certificate of Incorporation"), special Meetings of
stockholders (the "Special Meetings of the Stockholders"), for any purpose or
purposes, may be called by either (i) the Chief Executive Officer, (ii) the
Chief Executive Officer or (iii) the Board of Directors. The holders of not less
than a majority of all the shares entitled to vote at the meeting may also
request that the Chairman of the Board call a Special Meeting of the
Stockholders, provided, that such request
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shall state the purpose or purposes of the proposed meeting. Written notice of a
Special Meeting of Stockholders stating the place, date and hour of the meeting
and the purpose or purposes for which the meeting is called shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder entitled to vote at such meeting. At a Special Meeting of
the Stockholders, only such business as shall be specified in the notice of
meeting (or any supplement thereto) shall be conducted.
Section 4. Quorum. Except as otherwise provided by law or by the
Certificate of Incorporation, the holders of a majority in total number of votes
of the capital stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business. A quorum, once
established, shall not be broken by the withdrawal of enough votes to leave less
than a quorum. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the officer of the Corporation presiding at the
meeting of stockholders or the holders of a majority in number of votes of the
capital stock entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting of the time and place of the adjourned
meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a written
notice of the adjourned meeting shall be given to each stockholder entitled to
vote at the meeting not less than ten (10) nor more than sixty (60) days before
the date of the meeting.
Section 5. Voting. Unless otherwise required by law, the Certificate of
Incorporation or these By-Laws, any question brought before any meeting of
stockholders shall be decided by the affirmative vote of the holders of a
majority of the total number of votes of the capital stock present, in person or
represented by proxy, and entitled to vote thereat. Such votes may be cast in
person or by proxy but no proxy shall be voted on or after three years from its
date, unless such proxy provides for a longer period. The Board of Directors, in
its discretion, or the officer of the Corporation presiding at a meeting of
stockholders, in his discretion, may require that any votes cast at such meeting
shall be cast by written ballot.
Section 6. List of Stockholders Entitled to Vote. The officer of the
Corporation who has charge of the stock ledger of the Corporation shall prepare
and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder of the Corporation who is
present.
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Section 7. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required or permitted
to be taken at any Annual or Special Meeting of Stockholders of the Corporation,
may be taken without a meeting, without prior notice and without a vote, if a
consent or consents in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing and who, if the action had been taken at a meeting, would
have been entitled to notice of the meeting if the record date for such meeting
had been the date that written consents signed by a sufficient number of
stockholders to take the action were delivered to the Corporation as provided in
this Section 7. In the event that the action which is consented to is such as
would have required the filing of a certificate under the General Corporation
Law of the State of Delaware if such action had been voted on by stockholders at
a meeting thereof, the certificate filed shall state, in lieu of any statement
concerning any vote of stockholders, that written consent has been given in
accordance with this Section 7.
Section 8. Stock Ledger. The stock ledger of the Corporation shall be
the only evidence as to who are the stockholders entitled to examine the stock
ledger, the list required by Section 6 of this Article II or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
Section 9. Inspectors of Election. In advance of any meeting of
stockholders, the Board of Directors by resolution may appoint one or more
inspectors of election to act at the meeting and make a written report thereof.
One or more other persons may be designated as alternate inspectors to replace
any inspector who fails to act. If no inspector or alternate is present, ready
and willing to act at a meeting of stockholders, the officer of the Corporation
presiding at the meeting of stockholders shall appoint one or more inspectors to
act at the meeting. Unless otherwise required by law, inspectors may be
officers, employees or agents of the Corporation. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath
faithfully to execute the duties of inspector with strict impartiality and
according to the best of his or her ability. The inspector shall have the duties
prescribed by law and shall take charge of the polls and, when the vote is
completed, shall make a certificate of the result of the vote taken and of such
other facts as may be required by law.
3
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ARTICLE III
DIRECTORS
Section 1. Number and Election of Directors. The Board of Directors
shall consist of not less than two (2) nor more than twenty (20) members, the
exact number of which shall be fixed from time to time by the affirmative vote
of directors constituting at least a majority of the entire board. For the
purposes of the preceding sentence, "entire board" refers to the total number of
directors which the Corporation would have if there were no vacancies. Except as
provided in Section 2 of this Article III, directors shall be elected by a
majority of all the shares entitled to vote at the Annual Meetings of
Stockholders, and each director so elected shall hold office until the next
Annual Meeting and until his successor is duly elected and qualified, or until
his death, or until his earlier resignation or removal. Any director may resign
at any time upon notice to the Corporation. Directors shall be at least eighteen
(18) years of age and need not be residents of the State of Delaware. Each
Director must own at least 100 shares of the Common Stock of the Corporation.
Any or all of the directors may be removed, with or without cause, at any time
by a majority of the votes cast by the stockholders then entitled to vote
generally in the election of directors, voting together as a single class, at a
special meeting called for that purpose. Any director may be removed for cause
by the action of the Directors at a special meeting called for that purpose. For
the purposes of this Section 1 of Article III, "cause" shall mean the failure of
a director to substantially perform such director's duties to the Corporation
(other than any such failure resulting from incapacity due to physical or mental
illness) or the wilful engaging by a director in gross misconduct injurious to
the Corporation.
Section 2. Vacancies. Except as otherwise required by law, any vacancy
in the Board of Directors for any reason and any newly created directorship
resulting by reason of any increase in the number of directors may be filled
only be the Board of Directors, by resolution adopted by the affirmative vote of
a majority of the remaining directors then in office, even though less than a
quorum (or by a sole remaining director); provided, however, that if not so
filled, any such vacancy shall be filled by a majority of the voting power of
the capital stock at the next annual meeting or at a special meeting called for
that purpose. Any director so appointed shall hold office until the next meeting
of stockholders at which directors of the class for which such director has been
chosen are to be elected and until his or her successor is elected and
qualified.
Section 3. Duties and Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of Directors
selected as provided by law and the Certificate of Incorporation and these
By-Laws. In furtherance, and not in limitation, of the powers conferred by the
laws of the State of Delaware, the Board of Directors is expressly authorized
to:
(1) adopt, amend, alter, change or repeal By-Laws of the
Corporation; provided, however, that no By-Law hereafter adopted shall
invalidate any prior act of the Corporation that would have been valid if such
new By-Laws had not been adopted.
4
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(2) subject to the By-Laws as from time to time in effect,
determine the rules and procedures for the conduct of the business of the Board
of Directors and the management and direction by the Board of Directors of the
business and affairs of the Corporation, including the power to designate and
empower committees of the Board of Directors, to elect, or designate and empower
officers and other agents of the Corporation, and to determine the time and
place of, the notice requirements for, and the manner of conducting, Board
meetings, as well as other notice requirements for, and the manner of taking,
Board action.
In addition to the powers and authority hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered to
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, subject, nevertheless, to the provisions of the DGCL,
the Certificate of Incorporation and these By-Laws; provided, however, that no
amendments to these By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
amendments had not been adopted.
Section 4. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors and, unless required by resolution of the Board of Directors, without
notice. Special meetings of the Board of Directors may be called by the Chairman
of the Board, the Chief Executive Officer, the Chief Operating Officer, the
President, or by a majority of directors then in office. Notice thereof stating
the place, date and hour of the meeting shall be given to each director either
by mail not less than forty-eight hours before the date of the meeting; by
telephone, telecopy, or telegram on twenty-four (24) hours notice; or on such
shorter notice as the person or persons calling such meeting may deem necessary
or appropriate in the circumstances.
Section 5. Quorum. Except as may be otherwise specifically provided by
law, the Certificate of Incorporation or these By-Laws, at all meetings of the
Board of Directors, a majority of the entire Board of Directors shall constitute
a quorum for the transaction of business and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting of the time
and place of the adjourned meeting, until a quorum shall be present.
Section 6. Meetings by Means of Conference Telephone. Unless otherwise
provided by the Certificate of Incorporation or these By-Laws, members of the
Board of Directors of the Corporation, or any committee designated by the Board
of Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting
5
<PAGE>
can hear each other, and participation in a meeting pursuant to this Section 6
shall constitute presence in person at such meeting.
Section 7. Action by Written Consent. Unless otherwise provided by the
Certificate of Incorporation or these By-Laws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all the members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 8. Compensation. The directors may be paid their expenses, if
any, of attendance at each meeting of the Board of Directors or any committee
thereof. Directors who do not receive compensation as officers or employees may
be paid a fixed retainer fee and fees for attendance at each meeting of the
Board of Directors or any committee thereof. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
Section 9. Interested Directors. No contract or transaction between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association, or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof which
authorizes the contract or transaction, or solely because his or their votes are
counted for such purpose if (i) the material facts as to his or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board of Directors
or committee in good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested directors, even though the
disinterested directors be less than a quorum; or (ii) the material facts as to
his or their relationship or interest and as to the contract or transaction are
disclosed or are known to the stockholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
stockholders; or (iii) the contract or transaction is fair as to the Corporation
as of the time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof or the stockholders. Common or interested
directors may be counted in determining the presence of a quorum at a meeting of
the Board of Directors or of a committee which authorizes the contract or
transaction.
ARTICLE IV
COMMITTEES
Section 1. Constitution and Powers. A majority of a quorum of the Board
of Directors may designate one or more committees, each committee to consist of
one or more of the directors of the Corporation, except as otherwise provided in
these By-Laws. The Board of
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Directors may designate one or more directors as alternate members of any
committee who may replace any absent or disqualified member at any meeting of
any such committee. In the absence or disqualification of a member of a
committee, and in the absence of a designation by the Board of Directors of an
alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not they constitute a quorum, may unanimously appoint another member of the
Board of Directors to act in the place of any absent or disqualified member.
Each committee, to the extent permitted by law, shall have and may exercise all
the powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation as provided in the resolution
establishing such committee.
Section 2. Executive Committee. The Board of Directors may designate an
Executive Committee, to consist of not less than two members of the Board of
Directors, which shall have and may exercise, to the extent permitted by law,
all of the powers of the Board of Directors in the management of the business
and affairs of the Corporation.
Section 3. Compensation Committee. The Board of Directors may designate
a Compensation Committee, to consist of not less than two members of the Board
of Directors, which shall have the responsibility of reviewing the performance
of the executive officers of the Company and recommending to the Board of
Directors of the Company annual salary and bonus amounts for all officers of the
Company. The Compensation Committee must consist of at least two Directors who
are "outside directors" within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended.
Section 4. Audit Committee. The Board of Directors may designate an
Audit Committee, to consist of not less than two members of the Board of
Directors, which shall have the responsibility of reviewing and supervising the
financial controls of the Corporation. The Audit Committee's responsibilities
will include (i) making recommendations to the Board of Directors of the
Corporation with respect to the Corporation's financial statements and the
appointment of independent auditors, (ii) reviewing significant audit and
accounting policies and practices of the Corporation, (iii) meeting with the
Corporation's independent public accountants concerning, among other things, the
scope of audits and reports and (iv) reviewing the performance of overall
accounting and financial controls of the Corporation. The Audit Committee will
consist of at least two Directors who are neither officers nor employees of the
Corporation.
Section 5. Pension Committee. The Board of Directors may designate a
Pension Committee, to consist of not less than two members of the Board of
Directors, which shall have the responsibility for overseeing the administration
of the Corporation's benefit plans.
Section 6. Organization. The Board of Directors or each such committee
may choose its Chairman and Secretary, and shall keep and record all its acts
and proceedings and report the same from time to time to the Board of Directors.
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Section 7. Meetings. Regular meetings of any such committee, of which
no notice shall be necessary, shall be held at such times and in such places as
shall be fixed by the committee or by the Board of Directors. Special meetings
of any such committee shall be held at the request of any member of the
committee.
Section 8. Quorum and Manner of Acting. A majority of the members of
any such committee shall constitute a quorum for the transaction of business,
and the act of a majority of those present at any meeting at which a quorum is
present shall be the act of the committee.
Section 9. General. The Board of Directors shall have the power at any
time to change the members of, fill vacancies in, and discharge or disband any
such committee, either with or without cause.
ARTICLE V
OFFICERS
Section 1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a Chief Executive Officer, a Chief Operating
Officer, a President, Executive Vice Presidents, Senior Vice Presidents, Vice
Presidents, a Secretary and a Treasurer. The Board of Directors, in its
discretion, may also choose a Chairman of the Board of Directors (who must be a
director) and one or more Assistant Secretaries, Assistant Treasurers and other
officers. Any number of offices may be held by the same person, unless otherwise
prohibited by law, the Certificate of Incorporation or these By-Laws. The
officers of the Corporation need not be stockholders of the Corporation nor,
except in the case of the Chairman of the Board of Directors, need such officers
be directors of the Corporation.
Section 2. Election. The Board of Directors at its first meeting held
after each Annual Meeting of Stockholders may elect the officers of the
Corporation who shall hold their offices for such terms and shall exercise such
powers and perform such duties as shall be determined from time to time by the
Board of Directors; and all officers of the Corporation shall hold office until
their successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 3. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by any officer of the Corporation and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such person may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights
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and power incident to the ownership of such securities and which, as the owner
thereof, the Corporation might have exercised and possessed if present. The
Board of Directors may, by resolution, from time to time confer like powers upon
any other person or persons.
Section 4. Chairman of the Board of Directors. The Chairman of the
Board of Directors, if there be one, shall preside at all meetings of the
stockholders and of the Board of Directors. The Chairman of the Board of
Directors may enter into and execute in the name of the Corporation deeds,
mortgages, bonds, guarantees, contracts and other instruments (collectively,
"Contracts"), including all Contracts requiring a seal, under the seal of the
Corporation, except in cases where the making and execution thereof shall be
expressly restricted or delegated by the Board of Directors or by a duly
authorized committee of directors, or by these By-Laws to some other officer or
agent of the Corporation, or shall be required by law otherwise to be made or
executed by some other officer or agent of the Corporation. During the absence
or disability of the Chief Executive Officer, the Chief Operating Officer and/or
the President, the Chairman of the Board of Directors shall exercise all the
powers and discharge all the duties of such officers. The Chairman of the Board
of Directors shall also perform such other duties and may exercise such other
powers as from time to time may be assigned to him by these By-Laws or by the
Board of Directors.
Section 5. Chief Executive Officer. The Chief Executive Officer shall
be responsible to the Board of Directors and the Executive Committee for the
formulation and presentation to the Board of Directors of the financial and
business policies of the Corporation. The Chief Executive Officer shall, in the
absence of the Chairman of the Board, preside at all meetings of the
stockholders and of the Board of Directors. The Chief Executive Officer may
enter into and execute in the name of the Corporation any Contracts, including
all Contracts requiring a seal, under the seal of the Corporation, except in
cases where the making and execution thereof shall be expressly restricted or
delegated by the Board of Directors or by a duly authorized committee of
directors, or by these By-Laws to some other officer or agent of the
Corporation, or shall be required by law otherwise to be made or executed by
some other officer or agent of the Corporation. The Chief Executive Officer
shall also perform such other duties and may exercise such other powers as from
time to time may be assigned to him by these By-Laws or by the Board of
Directors.
Section 6. Chief Operating Officer. The Chief Operating Officer shall
be responsible to the Board of Directors, the Executive Committee for the
formulation and implementation of the financial and business policies of the
Corporation approved by the Board of Directors or the Executive Committee. The
Chief Operating Officer shall, in the absence of the Chairman of the Board and
the Chief Executive Officer, preside at all meetings of the stockholders and of
the Board of Directors. The Chief Operating Officer may enter into and execute
in the name of the Corporation any Contracts, including all Contracts requiring
a seal, under the seal of the Corporation, except in cases where the making and
execution thereof shall be expressly restricted or delegated by the Board of
Directors or by a duly authorized committee of directors, or by these By-Laws to
some other officer or agent of the Corporation, or shall be required by law
otherwise to be made or executed by some other officer or agent of the
Corporation. The Chief Operating Officer shall also perform such
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other duties and may exercise such other powers as from time to time may be
assigned to him by these By-Laws or by the Board of Directors or the Executive
Committee.
Section 7. President. The President shall, subject to the control of
the Board of Directors, the Executive Committee, the Chairman of the Board of
Directors, the Chief Executive Officer and the Chief Operating Officer shall
have general supervision of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors or the Executive Committee
are carried into effect. The President may enter into and execute Contracts in
the name of the Corporation, including all Contracts requiring a seal, under the
seal of the Corporation, except in cases where the making and execution thereof
shall be expressly restricted or delegated by the Board of Directors or by a
duly authorized committee of directors, by the Chairman of the Board of
Directors or by these By-Laws to some other officer or agent of the Corporation,
or shall be required by law otherwise to be made or executed by some other
officer or agent of the Corporation. In the absence or disability of the
Chairman of the Board of Directors, Chief Executive Officer and the Chief
Operating Officer, the President shall preside at all meetings of the
stockholders and the Board of Directors. The President shall also perform such
other duties and may exercise such other powers as from time to time may be
assigned to him by these By-Laws or by the Board of Directors.
Section 8. Executive Vice Presidents. The Executive Vice Presidents,
subject to the control of the Board of Directors, the Executive Committee, the
Chairman of the Board of Directors, the Chief Executive Officer, the Chief
Operating Officer and the President shall be responsible for the direction and
management of the respective departments of the Corporation they shall be
assigned. At the request of the President or in his absence or in the event of
his inability or refusal to act the Executive Vice Presidents or the Executive
Vice Presidents, if there is more than one (in the order designated by the Board
of Directors), shall perform the duties of the President, and when so acting,
shall have all the powers of and be subject to all the restrictions upon the
President. Each Executive Vice President may enter into and execute Contracts in
the name of the Corporation, including all Contracts requiring a seal, under the
seal of the Corporation, except in cases where the making and execution thereof
shall be expressly restricted or otherwise delegated by these By-Laws or by the
Board of Directors, a duly authorized committee of directors, the Chairman of
the Board of Directors, the Chief Executive Officer, the Chief Operating
Officer, the President or any other officer to whom they report, or shall be
required by law otherwise to be made or executed by some other officer or agent
of the Corporation. Each Executive Vice President shall perform such other
duties and have such other powers as the Board of Directors from time to time
may prescribe.
Section 9. Chief Financial Officer. The Chief Financial Officer shall,
subject to the control of the Board of Directors, the Executive Committee, the
Chairman of the Board of Directors, the Chief Executive Officer and the Chief
Operating Officer, managing and directing the financial affairs of the
Corporation, including, without limitation, the maintenance of adequate cash
reserves of cash, short and long term credit facilities, monitoring compliance
with financial covenants, formulation of financial plans and projections. The
Chief Financial Officer may enter into and execute in the name of the
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Corporation any Contracts, including all Contracts requiring a seal, under the
seal of the Corporation, except in cases where the making and execution thereof
shall be expressly restricted or delegated by the Board of Directors or by a
duly authorized committee of directors, or by these By-Laws to some other
officer or agent of the Corporation, or shall be required by law otherwise to be
made or executed by some other officer or agent of the Corporation. The Chief
Financial Officer shall also be responsible for (i) overseeing the preparation
and maintenance of reasonable and adequate books of account and other accounting
records of the assets, liabilities and transactions of the Corporation in
accordance with generally accepted accounting principles and procedures, (ii)
seeing that reasonable and adequate audits thereof are regularly made and that
reasonable and adequate systems of financial control are maintained, (iii)
overseeing the examination and certification of the financial accounts and
reports of the Corporation, (iv) overseeing the preparation and filing of all
income, franchise, sales and excise tax filings of the Corporation and its
subsidiaries, (v) overseeing the preparation and filing of all filings required
to be made by the Corporation pursuant to any federal, state or other securities
laws and (vi) overseeing the preparation of such budgets and other financial
reports as the Board of Directors, the Chairman of the Board of Directors, the
Chief Executive Officer, the Chief Operating Officer, the President or any other
officer to whom the Chief Financial Officer reports may require. Chief Financial
Officer shall perform such other duties and have such other powers as the Board
of Directors from time to time may prescribe.
Section 10. Senior Vice Presidents. The Senior Vice Presidents shall,
subject to the control of the Executive Vice Presidents participate in the
direction and management of the respective departments of the Corporation they
shall be assigned. Each Senior Vice President shall perform such other duties
and have such other powers as the Board of Directors from time to time may
prescribe. The Senior Vice Presidents shall report to the Executive Vice
President for their assigned department.
Section 11. Vice Presidents. The Vice Presidents shall, subject to the
control of the Executive Vice Presidents and the Senior Vice Presidents direct
the operation of the respective departments of the Corporation they shall be
assigned. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. The Vice
Presidents shall report to the Senior Vice President for their assigned
department.
Section 12. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of stockholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the stockholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of
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the seal of the Corporation and the Secretary or any Assistant Secretary, if
there be one, shall have authority to affix the same to any instrument requiring
it and when so affixed, it may be attested by the signature of the Secretary or
by the signature of any such Assistant Secretary. The Board of Directors may
give general authority to any other officer to affix the seal of the Corporation
and to attest the affixing by his signature. The Secretary shall see that all
books, reports, statements, certificates and other documents and records
required by law to be kept or filed are properly kept or filed, as the case may
be.
Section 13. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
Section 14. Assistant Secretaries. Except as may be otherwise provided
in these By-Laws, Assistant Secretaries, if there be any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there be one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 15. Assistant Treasurers. Assistant Treasurers, if there be
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there be one, or the Treasurer, and in the absence of the Treasurer or in the
event of his disability or refusal to act, shall perform the duties of the
Treasurer, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Treasurer. If required by the Board of Directors,
an Assistant Treasurer shall give the Corporation a bond in such sum and with
such surety or sureties as shall be satisfactory to the Board of Directors for
the faithful performance of the duties of his office and for the restoration to
the Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 16. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them
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by the Board of Directors. The Board of Directors may delegate to any other
officer of the Corporation the power to choose such other officers and to
prescribe their respective duties and powers.
ARTICLE VI
STOCK
Section 1. Form of Certificates. (a) Every holder of stock in the
Corporation shall be entitled to have a certificate signed, in the name of the
Corporation (i) by the Chairman of the Board of Directors, the Chief Executive
Officer, the Chief Operating Officer, the President or an Executive Vice
President and (ii) by the Treasurer or an Assistant Treasurer, or the Secretary
or an Assistant Secretary of the Corporation, certifying the number of shares
owned by him in the Corporation.
(b) If the Corporation shall be authorized to issue more than
one class of stock or more than one series of any class, the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights shall be set forth
in full or summarized on the face or back of the certificate which the
Corporation shall issue to represent such class or series of stock, provided
that, except as otherwise required by Section 202 of the Delaware General
Corporation Law, in lieu of the foregoing requirements, there may be set forth
on the face or back of the certificate which the Corporation shall issue to
represent such class or series of stock, a statement that the Corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
Section 2. Signatures. Any or all of the signatures on a certificate
may be a facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the Corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost, Destroyed, Stolen or Mutilated Certificates. The Board
of Directors may direct a new certificate to be issued in place of any
certificate theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate, or his legal
representative, to advertise the same in such manner as the Board of Directors
shall require and/or to give the Corporation a bond in such sum as it may direct
as indemnity against any claim that may be made against the Corporation
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and its transfer agents with respect to the certificate alleged to have been
lost, stolen or destroyed or the issuance of such new certificate.
Section 4. Transfers. Subject to the restrictions contained in Article
FOURTH of the Certificate of Incorporation, Common Stock of the Corporation
shall be transferable in the manner prescribed by law and in these By-Laws.
Transfers of stock shall be made on the books of the Corporation only by the
person named in the certificate or by his attorney lawfully constituted in
writing and upon the surrender of the certificate therefor, which shall be
canceled before a new certificate shall be issued.
Section 5. Limitations on Transfer. A written restriction on the
transfer or registration of transfer of a security of the Corporation, if
permitted by Section 202 of the Delaware General Corporation Law and noted
conspicuously on the certificate representing the security or, in the case of
uncertificated shares, contained in the notice sent pursuant to Section 151(f)
of the Delaware General Corporation Law, may be enforced against the holder of
the restricted security or any successor or transferee of the holder including
an executor, administrator, trustee, guardian or other fiduciary entrusted with
like responsibility for the person or estate of the holder. Unless noted
conspicuously on the certificate representing the security or, in the case of
uncertificated shares, contained in the notice sent pursuant to Section 151(f)
of the Delaware General Corporation Law, a restriction, even though permitted by
Section 202 of the Delaware General Corporation Law, is ineffective except
against a person with actual knowledge of the restriction. A restriction on the
transfer or registration of transfer of securities of the Corporation may be
imposed either by the Certificate of Incorporation or by these By-Laws or by an
agreement among any number of security holders or among such holders and the
Corporation. No restriction so imposed shall be binding with respect to
securities issued prior to the adoption of the restriction unless the holders of
the securities are parties to an agreement or voted in favor of the restriction.
Section 6. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Directors may fix, in advance,
a record date, which shall not be more than sixty days nor less than ten days
before the date of such meeting, nor more than sixty days prior to any other
action. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 7. Beneficial Owners. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and to hold liable
for calls and assessments a person registered on its books as the owner of
shares, and shall not be bound to recognize any equitable or other
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claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
ARTICLE VII
NOTICES
Section 1. Notices. Whenever written notice is required by law, the
Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, such notice may be given by mail,
addressed to such director, member of a committee or stockholder, at his address
as it appears on the records of the Corporation, with postage thereon prepaid,
and such notice shall be deemed to be given at the time when the same shall be
deposited in the United States mail. Written notice may also be given personally
or by courier service, facsimile transmission, telegram, telex or cable.
Section 2. Waivers of Notice. Whenever any notice is required by law,
the Certificate of Incorporation or these By-Laws, to be given to any director,
member of a committee or stockholder, a waiver thereof in writing, signed, by
the person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto. Attendance of a person at a
meeting, present by person or represented by proxy, shall constitute a waiver of
notice of such meeting, except where the person attends the meeting for the
express purpose of objecting at the beginning of the meeting to the transaction
of any business because the meeting is not lawfully called or convened. Neither
the business to be transacted at, nor the purpose of, any regular or special
meeting of the stockholders, directors or members of a committee of directors
need be specified in any written waiver of notice.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the capital
stock. Before payment of any dividend, there may be set aside out of any funds
of the Corporation available for dividends such sum or sums as the Board of
Directors from time to time, in its absolute discretion, deems proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the Corporation, or for any proper
purpose, and the Board of Directors may modify or abolish any such reserve.
Section 2. Disbursements. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
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Section 3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 4. Corporate Seal. The corporate seal shall have inscribed
thereon the name of the Corporation, the year of its organization and the words
"Corporate Seal, Delaware". The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION
Section 1. Power to Indemnify in Actions, Suits or Proceedings other
Than Those by or in the Right of the Corporation. Subject to Section 3 of this
Article IX, the Corporation shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director or officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
Section 2. Power to Indemnify in Actions, Suits or Proceedings by or in
the Right of the Corporation. Subject to Section 3 of this Article IX, the
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director or officer of the Corporation, or is or was a
director or officer of the Corporation serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation; except that no
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indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 3. Authorization of Indemnification. Any indemnification under
this Article IX (unless ordered by a court) shall be made by the Corporation
only as authorized in the specific case upon a determination that
indemnification of the director or officer is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section 1 or
Section 2, and in each case Section 11, of this Article IX, as the case may be.
Such determination shall be made (i) by a majority vote of the directors who are
not parties to such action, suit or proceeding, even though less than a quorum,
or (ii) if there are no such directors, or if such directors so direct, by
independent legal counsel in a written opinion, or (iii) by the stockholders. To
the extent, however, that a director or officer of the Corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding described above, or in defense of any claim, issue or matter therein,
he shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case.
Section 4. Good Faith Defined. For purposes of any determination under
Section 3 of this Article IX, a person shall be deemed to have acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Corporation, or, with respect to any criminal action or
proceeding, to have had no reasonable cause to believe his conduct was unlawful,
if his action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 4 shall mean
any other corporation or any partnership, joint venture, trust, employee benefit
plan or other entity or enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 4 shall not be deemed to be exclusive or to limit in
any way the circumstances in which a person may be deemed to have met the
applicable standard of conduct set forth in Sections 1 or 2, and in each case
Section 11, of this Article IX, as the case may be.
Section 5. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 3 of this Article IX, and
notwithstanding the absence of any determination thereunder, any director or
officer may apply to any court of competent jurisdiction in the State of
Delaware for indemnification to the extent otherwise permissible under Sections
1 and 2, and in each case Section 11, of this Article IX. The basis of such
indemnification by a court shall be a determination by such court that
indemnification of the
17
<PAGE>
director or officer is proper in the circumstances because he has met the
applicable standards of conduct set forth in Sections 1 or 2, and in each case
Section 11, of this Article IX, as the case may be. Neither a contrary
determination in the specific case under Section 3 of this Article IX nor the
absence of any determination thereunder shall be a defense to such application
or create a presumption that the director or officer seeking indemnification has
not met any applicable standard of conduct. Notice of any application for
indemnification pursuant to this Section 5 shall be given to the Corporation
promptly upon the filing of such application. If successful, in whole or in
part, the director or officer seeking indemnification shall also be entitled to
be paid the expense of prosecuting such application.
Section 6. Expenses Payable in Advance. Expenses (including attorneys'
fees) incurred by a director or officer in defending or investigating a
threatened or pending action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IX.
Section 7. Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or granted
pursuant to this Article IX shall not be deemed exclusive of any other rights to
which those seeking indemnification or advancement of expenses may be entitled
under the Certificate of Incorporation or any By-Law, agreement, contract, vote
of stockholders or disinterested directors or pursuant to the direction
(howsoever embodied) of any court of competent jurisdiction or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, it being the policy of the Corporation that indemnification
of the persons specified in Sections 1 and 2 of this Article IX shall be made to
the fullest extent permitted by law. The provisions of this Article IX shall not
be deemed to preclude the indemnification of any person who is not specified in
Sections 1 or 2 of this Article IX but whom the Corporation has the power or
obligation to indemnify under the provisions of the Delaware General Corporation
Law or otherwise.
Section 8. Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director or officer of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan or
other entity or enterprise against any liability asserted against him and
incurred by him in any such capacity, or arising out of his status as such,
whether or not the Corporation would have the power or the obligation to
indemnify him against such liability under the provisions of this Article IX.
Section 9. Certain Definitions. For purposes of this Article IX,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
18
<PAGE>
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity or enterprise, shall
stand in the same position under the provisions of this Article IX with respect
to the resulting or surviving corporation as he would have with respect to such
constituent corporation if its separate existence had continued. For purposes of
this Article IX, references to "fines" shall include any excise taxes assessed
on a person with respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a director,
officer, employee or agent of the Corporation which imposes duties on, or
involves services by, such director or officer with respect to an employee
benefit plan, its participants or beneficiaries; and a person who acted in good
faith and in a manner he reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be deemed to
have acted in a manner "not opposed to the best interests of the Corporation" as
referred to in this Article IX.
Section 10. Survival of Indemnification and Advancement of Expenses.
The indemnification and advancement of expenses provided by, or granted pursuant
to, this Article IX shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director or officer and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
Section 11. Limitation on Indemnification. Notwithstanding anything
contained in this Article IX to the contrary, except for proceedings to enforce
rights to indemnification (which shall be governed by Section 5 hereof), the
Corporation shall not be obligated to indemnify any director or officer in
connection with a proceeding (or part thereof) initiated by such person unless
such proceeding (or part thereof) was authorized or consented to by the Board of
Directors of the Corporation.
Section 12. Indemnification of Employees and Agents. The Corporation
may, to the extent authorized from time to time by the Board of Directors,
provide rights to indemnification and to the advancement of expenses to
employees and agents of the Corporation similar to those conferred in this
Article IX to directors and officers of the Corporation.
ARTICLE X
AMENDMENTS OF BY-LAWS
Section 1. Amendments of By-Laws. These By-Laws may be altered, amended
or repealed, in whole or in part, or new By-Laws may be adopted, by the
stockholders or by the Board of Directors; provided, however, that notice of
such alteration, amendment, repeal or adoption of new By-Laws be contained in
the notice of such meeting of stockholders or Board of Directors as the case may
be. All such amendments must be approved by either the affirmative vote of the
holders of not less than a majority of the voting power of all of the
19
<PAGE>
outstanding capital stock of the Corporation then entitled to vote thereon,
voting as a single class, or by a majority of the entire Board of Directors then
in office (notwithstanding the fact that approval by a lesser percentage may be
permitted by the DGCL).
Section 2. Entire Board of Directors. As used in this Article X and in
these By-Laws generally, the term "entire Board of Directors" means the total
number of directors which the Corporation would have if there were no vacancies.
20
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of December 17, 1996, between
Swisher International Group Inc., a Delaware corporation (the "Company"), and
Hay Island Holding Corporation, a Delaware corporation ("Hay").
WHEREAS, as of the date of this Agreement, Hay owns 28,100,000 shares
of the Company's Class B Common Stock, par value $0.01 per share (the "Class B
Common Stock");
WHEREAS, the Company is consummating on the date hereof underwritten
public offerings (the "Offerings") of 6,000,000 shares of the Company's Class A
Common Stock, par value $0.01 per share (the "Class A Common Stock" and together
with the Company's Class B Common Stock, the "Common Stock"); and
WHEREAS, the Board of Directors of the Company has adopted the Swisher
International Group Inc. 1996 Stock Plan; and
WHEREAS, the Board of Directors of the Company has authorized the
officers of the Company to execute and deliver this Agreement in the name and on
behalf of the Company;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties to this Agreement hereby agree as follows:
1. Definitions. As used in this Agreement, the following terms shall
have the following meanings:
"Holder" means Hay and any other person that owns Registrable
Securities, including their respective successors and assigns who acquire
Registrable Securities, directly or indirectly, from Hay or such other person.
For purposes of this Agreement, the Company may deem and treat the registered
holder of a Registrable Security as the Holder and absolute owner thereof, and
the Company shall not be affected by any notice to the contrary.
"Registrable Securities" means (a) the Class A Common Stock issuable
upon the conversion of the Class B Common Stock owned by Hay following the
completion of the Offerings, (b) any unregistered Class A Common Stock acquired
by way of the exercise of any stock option(s) granted pursuant to the Swisher
International Group Inc. 1996 Stock Plan, (c) any Class A Common Stock acquired
by Hay in the open market at a time when Hay is deemed to be an Affiliate (as
such term is defined under Rule 144 under the Securities Act) of the Company so
long as (i) such Common Stock has not been transferred by Hay to a person that
is not a Permitted Transferee (as such term is defined in the Certificate of
Incorporation of the Company) and (ii) Hay or such Permitted Transferee
continues to be deemed an Affiliate of the Company, and (d) any securities
issued or issuable in respect of the Class A Common Stock or Class B Common
Stock referred to in clauses (a), (b) and (c) above, by
<PAGE>
way of stock dividend or stock split or in connection with a combination of
shares, recapitalization, reclassification, merger or consolidation, and any
other securities issued pursuant to any other pro rata distribution with respect
to such Common Stock. For purposes of this Agreement, a Registrable Security
ceases to be a Registrable Security when (x) it has been effectively registered
under the Securities Act and sold or distributed to the public in accordance
with an effective registration statement covering it (and has not been
reacquired in the manner described in clause (c) above), or (y) it is sold or
distributed to the public pursuant to Rule 144 (or any successor or similar
provision) under the Securities Act.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended from time
to time.
2. Demand Registration. (a) Subject to Section 5 hereof, if at any time
any Holder shall request the Company in writing to register under the Securities
Act all or a part of the Registrable Securities held by such Holder (a "Demand
Registration"), the Company shall use all reasonable efforts to cause to be
filed and declared effective as soon as reasonably practicable (but in no event
later than the 45th day after such Holder's request is made) a registration
statement, on such appropriate form as the Company in its discretion shall
determine, providing for the sale of all such Registrable Securities by such
Holder. The Company agrees to use its reasonable efforts to keep any such
registration statement continuously effective and usable for resale of
Registrable Securities for so long as the Holder whose Registrable Securities
are included therein shall request. The Company shall be obligated to file
registration statements pursuant to this Section 2(a) until all Registrable
Securities have ceased to be Registrable Securities. Each registration statement
filed pursuant to this Section 2(a) is hereinafter referred to as a "Demand
Registration Statement."
(b) The Company agrees(i), unless it obtains the prior written
consent of Hay, not to effect any public or private sale, distribution or
purchase of any of its securities which are the same as or similar to the
Registrable Securities, including a sale pursuant to Regulation D under the
Securities Act, during the 15-day period prior to, and during the 45-day period
beginning on, the closing date of each underwritten offering under any Demand
Registration Statement, and (ii) to use reasonable efforts to cause each holder
of its securities purchased from the Company, at any time on or after the date
of this Agreement (other than in a registered public offering) to agree not to
effect any public sale or distribution of any such securities during such
period, including a sale pursuant to Rule 144 under the Securities Act.
(c) The Company may postpone for a reasonable period of time,
not to exceed 60 days, the filing or the effectiveness of any Demand
Registration Statement if the Board of Directors of the Company in good faith
determines that (A) such registration might have a material adverse effect on
any plan or proposal by the Company with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction, or (B) the
Company is in possession of material non-public information that, if publicly
disclosed, could result in a material disruption of a major corporate
development or transaction then pending or in progress or in other material
adverse consequences to the Company.
<PAGE>
(d) If at any time any Holder of Registrable Securities to be
covered by a Demand Registration Statement desires to sell Registrable
Securities in an underwritten offering, such Holder shall have the right to
select any nationally recognized investment banking firm(s) to administer the
offering, subject to the approval of the Company, which approval shall not be
unreasonably withheld, and the Company shall enter into underwriting agreements
with the underwriter(s) of such offering, which agreements shall contain such
representations and warranties by the Company, and such other terms, conditions
and indemnities as are at the time customarily contained in underwriting
agreements for similar offerings.
3. Incidental Registration. Subject to Section 5 hereof and the other
terms and conditions set forth in this Section 3, if the Company proposes at any
time to register any shares of Class A Common Stock (the "Initially Proposed
Shares") under the Securities Act for sale, whether or not for its own account,
pursuant to an underwritten offering, the Company will promptly give written
notice to the Holders of its intention to effect such registration (such notice
to specify, among other things, the proposed offering price, the kind and number
of securities proposed to be registered and the distribution arrangements,
including identification of the underwriter(s)), and the Holders shall be
entitled to include in such registration statement, as a part of such
underwritten offering, such number of shares (the "Holder Shares") to be sold
for the account of the Holders (on the same terms and conditions as the
Initially Proposed Shares) as shall be specified in a request in writing
delivered to the Company within 15 days after the date upon which the Company
gave the aforementioned notice.
The Company's obligations to include Holder Shares in a registration
statement pursuant to this Section 3 is subject to each of the following
limitations, conditions and qualifications:
(a) If, at any time after giving written notice of its
intention to effect a registration of any of its shares of Common Stock and
prior to the effective date of any registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register all of such shares, the Company may, at its election, give written
notice of such determination to the Holders and thereupon it shall be relieved
of its obligation to use any efforts to register any Holder Shares in connection
with such aborted registration.
(b) If, in the opinion of the managing underwriter(s) of such
offering, the distribution of all or a specified portion of the Holder Shares
would materially interfere with the registration and sale, in accordance with
the intended method thereof, of the Initially Proposed Shares, then the number
of Holder Shares to be included in such registration statement shall be reduced
to such number, if any, that, in the opinion of such managing underwriter(s),
can be included without such interference. If, as a result of the cutback
provisions of the preceding sentence, the Holders are not entitled to include
all of the Holder
<PAGE>
Shares in such registration, such Holders may elect to withdraw their request to
include Holder Shares in such registration (a "Withdrawal Election").
If the Company shall so request in writing, each Holder agrees (i) not
to effect any public or private sale or distribution of any Registrable
Securities (other than the Holder Shares) during the 15-day period prior to and
during the 45-day period beginning on, the closing date of any underwritten
public offering of shares of Common Stock made for the Company's own account and
(ii) to waive any Demand Registration right until 60 days after the
above-mentioned closing date.
4. Registration Procedures. (a) Whenever the Company is required to use
all reasonable efforts to effect the registration of any Registrable Securities
under the Securities Act pursuant to the terms and conditions of Section 2(a) or
3 (such Registrable Securities being hereinafter referred to as "Subject
Shares"), the Company will use all reasonable efforts to effect the registration
and sale of the Subject Shares in accordance with the intended method of
disposition thereof. Without limiting the generality of the foregoing, the
Company will as soon as practicable:
i) prepare and file with the SEC a registration
statement with respect to the Subject Shares in form and substance satisfactory
to the Holders of the Subject Shares, and use all reasonable efforts to cause
such registration statement to become effective as soon as possible;
ii) prepare and file with the SEC such amendments
and supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for the applicable period and to comply with the provisions of the
Securities Act with respect to the disposition of all Subject Shares and other
securities covered by such registration statement;
iii) furnish the Holders covered by such
registration statement, without charge, such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus),
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such Holders may reasonably request;
iv) use all reasonable efforts to register or
qualify the Subject Shares covered by such registration statement under the
securities or blue sky laws of such jurisdictions as the managing underwriter(s)
shall reasonably recommend, and do any and all other acts and things which may
be reasonably necessary or advisable to enable the Holders to consummate the
disposition in such jurisdictions of the Subject Shares covered by such
registration statement, except that the Company shall not for any such purpose
be required to (A) qualify generally to do business as a foreign corporation in
any jurisdiction wherein it is not so qualified, (B) subject itself to taxation
in any jurisdiction wherein it is not so subject, or (C) consent to general
service of process in any such jurisdiction or otherwise take any action
<PAGE>
that would subject it to the general jurisdiction of the courts of any
jurisdiction in which it is not so subject;
v) otherwise use its reasonable efforts to comply
with all applicable rules and regulations of the SEC;
vi) furnish, at the Company's expense, unlegended
certificates representing ownership of the securities being sold in such
denominations as shall be requested and instruct the transfer agent to release
any stop transfer orders with respect to the Subject Shares being sold;
vii) notify each Holder at any time when a prospectus
relating to the Subject Shares is required to be delivered under the Securities
Act of the happening of any event as a result of which the prospectus included
in such registration statement contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements therein (in
the case of the prospectus or any preliminary prospectus, in light of the
circumstances under which they were made) not misleading, and the Company will,
as promptly as practicable thereafter, prepare and file with the SEC and furnish
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of Subject Shares such prospectus will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
viii) enter into customary agreements (including an
underwriting agreement in customary form in the case of an underwritten
offering) and make such representations and warranties to the sellers and
underwriter(s) as in form and substance and scope are customarily made by
issuers to underwriters in underwritten offerings and take such other actions as
the Holders or the managing underwriter(s) or agent, if any, reasonably require
to expedite or facilitate the disposition of such Subject Shares;
ix) make available for inspection by the Holders, any
underwriter or agent participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other similar
professional advisor retained by any such holders or underwriter (collectively
the "Inspectors"), all pertinent financial and other records, pertinent
corporate documents and properties of the Company (collectively, the "Records"),
as shall be reasonably necessary to enable them to exercise their due diligence
responsibility, and cause the Company's officers, directors and employees to
supply all information reasonably requested by any such Inspector in connection
with such registration statement. The Holders agree that Records and other
information which the Company determines, in good faith, to be confidential and
of which determination the Inspectors are so notified shall not be disclosed by
the Inspectors unless (i) the disclosure of such Records is necessary to avoid
or correct a misstatement or omission in the registration statement, (ii) the
release of such Records is ordered pursuant to a subpoena, court order or
regulatory or agency request or (iii) the information in such Records has been
generally disseminated to the public. Each Holder agrees that it will, upon
learning that disclosure of such Record is sought in a court of competent
<PAGE>
jurisdiction or by any governmental agency, give notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
x) obtain for delivery to the Company, the
underwriter(s) or their agent, with copies to the Holders, a "cold comfort"
letter from the Company's independent public accountants in customary form and
covering such matters of the type customarily covered by "cold comfort" letters
as the Holders or the managing underwriter(s) reasonably request;
xi) obtain for delivery to the Holders and the
underwriter(s) or their agent an opinion or opinions from counsel for the
Company in customary form and reasonably satisfactory to the Holder,
underwriters or agents and their counsel;
xii) make available to its security holders earnings
statements, which need not be audited, satisfying the provisions of Section
11(a) of the Securities Act no later than 90 days after the end of the 12-month
period beginning with the first month of the Company's first quarter commencing
after the effective date of the registration statement, which earnings
statements shall cover said 12-month period;
xiii) make every reasonable effort to prevent the
issuance of any stop order suspending the effectiveness of the registration
statement or of any order preventing or suspending the effectiveness of such
registration statement at the earliest possible moment;
xiv) cause the Subject Shares to be registered with
or approved by such other governmental agencies or authorities within the United
States as may be necessary to enable the sellers thereof or the underwriters(s),
if any, to consummate the disposition of such Subject Shares;
xv) cooperate with the Holders and the managing
underwriter(s), if any, or any other interested party (including any interested
broker-dealer) in making any filings or submission required to be made, and the
furnishing of all appropriate information in connection therewith, with the
National Association of Securities Dealers, Inc. ("NASD");
xvi) cause its subsidiaries to take action necessary
to effect the registration of the Subject Shares contemplated hereby, including
filing any required financial information;
xvii) effect the listing of the Subject Shares on the
New York Stock Exchange or such other national securities exchange or
over-the-counter market on which shares of the Class A Common Stock shall then
be listed; and
xviii) take all other steps necessary to effect the
registration of the Subject Shares contemplated hereby.
<PAGE>
(b) The Holders shall provide (in writing and signed by the
Holders and stated to be specifically for use in the related registration
statement, preliminary prospectus, prospectus or other document incident
thereto) all such information and materials and take all such action as may be
required to permit the Company to comply with all applicable requirements of the
SEC and any applicable state securities laws and to obtain any desired
acceleration of the effective date of any registration statement prepared and
filed by the Company pursuant to this Agreement.
(c) The Holders shall, if requested by the Company or the
managing underwriter(s) in connection with any proposed registration and
distribution pursuant to this Agreement, (i) agree to sell the Subject Shares on
the basis provided in any underwriting arrangements entered into in connection
therewith and (ii) complete and execute all questionnaires, powers of attorney,
indemnities, underwriting agreements and other documents customary in similar
offerings.
(d) Upon receipt of any notice from the Company that the
Company has become aware that the prospectus (including any preliminary
prospectus) included in any registration statement filed pursuant to Section
2(a) or 3, as then in effect, contains any untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading, the Holders shall forthwith
discontinue disposition of Subject Shares pursuant to the registration statement
covering the same until the Holders" receipt of copies of a supplemented or
amended prospectus and, if so directed by the Company, deliver to the Company
(at the Company's expense) all copies other than permanent file copies then in
the Holder's possession, of the prospectus covering the Subject Shares that was
in effect prior to such amendment or supplement.
(e) The Company shall pay all out-of-pocket expenses incurred
in connection with any registration statement filed pursuant to Section 2(a) or
Section 3 of this Agreement, including, without limitation, all SEC and blue sky
registration and filing fees (including NASD fees), printing expenses, transfer
agents and registrars' fees, fees and disbursements of the Company's counsel and
accountants and fees and disbursements of experts used by the Company in
connection with such registration statement. Notwithstanding the foregoing, the
Holders shall pay all underwriting discounts, commissions and expenses
attributable to the Subject Shares sold pursuant to any such registration
statement.
(f) In connection with any sale of Subject Shares that are
registered pursuant to this Agreement, the Company and the Holders shall enter
into an agreement providing for indemnification of the Holders by the Company,
and indemnification of the Company by the Holders, on terms customary for such
agreements at that time (it being understood that any disputes arising as to
what is customary shall be resolved by counsel to the underwriter(s)).
5. Condition to Company's Obligations. Notwithstanding any other
provision in this Agreement to the contrary, the Company shall have no
obligation to effect any registration of Registrable Securities pursuant to this
Agreement within 180 days of the date of the prospectus
<PAGE>
for the Offerings, unless Merrill Lynch & Co. shall have given its prior written
consent to such filing.
6. Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be effective (a) upon hand
delivery or delivery by telex (with correct answerback received), telecopy or
facsimile at the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be received), or the
first business day following such delivery (if delivered other than on a
business day during normal business hours where such notice is to be received)
or (b) on the third business day following the date of mailing by express
courier service, fully prepaid, addressed to such address, or upon actual
service, fully prepaid, addressed to such address, or upon actual receipt of
such mailing, whichever shall first occur. The addresses for such communications
shall be:
If to the Company, to:
Swisher International Group Inc.
459 East 16th Street
Jacksonville, FL 33206
Attn: President
Telecopy: (904) 358-9334
If to Hay, to:
Hay Island Holding Corporation
20 Thorndal Circle
Darien, CT 06820
Attn: William Ziegler, III
Telecopy: (203) 656-3151
and
Hay Island Holding Corporation
20 Thorndal Circle
Darien, CT 06820
Attn: William T. Ziegler
Telecopy: (203) 656-3151
If to any other Holder, to such name at such address as such
Holder shall have indicated in a written notice delivered to the other parties
to this Agreement.
Any party hereto may from time to time change its address for notices under this
Section 6 by giving at least 10 days' notice of such changes to the other
parties hereto.
<PAGE>
7. Waivers. No waiver by any party of any default with respect to any
provision, condition or requirement hereof shall be deemed to be a continuing
waiver in the future thereof or a waiver of any other provision, condition or
requirement hereof; nor shall any delay or omission of any party to exercise any
right hereunder in any manner impair the exercise of any such right accruing to
it thereafter.
8. Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
9. Successors and Assigns; Amendments. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns,
including without limitation and without the need for an express assignment each
subsequent Holder of any Registrable Securities. Except as provided in this
Section 9, neither the Company nor any Holder shall assign this Agreement or any
rights hereunder without the prior written consent of the other parties hereto.
The assignment by a party of this Agreement or any rights hereunder shall not
affect the obligations of such party hereunder. This Agreement may not be
amended except by a written instrument executed by the parties hereto.
10. No Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
11. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Delaware
without regard to the principles of conflicts of laws.
The parties hereto have caused this Agreement to be duly executed and
delivered by their proper and duly authorized officers as of the day and year
first above written.
SWISHER INTERNATIONAL GROUP INC.
By: /s/ William T. Ziegler
---------------------------
Name: William T. Ziegler
Title: Chief Operating Officer
HAY ISLAND HOLDING CORPORATION
By: /s/ William Ziegler, III
--------------------------
Name: William Ziegler, III
Title: Chief Executive Officer
MANAGEMENT SERVICES AGREEMENT
This Management Services Agreement (this "Agreement") is entered into
as of January 1, 1997 by and between Swisher International Group Inc., a
Delaware corporation ("Swisher"), and Hay Island Holding Corporation, a Delaware
corporation ("Hay Island").
RECITALS
WHEREAS, Swisher is issuing shares of Class A Common Stock,
$0.01 par value per share ("Class A Common Stock"), to the public in an offering
(the "Initial Public Offering") registered under the Securities Act of 1933, as
amended;
WHEREAS, Hay Island beneficially owns all of the issued and
outstanding Swisher Class B Common Stock, par value $0.01 per share ("Class B
Common Stock") of Swisher;
WHEREAS, Hay Island has heretofore directly or indirectly
provided certain administrative, financial, management and other services to
Swisher or its Subsidiaries;
WHEREAS, on the terms and subject to the conditions set forth
herein, Swisher desires to retain Hay Island as an independent contractor to
continue to provide, directly or indirectly, certain administrative, financial,
management and other services to Swisher and its Subsidiaries (as defined below)
after the Closing Date (as defined below); and
WHEREAS, on the terms and subject to the conditions set forth
herein, Hay Island desires to provide, directly or indirectly, such services to
Swisher and its Subsidiaries.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Hay Island and
Swisher, for themselves, their successors and assigns, hereby agree as follows:
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ARTICLE I
DEFINITIONS
Section 1.1. Definitions. As used in this Agreement, the
following terms will have the following meanings, applicable both to the
singular and the plural forms of the terms described:
"Agreement" has the meaning ascribed thereto in the preamble
hereto, as such agreement may be amended and supplemented from time to time in
accordance with its terms.
"Class A Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Class B Common Stock" has the meaning ascribed thereto in the
recitals to this Agreement.
"Closing Date" means the date of the closing of the initial
sale of Class A Common Stock in the Initial Public Offering.
"Common Stock" means the Class B Common Stock, the Class A
Common Stock and any other class of Swisher capital stock representing the right
to vote generally for the election of directors.
"Initial Public Offering" has the meaning ascribed thereto in
the recitals to this Agreement.
"Hay Indemnified Person" has the meaning ascribed thereto in
Section 4.3.
"Hay Island" has the meaning ascribed thereto in the preamble
hereto.
"Payment Date" has the meaning ascribed thereto in Section
3.2.
"Person" means any individual, partnership, limited liability
company, joint venture, corporation, trust, unincorporated organization,
government (and any department or agency thereof) or other entity.
"Schedule A" means the schedule hereto that lists the Services
to be provided by Hay Island to Swisher.
"Swisher" has the meaning ascribed thereto in the preamble
hereto.
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"Swisher Entities" means Swisher and its Subsidiaries and
"Swisher Entity" shall mean any of the Swisher Entities.
"Swisher Indemnified Person" has the meaning ascribed thereto
in Section 4.4.
"Services Cost" has the meaning ascribed thereto in Section
3.1.
"Services" has the meaning ascribed thereto in Section 2.1.
"Subsidiary" means, as to any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than 50% of the voting capital stock or other voting ownership interests is
owned or controlled directly or indirectly by such Person or by one or more of
the Subsidiaries of such Person or by a combination thereof.
Section 1.2. Internal References. Unless the context indicates
otherwise, references to Articles, Sections and paragraphs shall refer to the
corresponding articles, sections and paragraphs in this Agreement and references
to the parties shall mean the parties to this Agreement.
ARTICLE II
PURCHASE AND SALE OF SERVICES
Section 2.1. Purchase and Sale of Services.
(a) On the terms and subject to the conditions of this
Agreement and in consideration of the Services Cost described below, Hay Island
agrees to provide to Swisher, or procure the provision to Swisher of, and
Swisher agrees to purchase from Hay Island, the services described in Schedule
A, as such schedule is amended from time to time (the "Services").
(b) It is understood that Services to be provided to Swisher
under this Agreement will, at Swisher's request, be provided to Subsidiaries of
Swisher.
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ARTICLE III
SERVICES COST; OTHER CHARGES
Section 3.1. Services Cost Generally.
(a) Swisher agrees to pay a fee (the "Services Cost") to Hay
Island for the services that Hay is providing to Swisher (plus any and all
applicable sales tax) pursuant to this Agreement. The Services Cost for the year
ended December 31, 1997 is $925,000. On each annual anniversary date of this
Agreement, the Services Cost shall be increased or decreased to reflect the
agreed upon allocation of Hay Island's costs for the services performed for the
next calendar year, provided that any increase in the annual amount payable
hereunder will be limited to percentage increase based on the percentage
increase in Consumer Price Index for All Urban Consumers, Northeast for the
preceding calendar year.
Section 3.2. Invoicing and Settlement of Costs.
(a) Hay Island will invoice Swisher on a monthly basis (not
later than the fifth day of each month) an amount equal to one-twelfth of
Services Cost due under Section 3.1 (a).
(b) Swisher agrees to pay each invoice on or before 30 days
after the date on which it receives Hay Island's invoices of the Services Cost
(each, a "Payment Date"), by check or wire transfer payable to the order of Hay
Island, or by wire transfer to a bank account located in the United States and
without set off. If Swisher fails to pay any monthly payment within 90 days of
the relevant Payment Date, Swisher shall be obligated to pay, in addition to the
amount due on such Payment Date, interest on such amount at the Prime Rate as
published in the Wall Street Journal on the date of the Hay Island invoice for
the unpaid amount.
ARTICLE IV
THE SERVICES
Section 4.1. General Standard of Service. Except as otherwise
agreed with Swisher or described in this Agreement, and provided that Hay Island
is not restricted by contract with third parties or applicable law, Hay Island
agrees that the nature, quality, and standard of care applicable to the delivery
of the Services hereunder will be substantially the same as that of the Services
which Hay Island provides from time to time throughout its businesses and as
would be obtainable form unrelated third parties.
Section 4.2. Limitation of Liability. Swisher agrees that none
of Hay Island and its Subsidiaries and their respective directors, officers,
agents, and employees (each, a "Hay Indemnified Person") shall have any
liability, whether direct or indirect, in contract or tort or otherwise, to
Swisher or any of its Subsidiaries for or in connection with the Services
rendered or to be rendered by any Hay Indemnified Person pursuant to this
Agreement, the transactions contemplated hereby or any Hay Indemnified Person's
actions or inactions in connection with
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<PAGE>
any such Services or transactions, except for damages which have resulted from
such Hay Indemnified Person's gross negligence or willful misconduct in
connection with any such Services, actions or inactions.
Section 4.3. Indemnification of Hay Island by Swisher. Swisher
agrees to indemnify and hold harmless each Hay Indemnified Person from and
against any damages, and to reimburse each Hay Indemnified Person for all
reasonable expenses as they are incurred in investigating, preparing, pursuing,
or defending any claim, action, proceeding, or investigation (collectively,
"Actions"), whether or not in connection with pending or threatened litigation
and whether or not any Hay indemnified Person is a party, arising out of or in
connection with Services rendered or to be rendered by any Hay Indemnified
Person pursuant to this Agreement, the transactions contemplated hereby or any
Hay Indemnified Person's actions or inactions in connection with any such
Services or transactions; provided that Swisher will not be responsible for any
damages of any Hay Indemnified Person that have resulted from such Hay
Indemnified Person's gross negligence or willful misconduct in connection with
any of the advice, actions, inactions, or Services referred to above.
Section 4.4. Indemnification of Swisher by Hay Island. Hay
Island agrees to indemnify and hold harmless Swisher and its Subsidiaries and
their respective directors, officers agents, and employees (each, a "Swisher
Indemnified Person") from and against any damages, and to reimburse each Swisher
Indemnified Person for all reasonable expenses as they are incurred in
investigating, preparing, or defending any Action , whether or not in connection
with pending or threatened litigation and whether or not any Swisher Indemnified
Person is a party, arising out of the gross negligence or willful misconduct of
any Hay Indemnified Person in connection with the Services rendered or to be
rendered pursuant to this Agreement.
ARTICLE V
TERM AND TERMINATION
Section 5.1. Term. Except as otherwise provided in this
Article V or in Section 6.4 or as otherwise agreed in writing by the parties,
this Agreement shall have an initial term of five years from the Closing Date,
and will be renewed automatically thereafter for successive one-year terms
unless either Swisher or Hay Island elects not to renew this Agreement upon not
less than six-months' prior written notice.
Section 5.2. Termination.
(a) This Agreement will be subject to early termination by
either Swisher or Hay Island upon six months' written notice if Hay Island
ceases to own shares of Common Stock representing more than 50% of the combined
voting power of the Common Stock of Swisher.
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<PAGE>
(b) Hay Island may terminate any affected Service at any time
if Swisher shall have failed to perform any of its material obligations under
this Agreement relating to such Service, Hay Island has notified Swisher in
writing of such failure, and such failure shall have continued for a period of
60 days after receipt of Swisher of notice of such failure.
(c) Swisher may terminate any affected Service at any time if
Hay Island shall have failed to perform any of its material obligations under
this Agreement relating to any such Service, Swisher has notified Hay Island in
writing of such failure and such failure shall have continued for a period of 60
days after receipt by Hay Island of notice of such failure.
(d) Each of Swisher and Hay Island agrees that prior to
exercising its rights under this Section it will consult for a reasonable period
with the other party in advance of such termination as to its implementation.
Section 5.3. Effect of Termination.
(a) Other than as required by law, upon termination of any
Service pursuant to Section 5.1 or Section 5.2, and upon termination of this
Agreement in accordance with its terms, Hay Island will have no further
obligation to provide the terminated Service (or any Service, in the case of
termination of this Agreement) and Swisher will have no obligation to pay any
fees relating to such Services or make any other payments hereunder; provided
that notwithstanding such termination, (i) Swisher shall remain liable to Hay
Island for fees owed and payable in respect of Services provided prior to the
effective date of the termination; (ii) Hay Island shall continue to charge
Swisher for administrative and program costs incurred prior to the termination
of any Service and other services required to be provided after the termination
of such Service and Swisher shall be obligated to pay such expenses in
accordance with the terms of this Agreement, and (iii) the provisions of Article
IV, V and VI shall survive any such termination.
(b) Following termination of this Agreement with respect to
any Service, Hay Island and Swisher agree to cooperate in providing for an
orderly transition of such Service to Swisher or to a successor service
provider.
ARTICLE VI
MISCELLANEOUS
Section 6.1. Future Litigation and other Proceedings. In the
event that Swisher (or any of its officers or directors) or Hay Island (or any
of its officers or directors) at any time after the date hereof initiates or
becomes subject to any litigation or other proceedings before any governmental
authority or arbitration panel with respect to which the parties have no prior
agreements (as to indemnification or otherwise), the party (and its officers and
directors) that has not initiated and is not subject to such litigation or other
proceedings shall comply, at the other party's expense, with any reasonable
requests by the other party for assistance in
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<PAGE>
connection with such litigation or other proceedings (including by way of
provision of information and making available of employees as witnesses). In the
event that Swisher (or any of its officers or directors) and Hay Island (or any
of its officers or directors) at any time after the date hereof initiate or
become subject to any litigation or other proceedings before any governmental
authority or arbitration panel with respect to which the parties have no prior
agreements (as to indemnification or otherwise), each party (and its officers
and directors) shall, at their own expense, coordinate their strategies and
actions with respect to such litigation or other proceedings to the extent such
coordination would not be detrimental to their respective interests and shall
comply, at the expense of the requesting party, with any reasonable requests of
the other party for assistance in connection therewith (including by way of
provision a information and making available of employees as witnesses).
Section 6.2. No Agency. Nothing in this Agreement shall
constitute or be deemed to constitute a partnership or joint venture between the
parties hereto or constitute or be deemed to constitute any party the agent or
employee of the other party for any purpose whatsoever and neither party shall
have authority or power to bind the other or to contract in the name of, or
create a liability against, the other in any way or for any purpose.
Section 6.3. Force Majeure.
(a) For purposes of this Section, "force majeure" means an
event beyond the control of either party, which by its nature could not have
been foreseen by such party, or if it could have been foreseen, was unavoidable,
and includes without limitation acts of God, storms, floods, riots, fires,
sabotage, civil commotion or civil unrest, interference by civil or military
authorities, acts of war (declared or undeclared) and failure of energy sources.
(b) Neither party shall be under any liability for failure to
fulfill any obligation under this Agreement, so long as and to the extent to
which the fulfillment of such obligation is prevented, frustrated, hindered, or
delayed as a consequence of circumstances of force majeure, provided always that
such party shall have exercised all due diligence to minimize to the greatest
extent possible the effect of force majeure on its obligations hereunder.
(c) Promptly on becoming aware of force majeure causing a
delay in performance or preventing performance of any obligations imposed by
this Agreement (and termination of such delay), the party affected shall give
written notice to the other party giving details of the same, including
particulars of the actual, and it applicable, estimated continuing effects of
such force majeure on the obligations of the party whose performance is
prevented or delayed. If such notice shall have been duly given and actual delay
resulting from such force majeure shall be deemed not to be a breach of this
Agreement, and the period for performance of the obligation, to which it relates
shall be extended accordingly, provided that if force majeure results in the
performance of a party being delayed by more than 60 days, the other party shall
have the right to terminate this Agreement with respect to any Service effected
by such delay forthwith by written notice.
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<PAGE>
Section 6.4. Entire Agreement. This Agreement (including
Schedule A constituting a part of this Agreement) and any other writing signed
by the parties that specifically references this Agreement constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements, understandings and negotiations, both written
and oral between the parties with respect to the subject matter hereof. This
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
Section 6.5. Information. Subject to applicable law and
privileges, each party hereto covenants and agrees to provide the other party
with all information regarding itself and transactions under this Agreement that
the other party reasonably believes are required to comply with all applicable
federal, state, county and local laws, ordinances, regulations and codes,
including, but not limited to, securities laws and regulations.
Section 6.6. Notices. Any notice, instruction, direction or
demand under the terms of this Agreement required to be in writing will be duly
given upon delivery, if delivered by hand, facsimile transmission, intercompany
mail, or mail, to the following, addresses:
(a) If to Swisher, to;
Swisher International Group Inc.
459 East 16th Street
P.O. Box 2230
Jacksonville, FL 32203
Phone: 904-353-4311
Fax: 904-358-9334
(b) If to Hay Island, to
Hay Island Holding Corporation
20 Thorndal Circle
Darien, CT 06820
Phone: 203-656-8000
Fax: 203-656-3151
or to such other addresses or telecopy numbers as may be specified by like
notice to the other parties.
Section 6.7. Governing Law. This Agreement shall be construed
in accordance with and governed by the substantive internal laws of the State of
Delaware.
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<PAGE>
Section 6.8. Should any provision of this Agreement shall be
invalid or unenforceable, such invalidity or unenforceability shall not render
the entire Agreement invalid. Rather, the Agreement shall be construed as if not
containing the particular invalid or unenforceable provision, and the rights and
obligations of each party shall be construed and enforced accordingly.
Section 6.9. Amendment. This Agreement may only be amended by
a written agreement executed by both parties hereto.
Section 6.10. Counterparts. This Agreement may be executed in
separate counterparts, each of which shall be deemed an original and all of
which, when taken together, shall constitute one agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be signed by their duly authorized representatives.
SWISHER INTERNATIONAL GROUP INC.
By: /s/ William T. Ziegler
------------------------------
Name: William T. Ziegler
Title: Chief Operating Officer
HAY ISLAND HOLDING CORPORATION
By: /s/ William Ziegler, III
-----------------------------
Name: William Ziegler, III
Title: Chief Executive Officer
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Services Agreement - Schedule A
Service
- ------------------------------------------------
Treasury and Cash Management
(including loans and investments)
Corporate Finance
Corporate Development
Risk Management
(including liability, property, casualty
and fiduciary insurance)
Corporate Secretarial Services
Marketing Data Services
Governmental Affairs and Regulation
Human Resources, Executive Compensation,
General Compensation and Benefit Programs
Investor and Public Relations
General Real Estate Services
International Expansion Services
Transportation Services
Corporate, Administrative
and General Services
-10-
FIRST AMENDMENT AGREEMENT
AGREEMENT dated as of December 16, 1996, among SWISHER
INTERNATIONAL, INC., SWISHER INTERNATIONAL GROUP INC., the several banks and
financial institutions from time to time parties to the Credit Agreement (as
defined below), BANK OF BOSTON CONNECTICUT, as Administrative Agent and SOCIETE
GENERALE, as Documentation Agent.
Background
A. Capitalized terms not otherwise defined shall have the
meanings ascribed to them in the Second Amended and Restated Credit Agreement
dated as of October 28, 1996, among Swisher International, Inc., Swisher
International Group Inc. (the "Parent"), the several banks and other financial
institutions from time to time parties to the Credit Agreement (the "Lenders"),
Bank of Boston Connecticut, as Administrative Agent (the "Administrative Agent")
and Societe Generale, as Documentation Agent (as amended, modified or
supplemented from time to time, the "Credit Agreement").
B. Each of the Parent and Borrower has requested that the
Administrative Agent and the Lenders amend the Credit Agreement as hereinafter
set forth.
C. The Administrative Agent and the Required Lenders have
agreed to the request of the Parent and the Borrower subject to the terms and
conditions of this Agreement.
Agreement
In consideration of the Background, which is incorporated by reference,
the parties hereto, intending to be legally bound, agree as follows:
1. Modifications. All the terms and provisions of the Credit Agreement
and the other Loan Documents shall remain in full force and effect except that:
(a) the following definition of "Change of Control"
is hereby added to Section 1.1 of the Credit Agreement:
"Change of Control": the occurrence of any of
the following events: (a) any "Person" (as such term is
defined in Sections 13(d) and 14(d) of the Exchange
Act), other than one or more Permitted Holders controls
directly or indirectly of more than 15% of the total
voting power of the
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<PAGE>
Voting Stock of the Parent; (b) the Permitted Holders
"beneficially own" (as such term has the meaning within
the context of Rules 13d-3 and 13d-5), directly or
indirectly, in the aggregate less than 50.1% total
voting power of the Voting Stock of the Parent; or (c)
during any period of two consecutive years, individuals
who at the beginning of such period constituted the
Board of Directors of the Parent (together with any new
directors whose selection by such Board of Directors or
whose nomination for election by the shareholders of
the Parent was approved by vote of 66-2/3% of the
directors of the Parent then still in office who were
either directors at the beginning of such period or
whose election or nomination for election was
previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the
Parent then in office.
(b) the following definition of "Exchange Act" is
hereby added to Section 1.1 of the Credit Agreement:
"Exchange Act": the Securities Exchange Act of
1934, as amended.
(c) the following definition of "Permitted Holders"
is hereby added to Section 1.1 of the Credit Agreement:
"Permitted Holders": William Ziegler, III, the
Trust under the Will of Helen M. Rivoire for the
benefit of William Ziegler, III and the Trust under the
Will of William Ziegler, Jr. for the benefit of William
Ziegler, III, and the respective heirs, administrators,
personal representatives, successors and assigns of
each of them.
(d) the following definition of "Voting Stock" is
hereby added to Section 1.1 of the Credit Agreement:
"Voting Stock": of a corporation means all
classes of Capital Stock of such corporation then
outstanding and normally entitled to vote in the
election of directors.
(e) Section 7(k) of the Credit Agreement is deleted
and the following is substituted therefor:
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<PAGE>
(k) a Change of Control shall occur;
2. Conditions Precedent. This Agreement shall not be
effective until such date, if any, as each of the following conditions precedent
shall have been fulfilled:
(a) this Agreement shall have been duly executed by
the parties hereto;
(b) the Required Lenders shall have consented to the
execution of this Agreement hereof by the Administrative Agent; and
(c) the Administrative Agent shall have received such
other agreements and instruments as the Administrative Agent shall require.
3. Reaffirmation By Borrower. The Borrower acknowledges and agrees, and
reaffirms, that it is legally, validly and enforceably indebted to the Lenders
under the Revolving Credit Notes, the A Term Notes, the B Term Notes and the
Swing Line Note, without defense, counterclaim or offset, and that it is
legally, validly and enforceably liable to the Lenders for all costs and
expenses of collection and attorneys' fees related to or in any way arising out
of this Agreement, the Credit Agreement, the Revolving Credit Notes, the A Term
Notes, the B Term Notes, the Swing Line Note and the other Loan Documents. The
Borrower hereby restates and agrees to be bound by all covenants contained in
the Credit Agreement and the other Loan Documents and hereby reaffirms that all
of the representations and warranties contained in the Credit Agreement remain
true and correct in all material respects. The Borrower represents that except
as set forth in the Credit Agreement, there are not pending or to the Borrower's
knowledge threatened, legal proceedings to which the Borrower or the Guarantor
is a party, that materially or adversely affect the transactions contemplated by
this Agreement or the ability of the Borrower or the Guarantor to conduct its
business. The Borrower acknowledges and represents that the resolutions of the
Borrower dated April 9, 1996, remain in full force and effect and have not been
amended, modified, rescinded or otherwise abrogated.
4. Reaffirmation by Guarantors. The Guarantor acknowledges that it is
legally and validly indebted to the Lenders or the Administrative Agent under
the Guaranty without defense, counterclaim or offset. The Guarantor affirms that
the Guaranty remains in full force and effect and acknowledges that the Guaranty
encompasses, without limitation, the amount of the Revolving Credit Loans, the A
Term Loans, the B Term Loans and the Swing Line Loan.
5. Other Representations By Borrower and Guarantor. The Borrower and
the Guarantor each represents and confirms that (a) no Default or Event of
Default has occurred and is continuing and the Administrative Agent has not
given its consent to or waived any Default or Event of Default and (b) the
Credit Agreement and the other Loan Document are in full force and effect and
enforceable against the Borrower and Guarantor
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<PAGE>
in accordance with the terms thereof. The Borrower and the Guarantor each
represents and confirms that as of the date hereof, each has no claim or defense
(and the Borrower and the Guarantor each hereby waive every claim and defense)
against the Administrative Agent and the Lenders arising out of or relating to
the Credit Agreement and the other Loan Documents or the making, administration
or enforcement of the Revolving Credit Loans, the A Term Loans, the B Term Loans
or the Swing Line Loan and the remedies provided for under the Loan Documents.
6. No Waiver By Lenders. The Borrower and the Guarantor each
acknowledges that (a) by the execution by each of this Agreement, neither the
Administrative Agent nor the Lenders are waiving any Default, whether now
existing or hereafter occurring, disclosed or undisclosed, by the Borrower or
the Guarantor under the Loan Documents and (b) the Administrative Agent and the
Lenders reserve all rights and remedies available to them under the Loan
Documents and otherwise.
7. Miscellaneous.
(a) This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission), and all of said counterparts taken together shall be
deemed to constitute one and the same instrument.
(b) This Agreement and the right and obligations of
the parties hereunder shall be governed by and construed in accordance with, the
laws of the State of New York.
(c) This Agreement shall be deemed a Loan Document
under the Credit Agreement for all purposes.
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<PAGE>
The parties hereto have caused this Agreement to be duly
executed and delivered by their proper and duly authorized officers as of the
day and year first above written.
SWISHER INTERNATIONAL, INC.
By: /s/ Robert A. Britton
--------------------------------
Robert A. Britton
Title: Vice President and Chief
Financial Officer
SWISHER INTERNATIONAL GROUP INC.
By: /s/ Robert A. Britton
--------------------------------
Robert A. Britton
Title: Vice President
BANK OF BOSTON CONNECTICUT, as
Administrative Agent, Lender, Issuing Lender
and Swing Line Lender
By: /s/ Richard J. Klouda
--------------------------------
Richard J. Klouda
Title: Vice President
SOCIETE GENERALE, as
Documentation Agent and Lender
By: /s/ Rick Rinner
--------------------------------
Rick Rinner
Title: Assistant Vice President
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<PAGE>
Other Lenders:
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Peter L. Skenk
--------------------------------
Name: Peter L. Skenk
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Attila Koc
--------------------------------
Name: Attila Koc
Title: Vice President
LEHMAN COMMERCIAL PAPER, INC.
By: /s/ Michele Swanson
--------------------------------
Name: Michele Swanson
Title: Authorized Signatory
THE ROYAL BANK OF SCOTLAND PLC
By: /s/ Derek Bonnar
--------------------------------
Name: Derek Bonnar
Title: Vice President
IMPERIAL BANK
By: /s/ Ray Vadalma
--------------------------------
Name: Ray Vadalma
Title: Senior Vice President
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<PAGE>
SOUTHERN PACIFIC THRIFT AND LOAN
ASSOCIATION
By: /s/ Chris Kelleher
--------------------------------
Name: Chris Kelleher
Title: Vice President
MELLON BANK, N.A.
By: /s/ Frank P. Mohapp
--------------------------------
Name: Frank P. Mohapp
Title: Vice President
CRESCENT MACH I PARTNERS, L.P.
By: TCW ASSET MANAGEMENT COMPANY,
its Attorney-in-Fact
By: /s/ Justin Driscoll
--------------------------------
Name: Justin Driscoll
Title: Vice President
PENNSYLVANIA LIFE INSURANCE
COMPANY
By: TCW ASSET MANAGEMENT COMPANY,
its Attorney-in-Fact
By: /s/ Justin Driscoll
--------------------------------
Name: Justin Driscoll
Title: Vice President
COBANK ACB
By: /s/ Antony Bahr
--------------------------------
Name: Antony Bahr
Title: Vice President
-7-
SWISHER INTERNATIONAL GROUP INC.
1996 STOCK OPTION PLAN
1. Purpose.
This Swisher International Group Inc. 1996 Stock Option Plan
(the "Plan") is intended to afford an incentive to selected employees and
directors of Swisher International Group Inc. (the "Parent"), Swisher
International, Inc. or any Affiliated Corporations (as defined in Section
2(a)hereof) (collectively referred to as the "Company"), to acquire a
proprietary interest in the Company, to continue to perform services for the
Company, to increase their efforts on behalf of the Company and to promote the
success of the Company's business.
2. Definitions.
As used in this Plan, the following words and phrases shall
have the meanings indicated:
(a) "Affiliate Corporation" or "Affiliate" shall mean
any corporation or other entity, directly or indirectly,
through one or more intermediaries, controlling, controlled
by, or under common control with the Parent.
(b) "Award" shall mean any Option or SAR, granted
under the Plan.
(c) "Award Agreement" shall mean any written
agreement, contract, or other instrument or document between
the Company and a Participant evidencing an Award.
(d) "Board" shall mean the Board of Directors of the
Parent.
(e) "Code" shall mean the Internal Revenue Code of
1986, as amended.
(f) "Committee" shall mean the Compensation Committee
of the Board.
(g) "Disability" shall mean a Participant's inability
to engage in any substantial gainful activity by reason of
medically determinable physical or mental impairment that can
be expected to result in death or that has lasted or can be
expected to last for a continuous period of not less than
twelve (12) months.
(h) "Fair Market Value" per share as of a particular
date shall mean (i) the closing sales price per share of
Common Stock (as defined in Section 5 hereof) on the New York
Stock Exchange for the last preceding date on which there was
a sale of such Common Stock on such exchange, or (ii) if the
shares of Common Stock are not then admitted for trading on
the New York Stock
<PAGE>
Exchange, the closing price for the shares of Common Stock in
such other national securities exchange or interdealer
quotation system on which Common Stock is then traded for the
last preceding date on which there was a sale of such Common
Stock in such market, or (iii) if the shares of Common Stock
are not then listed on a national securities exchange or
interdealer quotation system, such value as the Committee in
its discretion may determine.
(i) "Incentive Stock Option" shall mean an Option
that meets the requirements of Section 422 of the Code, or any
successor provision, and that is designated by the Committee
as an Incentive Stock Option.
(j) "Nonqualified Stock Option" shall mean an Option
other than an Incentive Stock Option.
(k) "Option" shall mean the right, granted pursuant
to this Plan, of a holder to purchase shares of Common Stock
at a price and upon the terms to be specified by the
Committee.
(l) "Parent Corporation" shall mean any corporation
(other than the Parent) in an unbroken chain of corporations
ending with the Parent if, at the time of granting an Award,
each of such corporations (other than the Parent) owns stock
possessing fifty percent (50%) or more of the total combined
voting power of all classes of stock in one of the other
corporations in such chain.
(m) "Participant" shall mean an officer, employee,
consultant or director of the Company who is, pursuant to
Section 4 of the Plan, selected to participate herein.
(n) "SAR" shall mean a tandem or freestanding stock
appreciation right, granted to a Participant under Section 7,
to be paid an amount measured by the appreciation in the Fair
Market Value of Common Stock from the date of grant to the
date of exercise of the right.
(o) "Subsidiary Corporation" shall mean any
corporation (other than the Parent) in an unbroken chain of
corporations beginning with the Parent if, at the time of
granting an Award, each of such corporations other than the
last corporation in the unbroken chain owns stock possessing
fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in
such chain.
(p) "Ten Percent Stockholder" shall mean a
Participant who, at the time an Incentive Stock Option is
granted, owns stock possessing more than ten percent (10%) of
the total combined voting power of all classes of stock of the
Parent or of its Parent Corporation or Subsidiary
Corporations.
2
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3. Administration.
Unless otherwise determined by the Board, the Plan shall be
administered by the Committee which shall consist of two or more members of the
Board who are "outside directors" within the meaning of section 162(m) of the
Code. The Committee may, in its discretion, delegate to a subcommittee or to an
officer of the Company its duties hereunder, including the grant of Awards. The
full Board shall also have the authority, in its discretion, to grant Awards
under the Plan and to administer the Plan. For all purposes under the Plan, any
entity which performs the duties described herein, shall be referred to as the
"Committee."
The Committee shall have the authority in its discretion,
subject to and not inconsistent with the express provisions of the Plan, to
administer the Plan and to exercise all the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Awards; to determine the persons to whom and the time or times at which
Awards shall be granted; to determine the type and number of Awards to be
granted, the number of shares of Common Stock to which an Award may relate, the
vesting schedule for Awards and the terms, conditions and restrictions relating
to any Award; to determine whether, to what extent, and under what circumstances
an Award may be settled, canceled, forfeited, exchanged, or surrendered; to
construe and interpret the Plan and any Award; to prescribe, amend and rescind
rules and regulations relating to the Plan; to determine the terms and
provisions of Award Agreements; and to make all other determinations deemed
necessary or advisable for the administration of the Plan.
No member of the Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any Award
granted hereunder.
4. Eligibility.
Awards may be granted to employees and directors of the
Company, except that Incentive Stock Options shall be granted only to
individuals who, on the date of such grant, are employees of the Parent or a
Parent Corporation or a Subsidiary Corporation. In determining the persons to
whom Awards shall be granted and the number of shares to be covered by each
Award, the Committee shall take into account the duties of the respective
persons, their present and potential contributions to the success of the Company
and such other factors as the Committee shall deem relevant in connection with
accomplishing the purpose of the Plan.
5. Stock.
The stock subject to Awards hereunder shall be shares of the
Parent's Class A common stock, par value $0.01 per share ("Common Stock"). Such
shares may, in whole or in part, be (i) authorized but unissued shares or shares
that shall have been or that may be reacquired by the Company; and (ii)
registered with the Securities and Exchange Commission
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(under the Securities Act of 1933) or unregistered. The aggregate number of
shares of Common Stock as to which Awards may be granted from time to time under
the Plan shall not exceed at any time more than 10% of the sum of (x) the then
outstanding Common Stock; and (y) Parent's Class B common stock, par value $0.01
per share (the AClass B Common Stock@). No person may be granted Options or SARs
under the Plan during any calendar year representing an aggregate of more than
2.5% of the sum of the outstanding Common Stock and Class B Common Stock on any
day during such calendar year. The limitations established by the preceding two
sentences shall be subject to adjustment as provided in Section 8 hereof.
6. Stock Options.
The Committee shall have authority to grant Nonqualified Stock
Options and Incentive Stock Options to Participants on the following terms and
conditions:
(a) Number of Shares. Each Award Agreement shall
state the number of shares of Common Stock to which the Option
relates.
(b) Type of Option. Each Award Agreement shall
specifically state that the Option constitutes an Incentive
Stock Option or a Nonqualified Stock Option.
(c) Option Price. Each Award Agreement shall state
the Option Price. The Option Price per share of Common Stock
purchasable under an Option shall be not less than the Fair
Market Value of a share of Common Stock on the date of grant
of such Option. The date as of which the Committee adopts a
resolution expressly granting an Option shall be considered
the day on which such Option is granted.
(d) Method and Time of Payment. The Option Price
shall be paid in full, at the time of exercise, in cash or in
shares of Common Stock having a Fair Market Value equal to
such Option Price or in a combination of cash and Common Stock
or, in the sole discretion of the Committee, through a
cashless exercise procedure.
(e) Term and Exercisability of Options. Options shall
be exercisable over the exercise period (which, with respect
to Incentive Stock Options, shall not exceed ten years from
the date of grant), at such times as provided in Section 6(f)
hereof subject to such conditions as may be prescribed by the
Committee in the Award Agreement. Notwithstanding the
foregoing, the Committee shall have the authority to
accelerate the exercisability of any outstanding Option at
such time and under such circumstances as it, in its sole
discretion, deems appropriate. Subject to Section 6(j) hereof,
an Option may be exercised, as to any or all full shares of
Common Stock as to which the Option has become exercisable, by
written notice delivered in person or by mail to the
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<PAGE>
Compensation Committee, specifying the number of shares of
Common Stock with respect to which the Option is being
exercised. The exercise period shall be subject to earlier
termination as provided in Section 6(g) hereof.
(f) Exercise Period. The exercisability of any
Options under this Section 6(f) shall be determined by
reference to the date on which such Options were granted (the
AGrant Date@). The initial Award of Options granted under the
Plan shall become exercisable in equal one-third increments on
the penultimate business day of 1997, 1998 and 1999,
respectively. Subsequent Awards of Options shall become
exercisable in accordance with the terms of the Award.
(g) Termination. If a Participant's employment by, or
service as a consultant or director with, the Company
terminates:
(i) Unless provided otherwise in the
applicable Award Agreement, upon a Participant's
termination of employment or service as a consultant
or a director with the Company by reason of death or
Disability, all Options shall become immediately
exercisable and shall remain exercisable for a period
of one year following such termination and shall
terminate thereafter;
(ii) Unless provided otherwise in the
applicable Award Agreement, if a Participant's
employment or service as a consultant or a director
with the Company is terminated for any reason other
than death or Disability, all Options that are not
then exercisable shall immediately terminate and all
Options that are then exercisable shall remain
exercisable for a period of three months from the
date of such termination and shall terminate
thereafter.
(h) Other Provisions. Options may be subject to such
other conditions including, but not limited to, restrictions
on transferability of the shares acquired upon exercise of
such Options (including a right of first refusal in favor of
the Company to purchase any shares acquired through the Award
Agreement which a Participant or former Participant desires to
sell), as the Committee may prescribe in its discretion. There
shall be a legend making appropriate reference to any such
conditions on all certificates representing shares sold
pursuant to the Award Agreement.
(i) Incentive Stock Options. Options granted as
Incentive Stock Options shall be subject to the following
special terms and conditions, in addition to the general terms
and conditions specified in this Section 6.
(i) Value of Shares. The aggregate Fair
Market Value (determined as of the date the Incentive
Stock Option is granted) of the shares of Common
Stock with respect to which Incentive Stock Options
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<PAGE>
granted under this Plan and all other plans of the
Company become exercisable for the first time by each
Participant during any calendar year shall not exceed
$100,000.
(ii) Ten Percent Stockholder. In the case of
an Incentive Stock Option granted to a Ten Percent
Stockholder, (x) the Option Price shall not be less
than one hundred ten percent (110%) of the Fair
Market Value of the shares of Common Stock on the
date of grant of such Incentive Stock Option, and (y)
the exercise period shall not exceed five (5) years
from the date of grant of such Incentive Stock
Option.
(j) Purchase of Options. Each Award Agreement shall
specifically state that the Company shall have the right, in
lieu of the delivery of any Company stock to a Participant, to
purchase for cash (or other property) the Participant's Option
or Options (at the then fair market value of such Option or
Options) after receipt of the written notice of the exercise
of such Option or Options described in Section 6(e), above.
7. Stock Appreciation Rights. The Committee is authorized to
grant freestanding SARs and SARs granted in tandem with Options to Participants
on the following terms and conditions:
(a) In General. Unless the Committee determines
otherwise, (1) an SAR granted in tandem with a Nonqualified
Stock Option may be granted at the time of grant of the
related Nonqualified Stock Option or at any time thereafter or
(2) an SAR granted in tandem with an Incentive Stock Option
may only be granted at the time of grant of the related
Incentive Stock Option. An SAR granted in tandem with an
Option shall be exercisable only to the extent the underlying
Option is exercisable (pursuant to Sections 6(e) and 6(f),
above).
(b) SARs. An SAR shall confer on the Participant a
right to receive with respect to each share subject thereto,
upon exercise thereof, the excess of (1) the Fair Market Value
of one share of Common Stock on the date of exercise over (2)
the grant price of the SAR (which in the case of an SAR
granted in tandem with an Option shall be equal to the
exercise price of the underlying Option, and which in the case
of any other SAR shall be such price as the Committee may
determine).
(c) Treatment of Related Options and Tandem SARs Upon
Exercise. Upon the exercise of a tandem SAR, the related
Option shall be canceled to the extent of the number of shares
of Common Stock as to which the tandem SAR is exercised and
upon the exercise of an Option (or a purchase of such Option
pursuant to Section 6(j)) granted in connection with a tandem
SAR, the tandem SAR shall be canceled to the extent of the
number of shares of Common Stock as to which the Option is
exercised (or purchased).
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<PAGE>
(d) Method of Exercise. SARs shall be exercised by a
Participant only by a written notice delivered in person or by
mail to the Committee, specifying the number of shares of
Common Stock with respect to which the SAR is being exercised.
(e) Form of Payment. Payment of the amount determined
under paragraph (b) above may be made in whole shares of
Common Stock in a number determined based upon their Fair
Market Value on the date of exercise of the SAR or,
alternatively, at the sole discretion of the Committee, solely
in cash, or in a combination of cash and shares of Common
Stock as the Committee deems advisable. If the Committee
decides to make full payment in shares of Common Stock, and
the amount payable results in a fractional share, payment for
the fractional share will be made in cash.
(f) Term and Exercisability of Freestanding SARs.
Each Award Agreement shall provide the exercise schedule for
the freestanding SAR as determined by the Committee, provided,
that, the Committee shall have the authority to accelerate the
Exercisability of any freestanding SAR at such time and under
such circumstances as it, in its sole discretion, deems
appropriate. The exercise period shall be ten (10) years from
the date of the grant of the freestanding SAR or such other
period as is determined by the Committee. The exercise period
shall be subject to earlier termination as provided in Section
7(g) hereof.
(g) Termination. The terms and conditions set forth
in Section 6(g) hereof, relating to exercisability of Options
in the event of termination of employment or service as a
consultant or director with the Company, shall apply equally
with respect to the exercisability of freestanding SARs
following termination of employment or service as a consultant
or director.
8. Effect of Certain Changes.
If there is any change in the number of outstanding shares of
Common Stock by reason of any stock dividend, stock split, recapitalization,
combination, exchange of shares, merger, consolidation, liquidation, split-up,
spin-off or other similar change in capitalization, any distribution to common
shareholders, including a rights offering, other than cash dividends, or any
like change, then the number of shares of Common Stock available for Awards, the
number of such shares covered by outstanding Awards, and the Option Price of
such Options or the applicable grant price of SARs, shall be proportionately
adjusted by the Committee to reflect such change or distribution; provided,
however, that any fractional shares resulting from such adjustment shall be
eliminated. In the event of a change in the Common Stock of the Company as
presently constituted, which is limited to a change of all of its authorized
shares with par value into the same number of shares with a different par value
or without par value, the shares resulting from any such change shall be deemed
to be the
7
<PAGE>
Common Stock within the meaning of the Plan. To the extent that the
foregoing adjustments relate to stock or securities of the Company, such
adjustments shall be made by the Committee, whose determination in that respect
shall be final, binding and conclusive, provided that each Incentive Stock
Option granted pursuant to this Plan shall not be adjusted in a manner that
causes such Option to fail to continue to qualify as an Incentive Stock Option
within the meaning of Section 422 of the Code.
9. General Provisions.
(a) Compliance with Legal Requirements. The Plan and
the granting and exercising of Awards, and the other
obligations of the Company under the Plan and any Award
Agreement or other agreement shall be subject to all
applicable federal and state laws, rules and regulations, and
to such approvals by any regulatory or governmental agency as
may be required. The Company, in its discretion, may postpone
the issuance or delivery of Common Stock under any Award as
the Company may consider appropriate, and may require any
Participant to make such representations and furnish such
information as it may consider appropriate in connection with
the issuance or delivery of Common Stock in compliance with
applicable laws, rules and regulations.
(b) Nontransferability. Except to the extent provided
otherwise in the applicable Award Agreement, Awards shall not
be transferable by a Participant except by will or the laws of
descent and distribution and shall be exercisable during the
lifetime of a Participant only by such Participant or his
guardian or legal representative.
(c) No Right To Continued Employment. Nothing in the
Plan or in any Award granted or any Award Agreement or other
agreement entered into pursuant hereto shall confer upon any
Participant the right to continue in the employ of the Company
or to be entitled to any remuneration or benefits not set
forth in the Plan or such Award Agreement or other agreement
or to interfere with or limit in any way the right of the
Company to terminate such Participant's employment.
(d) Withholding Taxes. Where a Participant or other
person is entitled to receive shares of Common Stock or cash
pursuant to an Award hereunder, the Company shall have the
right to require the Participant or such other person to pay
to the Company the amount of any taxes which the Company may
be required to withhold before delivery to such Participant or
other person of cash or a certificate or certificates
representing such shares. Unless otherwise prohibited by the
Committee or by applicable law, a Participant may satisfy any
8
<PAGE>
such withholding tax obligation by either of the following
methods, or by a combination of such methods: (a) tendering a
cash payment; or (b) delivering to the Company previously
acquired shares of Common Stock having an aggregate Fair
Market Value, determined as of the date the withholding tax
obligation arises, less than or equal to the amount of the
total withholding tax obligation.
(e) Amendment and Termination of the Plan. The Board
or the Committee may at any time and from time to time alter,
amend, suspend, or terminate the Plan in whole or in part;
provided that, no amendment which requires stockholder
approval under applicable law or in order for the Plan to
continue to comply with Section 162(m) of the Code shall be
effective unless the same shall be approved by the requisite
vote of the stockholders of the Company. Notwithstanding the
foregoing, no amendment shall affect adversely any of the
rights of any Participant, without such Participant's consent,
under any Award theretofore granted under the Plan. The power
to grant Awards under the Plan will automatically terminate
ten years after the adoption of the Plan by the Board. If the
Plan is terminated, any unexercised Award shall continue to be
exercisable in accordance with its terms and the terms of the
Plan in effect immediately prior to such termination.
(f) Participant Rights. No Participant shall have any
claim to be granted any Award under the Plan, and there is no
obligation for uniformity of treatment for Participants.
Except as provided specifically herein, a Participant or a
transferee of an Award shall have no rights as a stockholder
with respect to any shares covered by any Award until the date
of the issuance of a stock certificate to him or her for such
shares.
(g) No Fractional Shares. No fractional shares of
Common Stock shall be issued or delivered pursuant to the Plan
or any Award. The Committee shall determine whether cash,
other Awards, or other property shall be issued or paid in
lieu of such fractional shares or whether such fractional
shares or any rights thereto shall be forfeited or otherwise
eliminated.
(h) Governing Law. The Plan and all determinations
made and actions taken pursuant hereto shall be governed by
the laws of the State of Delaware without giving effect to the
conflict of laws principles thereof.
(i) Interpretation, Construction. The Plan is
designed and intended to comply with Section 162(m) of the
Code, and all provisions hereof shall be construed in a manner
to so comply. The section and subsection headings contained
herein are for convenience only and shall not affect the
construction hereof.
9
<PAGE>
10. Effectiveness.
The Plan shall take effect upon its adoption by the Board.
10
HAY ISLAND HOLDING COMPANY
AND
SWISHER INTERNATIONAL GROUP INC.
AND ITS SUBSIDIARIES
TAX SHARING AGREEMENT
This Tax Sharing Agreement (hereinafter referred to as the
"Agreement") provides for the allocation, settlement, and financial statement
presentation of federal income taxes in the consolidated federal income tax
return of SWISHER INTERNATIONAL GROUP INC. (the "Sub") and its subsidiaries (the
"SubGroup Members") (collectively, the "SubGroup") and HAY ISLAND HOLDING
COMPANY (the "Parent").
W I T N E S S E T H :
WHEREAS, the parties hereto are members of an affiliated group
(the "Group") as defined in Section 1504(a) of the Internal Revenue code of
1986, as amended (the "Code").
WHEREAS, the Parent has agreed to ensure that the Group has
properly elected to file consolidated federal income tax returns using the
methods prescribed in Treasury Regulations Section 1.1502-33(d)(3) and Treasury
Regulations Section 1.1552-1(a)(2) for purposes of determining the earnings and
profits of each member of the Group and of the
Group;
WHEREAS, the Parent and the members of the Group agree that as
a condition precedent to filing a consolidated tax return it is necessary to
properly provide in this Agreement methods for (1) allocating consolidated
federal income tax liability for federal
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<PAGE>
income tax purposes among members of the Group, (2) reimbursing Parent for
payment or assumption of such tax liability on behalf of members of the Group
and (3) having those members of the Group that benefit from the losses or
credits of other members compensate such other members for use of the benefits;
and
WHEREAS, while the Parent and members of the Group currently
file a consolidated tax return, both parties acknowledge that the Parent has the
right to deconsolidate SubGroup, in which event, Parent would no longer be
obligated to the IRS for federal taxes which relate to SubGroup;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, the parties hereto agree as follows:
ARTICLE 1
1.1 Preparation
The parent shall prepare and file a consolidated federal
income tax return including SubGroup until notice of revocation is given by
Parent to SubGroup.
1.2 Payment of Tax
The Parent shall act as sole agent for SubGroup and all other
members of the Group for payment of any tax liability as may be shown on a
consolidated federal income tax return of the Group and for all other purposes
as required by Treasury Regulations Section 1.1502-77(a).
1.3 Intercompany Payments
The Parent and SubGroup shall accrue responsibilities for
payment and make payments to each other in such amounts, at such time and in
such manner as provided in
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<PAGE>
Article 2 of this Agreement. The obligations created as a result of this
Agreement between the Parent and SubGroup shall be treated as if between an
unrelated party, on an arms-length basis.
1.4 Consideration
In consideration for Parent and other members of the
consolidated group remaining liable for the tax liability of SubGroup, SubGroup
hereby agrees to the terms and conditions contained in this Agreement, including
the obligation to reimburse Parent for payment or assumption of any SubGroup tax
liability.
ARTICLE 2
2.1 Determination of SubGroup's Taxable Income Lost and
Taxable Gains
(a) SubGroup shall collectively (i.e., disregarding payments
and transactions between SubGroup members) determine its taxable income or loss
on a separate return basis for each income year calculated pursuant to Treasury
Regulations Section 1.1502-12 ("Separate Taxable Income or Tax Loss").
(b) In addition to determining its Separate Taxable Income or
Tax Loss for each taxable year, SubGroup shall collectively determine its
taxable capital gains and its taxable gains subject to Section 1231 of the Code
with respect to each transaction giving rise to such taxable gain ("Separate
Taxable Gains"). Such determination shall be made as soon as is administratively
feasible after each event which gave rise to each such Separate Taxable Gain.
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<PAGE>
2.2 Determination of Tax Liability by SubGroup
(a) To the extent that SubGroup collectively has Separate
Taxable Income or Separate Taxable Gains during any income year, SubGroup shall
be liable for the payment to Parent of an amount equal to SubGroup's "Separate
Tax Liability."
(b) For all purposes of this Agreement, SubGroup's "Separate
Tax Liability" shall be equal to the sum of (i) the federal tax liability which
SubGroup would have incurred with respect to this Separate Taxable Income if
SubGroup had filed its own separate consolidated federal tax return and (ii) the
federal tax liability which SubGroup would have incurred with respect to its
Separate Taxable Gains if SubGroup had filed its own separate consolidated
federal tax return.
(c) To the extent that SubGroup had Separate Taxable Income in
any year and is eligible to carry forward a net operating loss of SubGroup from
a prior income year to the current income year, the Separate Taxable Income of
SubGroup shall be reduced by such net operating loss.
(d) To the extent that SubGroup has Separate Taxable Gains in
any income year and is eligible to carry forward a capital loss of SubGroup from
a prior income year to the current income year, the Separate Taxable Gains of
SubGroup shall be reduced by such capital loss.
(e) SubGroup's liability to Parent for payment of SubGroup's
Separate Tax Liability shall accrue: (i) with respect to SubGroup's Separate
Taxable Income, ratably during each income year, and (ii) with respect to
SubGroup's Separate Taxable Gains, as of the date of the transaction which gave
rise to each such Separate Taxable Gain. Notwithstanding
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<PAGE>
anything to the contrary in the foregoing, payment shall be made at such times
and in such manner as is set forth in Section 2.7 below.
2.3 Credit for Separate Tax Loss
(a) To the extent that SubGroup has Separate Tax Loss during
any income year, the Parent shall accrue for the account of SubGroup an amount
equal to the tax benefit attributable to such Separate Tax Loss that SubGroup
would have realized if SubGroup had filed its own separate consolidated federal
return during the current income year and SubGroup had been able to utilize such
tax benefit as the result of the carryback of such Separate Tax Loss to an
income year in which SubGroup had Separate Taxable Income, but only if and to
the extent that such Separate Taxable Income was generated during the period
SubGroup was a member of the Group. If SubGroup is not able to utilize the tax
benefit attributable to such Separate Tax Loss due to the absence of any
Separate Taxable Income in prior years to which SubGroup could carryback such
Separate Tax Loss, Parent shall accrue for the account of SubGroup an amount
equal to the tax benefit attributable to such Separate Tax Loss for a subsequent
tax year during which SubGroup has Separate Taxable Income to which such tax
benefit could be carried over.
(b) Notwithstanding that SubGroup has Separate Tax Loss during
any income year, SubGroup shall be liable for payment to the Parent of an amount
equal to SubGroup's Separate Tax Liability accrued during such year with respect
to its Separate Taxable Gains to the extent such Separate Taxable Gains are not
offset by such Separate Tax Loss.
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<PAGE>
(c) Parent's liability to SubGroup for payment of credits for
federal income tax purposes for Separate Tax Loss shall accrue ratably during
each income year in which such credit is accrued.
2.4 Tax Credits
If SubGroup has any tax credits which for federal income tax
purposes can be applied against its Separate Tax Liability, the Parent shall
credit the account of SubGroup.
2.5 Applicable Tax Rates
The Separate Tax Liability of SubGroup will be computed
pursuant to Section 2.2 by applying the then-appropriate corporate tax rates for
its computed Separate Taxable Income and Separate Taxable Gains. Any tax
adjustments necessitated by this method of allocation to ensure that the sum of
tax charges/credits is equal to the tax liability of the Group will be borne by
the Parent.
2.6 Alternative Minimum Tax
Notwithstanding the provisions of Sections 2.2 and 2.3 of this
Agreement, in the event that the Group must pay the federal alternative minimum
tax pursuant to Code Section 55, SubGroup will be charged by the Parent with its
separate share of the total alternative minimum tax liability of the Group that
reflects the alternative minimum taxable income resulting from the federal
alternative minimum tax attributes of SubGroup based upon the Separate
Alternative Minimum Taxable Income calculated for SubGroup.
2.7 Payment of Tax Liability; Security for Payment
SubGroup shall pay to Parent the amount of its Separate Tax
Liability, as determined and accrued under Section 2.2 of this Agreement,
including payment of any
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<PAGE>
estimated tax due with respect thereto within 20 days upon request by the Parent
but in any event no later than March 15, June 15, September 15, and December 15
of each income year. Such payment requests are intended but are not required to
support the federal income tax payments required to be made by the Parent. The
Parent will make such payments of any federal income tax as shall be due
throughout the income year on the days provided for payment of such tax,
including installments of estimated federal income taxes due pursuant to Code
Section 6655.
2.8 Payment of Tax Benefits
The Parent shall pay SubGroup any amounts accrued under
Section 2.3 and 2.4 of this Agreement the later of: (i) thirty (30) days after
the Parent files with Internal Revenue Service a consolidated federal tax
return, amended return or refund claim in which tax benefit attributable to
SubGroup is actually utilized to provide a tax savings to the Group or (ii) when
the SubGroup would, under a separate return calculation, be able to utilize the
tax benefit. The amount due and payable to SubGroup shall not exceed the amount
of such tax savings actually utilized by the Group as a result of such filing.
2.9 Adjustment of Consolidated Federal Tax Liability
In the event that for any reason there is an adjustment to the
Group's federal income tax liability, the consolidated tax liability of each
member shall be recomputed in accordance with the provisions of this Agreement
to reflect such adjustment. In the event of any overpayment of tax by SubGroup
as determined as a result of such adjustment, the Parent shall make payment to
SubGroup for the amount of the overpayment within ten (10) days after the
determination of such overpayment. However, if the overpayment of tax results in
a refund of
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<PAGE>
tax from the Internal Revenue Service, the Parent shall make payment to SubGroup
for its share of such refund, including interest, within ten (10) days after
receipt of the refund by the Parent. In the event of an underpayment of tax by
SubGroup as determined as a result of such adjustment, SubGroup shall pay to the
Parent its allocable share of such increased tax liability and any penalties,
additions to tax or interest within a reasonable time, but no later than thirty
(30) days after receiving notice of such liability from the Parent.
2.10 Indemnification
To the extent not inconsistent with the foregoing provisions of this
Agreement, and solely regarding federal and state taxes the Parent shall
indemnify and save the SubGroup harmless from any and all claims, demands,
actions (including federal or state tax liens, levies, audits, investigations
and assessments), interest, penalties, causes of action, suits, proceedings,
damages, liabilities, and costs and expenses of every nature whatsoever arising
therefrom (collectively a "Claim" or "Claims") that arise from the conduct
and/or tax positions taken by the Parent after the date of this Agreement.
ARTICLE 3
ADMINISTRATIVE
3.1 Effective Date
This Agreement shall be effective as of January 1, 1997, and
shall continue in effect until terminated as provided in Section 3.2 of this
Agreement.
-8-
<PAGE>
3.2 Termination, Amendment, etc.
This Agreement may not be amended, waived, discharged or
terminated, except by a written statement signed by the Parent with written
notice delivered to SubGroup. In the event this Agreement is terminated, the
methods for allocating consolidated federal tax liability adopted by the Group
shall nonetheless be given effect with respect to any tax liability, payment or
refund for all taxable years prior to the income year in which termination
occurs, Subject to the provisions of Section 3.4.
3.3 Records and Financial Statement Presentation
Each party to this Agreement shall maintain its books,
accounts and records so as to disclose clearly and accurately the precise nature
and details of the transactions effected under this Agreement.
3.4 Federal Tax Receivable and Payable Accounts
(a) Sub shall maintain separate accounts computed in
accordance with Article 2 of this Agreement showing the following.
3.4.1.1 Amounts due to the Parent with respect to
SubGroup's Separate Tax Liability (the "Consolidated Federal Tax Payable
Account"); and
3.4.1.2 Amounts due from the Parent with respect to
tax benefits of SubGroup utilized in accordance with the terms of this Agreement
to offset the Group's federal income tax liability (the "Consolidated Federal
Tax Receivable Account").
(b) The amounts credited to the Consolidated Federal Tax
Payable Account and the Consolidated Federal Tax Receivable Account shall be
shown on the financial statements of the Parent and SubGroup, as appropriate.
-9-
<PAGE>
(c) Any balance in the Consolidated Federal Tax Receivable
Account of SubGroup shall be carried forward (but shall not be carried back) to
offset amounts Subsequently accrued in SubGroup's Consolidated Federal Tax
Payable Account during SubGroup's "carryforward period" specified in Code
Section 172. Subject to the following paragraph, the Parent in its sole
discretion may offset amounts in the Consolidated Federal Tax Payable Account
and Tax Receivable Account of any members within a Corporate subgroup of the
Group. For purposes of this Subsection, a Corporate subgroup is defined as one
or more subsidiaries within the common parent that is a subgroup within the
Group. The common parent and its subsidiaries together consist of a Corporate
subgroup.
(d) In the event that SubGroup ceases to be a member of the
group, the Consolidated Federal Tax Receivable and Payable Accounts of SubGroup
shall be netted against each other and the remaining unreimbursed balance shall
be payable upon deconsolidation from one to the other. In the event that the
Group's consolidated status is terminated for federal income tax purposes, the
Consolidated Federal Tax Receivable and Payable Accounts of each member of the
Group shall be netted against each other and all remaining unreimbursed balances
shall be immediately payable upon the Group's termination from one member to any
other.
3.5 Counterparts
This Agreement may be executed in two or more counterparts,
each of which shall constitute an original, but all of which, when taken
together, shall constitute but one instrument.
-10-
<PAGE>
3.6 Notices
All notices, requests, or other communications which any of
the parties to this Agreement may desire or be required to give hereunder shall
be in writing and shall be hand- delivered or sent by registered mail or by a
nationally-recognized overnight courier service to the attention of the Chief
Financial Officers of the Parent and Sub at their principal business offices.
IN WITNESS WHEREOF, Parent and SubGroup have caused this
Agreement to be executed and delivered by their duly-authorized officers, as of
the 17th day of December, 1996.
HAY ISLAND HOLDING COMPANY
By: /s/ William T. Ziegler
----------------------
President
SWISHER INTERNATIONAL GROUP INC.
(on its own behalf and on behalf of
each SubGroup Member.)
By: /s/ Robert A. Britton
----------------------------------------------
Chief Financial Officer and Executive Vice President
-11-
CORPORATE PROFILE
Swisher International Group Inc. is the world's largest manufacturer and
marketer of cigars as measured by units sold. The company, which was founded in
1861, also makes smokeless tobacco products, including loose-leaf chewing
tobacco, moist snuff, and dry snuff. Swisher's main cigar manufacturing facility
is in Jacksonville, Florida. The company's smokeless tobacco products are
manufactured in Wheeling, West Virginia.
<PAGE>
PRO FORMA FINANCIAL HIGHLIGHTS
dollars in thousands except per share amounts
Pro Forma Year Ended December 31, 1996 1995
- --------------------------------- ---- ----
Net sales ............................................ $225,229 $186,386
Cost of sales ........................................ 113,764 100,036
Gross profit ......................................... 111,465 86,350
Selling, general and administrative expenses ......... 53,320 52,306
Operating profit ..................................... 58,145 34,044
Interest expense, net ................................ 9,505 8,445
Other expense, net ................................... 153 --
Income before income taxes ........................... 48,487 25,599
Provision for income taxes ........................... 19,021 10,132
Pro forma net income* ................................ 29,466 15,467
Pro forma earnings per share* ........................ $ .86 $ .45
* Pro forma net income and earnings per share assumes the Acquisition had taken
place as of January 1, 1995 and as if the Management Services Agreement had
been in effect on January 1, 1995 and excludes from 1996 results certain
one-time special bonuses to management in connection with the Offering.
<PAGE>
YEAR IN REVIEW
Welcome to Swisher's first annual report.
In December, after 135 years in the cigar business, Swisher International Group
Inc. became a public company. Our initial public offering was the culminating
event in a year during which we reaffirmed our position as the world's leading
cigar company. Our brands now account for approximately 8 percent of worldwide
cigar unit sales and 31 percent of cigar unit sales in the United States. In
what was a banner year for the cigar business as a whole, we continued to exceed
the industry growth rates in nearly every category.
In 1996, Swisher sales grew 21 percent, reaching an all-time high of $225
million. Operating profit, on a pro forma basis, rose 71 percent, from $34
million in 1995 to $58 million in 1996. Over the same period, earnings per share
on a pro forma basis nearly doubled, from $.45 to $.86. With the highest gross
profit and pro forma operating margins in the cigar industry, Swisher is well
positioned to continue its dynamic growth.
A BOOMING BUSINESS
Since 1993, there has been an ongoing industry increase in cigar sales in all
categories -- mass market large, mass market little, and premium. Retail sales
broke the billion dollar barrier for the first time in 1995 and approximated
$1.2 billion in 1996. The growth can be attributed to more favorable exposure in
the media, the increased acceptance of cigar smoking at home and in public
places such as restaurants and cigar bars, and positive demographics boosted by
the baby boomers who have reached the traditional cigar smoking age.
OUR BALANCE AND BRANDS
Balance is one reason for our success, as we offer a full range of cigars across
a broad price spectrum.
We are dominant in the mass market large and little cigar categories, and we
continue to grow our premium cigar sales from their current 10 percent share
base. Established brand names have built our leadership position. Swisher Sweets
is the best-selling brand in the United States and the world in both the large
and little cigar categories, and King Edward is well-recognized in at least 70
countries worldwide.
In addition to cigars, Swisher manufactures and markets a broad range of
smokeless tobacco products. Our smokeless tobacco products are loose-leaf
chewing tobacco, moist snuff, and dry snuff. The smokeless tobacco market is
much larger than cigars in terms of retail sales dollars and is a very strong
cash flow provider to Swisher.
<PAGE>
OUR MARKETING MUSCLE
Much of the credit for our growth goes to our sales and marketing organization,
which is the best in the business. Nationwide, we have a team of 250 sales and
marketing professionals -- the largest in the cigar industry -- that allows us
to maintain our leadership position.
OUR NEW PRODUCT FOCUS
Another advantage of being the leader is the clout we have when it comes to
introducing new products. The fact that more than a quarter of our net sales are
from products introduced over the past decade is a strong measure of our ability
to identify and fill market needs with new products -- and to get those products
well positioned.
MANUFACTURING
On the manufacturing front, we are dedicated to being both the low-cost producer
and the quality leader in each category. This year we will be expanding large
cigar production in our Jacksonville, Florida, facility. By the end of 1997, we
will have completed the project, begun in 1996, to bring our little cigar
production in house, significantly improving our margins. The expansion of our
moist snuff facility in Wheeling, West Virginia, will begin in the second half
of 1997. And, to better position ourselves in the fast-growing premium cigar
market, we will be opening our own cigar-making facility in Honduras and a
joint-venture facility in the Dominican Republic during 1997.
LOOKING FORWARD
We are the world's largest cigar manufacturer. We have well established brand
names and a broad product mix. We have the best sales and marketing organization
in the industry, and we have the experience to develop and deliver innovative
new products. We also have the capital strength to improve manufacturing
efficiencies. As we move forward, we are confident that Swisher will enhance its
leadership position and profitability while staying ahead of the industry sales
curves for both cigars and smokeless tobacco products.
/s/ William Ziegler, III
- ------------------------
William Ziegler
Chairman of the Board and Chief Executive Officer,
March 5, 1997
<PAGE>
MASS MARKET LARGE CIGARS
Mass market large cigars accounted for 61 percent of U.S. cigar industry unit
sales and an estimated 68 percent of retail dollar sales in 1996. That's about
$800 million in retail sales. Mass market large cigar industry unit sales
increased by 15 percent last year. Swisher had a 26 percent unit market share in
1996, with mass market large cigar net sales of $108 million.
The mass market large cigar category is the nation's biggest in terms of units
and sales dollars. As a company, Swisher is the category leader, and our Swisher
Sweets line is the dominant large cigar brand, accounting for approximately one
of every four cigars sold.
Over the past year, all of our large cigar brands benefited from broader
distribution and increased customer satisfaction at the retail level, thanks to
the work of our sales force and our emphasis on national account development. In
addition to Swisher Sweets, those brands include King Edward, Optimo, Santa Fe,
El Trelles, and Keep Moving.
Swisher is first and foremost a marketing company. We feel our brand names are
valuable assets and we are always trying to preserve and expand their reach.
First introduced in 1906 and now recognizable worldwide, our King Edward brand
is the most widely distributed American cigar and the nation's number one export
brand. In 1996, we moved to capitalize on the strength of the King Edward
franchise with new products such as aromatic vanilla and cherry flavored cigars
with a wood tip. In early 1997, we introduced the King Edward Classic, a
mid-priced large cigar with an imported, natural leaf wrapper.
In 1996, we also introduced two new pipe tobacco cigars under the Blackstone
name. Blackstone is made from an aromatic pipe tobacco blend. This product has
become increasingly popular with smokers who prefer the aroma and flavor of pipe
tobacco in a cigar. In 1997, we launched Corral Wodiska's Cazadores, a cigar
which will create its own category, mass market premium. Over the past year,
there has been a dramatic, industry-wide shortage of premium cigars. Cazadores
is a premium cigar that has high-quality filler tobacco and a natural wrapper,
and, since it is machine made rather than hand rolled, we can meet demand. Sold
individually in convenience stores and other non-traditional premium cigar
locations, the Cazadores brand is a good example of the way that Swisher,
because of our resources and new product focus, can move quickly to develop and
market quality cigars.
<PAGE>
[PHOTOGRAPHS OF SOME OF THE COMPANY'S MASS MARKET LARGE CIGAR PRODUCTS]
<PAGE>
LITTLE CIGARS
The U.S. mass market little cigar category accounted for 33 percent of total
cigar industry unit sales in 1996 and an estimated $120 million of retail sales,
or 10 percent of total cigar revenues. In 1996, industry little cigar unit sales
were up 6 percent from the previous year. Swisher has 42 percent of this market
and registered net sales of $22 million in 1996.
Swisher is far and away the dominant player in the mass market little cigar
category thanks to the extraordinary sales strength of our Swisher Sweets Little
Cigars, the largest selling little cigar in the United States in both units and
dollars.
Introduced just over a decade ago, the Swisher Sweets Little Cigar brand has
soared to a 40 percent market share in 1996, a remarkable performance that shows
no sign of leveling off. Growth is supported by our national accounts sales
program, print advertising, and product line extensions -- Swisher Sweets are
now available in regular, menthol, light, and cherry. In 1996 alone, the Swisher
Sweets brand grew at nearly twice the rate of the entire little cigar category,
which led to an increase in market share. The Swisher Sweets Little Cigar is the
success story in the American cigar industry, and, we think, proof positive of
Swisher's ability to identify and fill a market need with a quality product.
This past year, we moved to further increase our profit margin in little cigars
on a new front -- manufacturing. Previously, we have outsourced the production
of little cigars. In 1996, we began acquiring and installing state-of-the-art
equipment in Jacksonville and began manufacturing and packaging them ourselves.
By the fourth quarter of 1997, we will be producing all of our little cigars in
house. The move will dramatically improve margins, quality control, and
inventory management, and we will now have our own highly trained people on the
production side.
<PAGE>
[PHOTOGRAPHS OF SOME OF THE COMPANY'S LITTLE CIGAR PRODUCTS]
<PAGE>
PREMIUM CIGARS
The premium cigar business in the United States represented just 6 percent of
the total cigar industry units sold in 1996. However, because of their higher
prices, premium cigars accounted for an estimated 22 percent of total retail
cigar revenues, or about $264 million. In 1996, the premium cigar market grew by
a remarkable 67 percent. In 1996, based on units sold, Swisher had a 10 percent
share of the premium market with net sales of $31 million.
We distribute a line of high-quality premium cigars in a wide range of shapes
and sizes. Our premium cigars are hand made in the Canary Islands, the Dominican
Republic, Honduras, and Nicaragua with natural leaf wrappers and long filler
tobacco. The majority of the premium cigars we distribute are our own brands,
manufactured overseas under our supervision. The Swisher brands are Bering, La
Diligencia, Don Julio, Flor de Jalapa, La Primadora, Sabroso, Siglo 21, and
Tiburon. We also have the U.S. distribution rights to several imported premium
brands, including Casa Buena, Carlin, and Pleiades.
We entered the premium cigar business with the acquisition of the Bering brand
back in 1986. Since then, we have restructured our sales force, creating an
independent Premium and Export Division that markets our premium cigars to smoke
shops, restaurants, cigar bars, and country clubs. Last year, four new brands
were introduced. And, in 1997, we will be launching Pleiades Reserve Privee, a
specially-aged, "vintage" tobacco cigar line that will be available in limited
quantities. For 1996, the premium cigar business, for all the participants, had
two key story lines: explosive growth and short supply.
The cigar business has been booming, driven by increased acceptance and a more
upscale image. The premium category has had the highest growth rate, but success
has had a price: an industry-wide back-order position. That is because, whatever
the demand, you can not hurry the manufacture of premium cigars. With curing,
fermenting, and drying, it takes well over a year to go from a tobacco seedling
to a finished cigar. And the fact that each cigar is hand rolled is another
constraint, as it takes about a year to get a new roller properly trained.
We are attacking the shortage by building our own cigar-making facility in
Honduras and a joint-venture facility in the Dominican Republic. Though we are
already on site in a supervisory capacity for overseas cigar manufacturing,
these facilities will give us even greater control over quality and production,
and enable us to further develop our relationships with local farmers and
growers. Most importantly, they will mean a greater supply of premium cigars to
meet the increased demand.
<PAGE>
[PHOTOGRAPHS OF SOME OF THE COMPANY'S PREMIUM CIGAR PRODUCTS]
<PAGE>
SMOKELESS TOBACCO PRODUCTS
In 1996, total U.S. retail revenues for smokeless tobacco products approximated
$2.5 billion, breaking down to $1.92 billion for moist snuff, $500 million for
loose-leaf chewing tobacco, and $76 million for dry snuff. Swisher's market
shares in the three smokeless tobacco categories in which it competes are 4.6
percent of moist snuff, 6.7 percent of loose-leaf chewing tobacco, and 29.2
percent of dry snuff. The company's smokeless tobacco product net sales totaled
$64 million in 1996.
Swisher manufactures and markets a full line of smokeless tobacco products,
including moist snuff, loose-leaf chewing tobacco, and dry snuff.
The success of all of our smokeless products, which are made in Wheeling, West
Virginia, is fueled by the same strengths that drive our growth on the cigar
side of our business: the marketability of our brand names, our focus on new
products, our sales and marketing support, and our pursuit of manufacturing
efficiencies.
In a business where brand-name recognition is an invaluable commodity, we have a
wealth of established names in the smokeless category. For example, Mail Pouch,
which celebrated its 100th anniversary in 1996, was the original loose-leaf
chewing tobacco, and it is still a strong selling brand.
At Swisher, we have built a reputation for researching, developing, and
successfully launching new smokeless products or line extensions that create or
fill a market need. Our popular Silver Creek moist snuff line, for instance, has
been expanded to include Silver Creek Fine Cut and Silver Creek Cherry. And, in
1997, we are rolling out our latest addition to the line, Silver Creek Straight.
<PAGE>
[PHOTOGRAPHS OF SOME OF THE COMPANY'S SMOKELESS TOBACCO PRODUCTS]
<PAGE>
Sales and marketing support for all of our smokeless tobacco products, whether
they're a century old or just being test marketed, is vital. Importantly, these
products are backed by the same national sales force that markets our cigars
with promotional pricing, eye-catching merchandising materials, and extensive
print advertising. Our salespeople use our cigars' market strength at the retail
level to see that our smokeless tobacco products get well displayed, a key to
success in this competitive market.
We are innovative on the manufacturing side as well, exploring new technology
and implementing performance-related programs. Last year, we installed new
packaging equipment for moist snuff that lowered the cost of each pound sold.
MOIST SNUFF
Our moist snuff products are Cooper, Gold River, Silver Creek, and Redwood. We
also manufacture private label brands for distributors, some with their own
trade names, who supply various retail outlets throughout the country.
Moist snuff is the dominant smokeless story. At almost $2 billion in retail
sales in 1996, moist snuff accounts for over three-quarters of annual retail
sales of smokeless tobacco products. Given the strength of this sector, moist
snuff is where we are targeting our smokeless tobacco sales and marketing thrust
- -- and it is also where we are having the most success. Since 1992, our moist
snuff products have grown at almost seven times the rate of the overall moist
snuff market due to our value pricing strategy and the performance of our sales
and marketing team. And, while the overall moist snuff market showed modest
growth of approximately 4 percent in 1996, our unit sales were up 14 percent,
which led to an increase in our market share.
LOOSE-LEAF CHEWING TOBACCO
Swisher's loose-leaf chewing tobacco brands include Chattanooga Chew, Earl
Caulfield's, Lancaster Limited-Reserve, and Mail Pouch. As is the case with
moist snuff, we also supply many distributors with private label products. In
1996, while overall chewing tobacco unit sales declined by about 3 percent, our
unit sales were up more than 10 percent based on the strength of a new
promotional pricing campaign.
DRY SNUFF
Our major dry snuff brands are Tops, Navy, Railroad Mills, Superior, Buttercup,
Society, and Honey Bee. The dry snuff category, with its substantial profit
margins and low marketing costs, helps generate strong cash flow for Swisher.
<PAGE>
SELECTED FINANCIAL DATA
dollars in thousands except share amounts
The following selected financial data was derived from the consolidated
financial statements of the Company. This data should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and the related notes
thereto. As discussed in Note 1 to the consolidated financial statements, prior
to November 6, 1995, the Predecessor was a wholly owned subsidiary of American
Maize-Products Company ("AMPCo"). On November 6, 1995, AMPCo was acquired by
Eridania Beghin-Say, S.A. ("EBS"), which simultaneously entered into an
agreement to sell the Predecessor to the Successor. As a result of the
acquisition on November 6, 1995, the Successor's consolidated results of
operations and cash flows for the year ended December 31, 1996 and for the
period from November 7, 1995 to December 31, 1995 are not comparable to prior
periods.
<TABLE>
<CAPTION>
Successor Predecessor
----------------------------------------- ------------------------------------------------------
Pro Forma Period from Period from
Year Ended Year Ended November 7 to January 1 to Year ended December 31,
December 31, December 31, December 31, November 6, ----------------------------------------
1996 1995a 1995 1995 1994 1993 1992
---- ----- ---- ---- ---- ---- ----
Statement of Operations:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales .......................... $ 225,229 $ 186,386 $ 31,266 $ 155,120 $ 163,285 $ 156,485 $ 148,878
Cost of sales ...................... 113,764 100,036 16,514 83,522 88,720 89,193 87,476
Gross profit ....................... 111,465 86,350 14,752 71,598 74,565 67,292 61,402
Selling, general and
administrative expenses .......... 61,008 52,306 7,207 40,331 47,208 50,366 46,013
Restructuring expenses ............. -- -- -- -- 5,400 5,200 3,593
Operating profit ................... 50,457 34,044 7,545 31,267 21,957 11,726 11,796
Interest expense, net .............. 9,505 8,445 1,670 3,437 5,503 9,081 10,163
Other expense (income), net ........ 153 -- 25 (2,360) (2,706) (1,995) (1,374)
Income before income taxes, minority
interest and accounting changes .. 40,799 25,599 5,850 30,190 19,160 4,640 3,007
Provision for income taxes ......... 16,006 10,132 2,228 11,536 7,461 1,570 1,355
Income before minority interest
and accounting changes ........... 24,793 15,467 3,622 18,65) 11,699 3,070 1,652
Minority interest .................. -- -- -- (967) (997) (1,010) (426)
Income before accounting changes ... 24,793 15,467 3,622 17,687 10,702 2,060 1,226
Accounting changes ................. -- -- -- -- -- (6,898)b 1,118c
Net income (loss) .................. $ 24,793 $ 15,467 $ 3,622 $ 17,687 $ 10,702 $ (4,838) $ 2,344
Earnings per share ................. $ .73
Weighted average number
of shares outstanding ............ 34,100
Other:
Gross margin ....................... 49.5% 46.3% 47.2% 46.2% 45.7% 43.0% 41.2%
Operating margin ................... 22.4 18.3 24.1 20.2 13.5 7.5 7.9
Ebitda margin ...................... 24.8 21.2 26.7 24.1 17.9 11.6 11.9
Ebitda d ........................... $ 55,884 $ 39,453 $ 8,337 $ 37,451 $ 29,176 $ 18,201 $ 17,749
Balance Sheet:
Working capital .................... $ 53,011 $ 31,925 $ 39,690 $ 46,794 $ 54,950 $ 51,880
Total assets ....................... 199,239 194,230 185,085 193,860 177,394 179,069
Total debt ......................... 117,685 128,152 61,050 77,104 78,214 83,413
Total stockholders' equity ......... 46,543 34,750 93,330 80,365 69,663 74,501
</TABLE>
a Pro forma results of operations presents the results of operations as if the
Acquisition (see Note 1 to the Consolidated Financial Statements) had taken
place as of January 1, 1995 and as if the Management Services Agreement (see
Note 13 to the Consolidated Financial Statements) between Hay Island Holding
Corporation and the Company had been in effect as of January 1, 1995.
b Represents 1993 cumulative effect of change in method of accounting for
postretirement benefits other than pensions and other postemployment benefits,
net of income taxes. (See Notes 7 and 8 to the Consolidated Financial
Statements).
c Represents 1992 cumulative effect of change in the method of
accounting for income taxes.
d Ebitda is defined as earnings before interest expense, net, provision for
income taxes and depreciation and amortization. The Company believes that
EBITDA is a measure commonly used by analysts and investors. 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 flow 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.
e See Note 4 to the Consolidated Financial Statements for restrictions of
dividend payments.
<PAGE>
MD&A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with Swisher
International Group Inc.'s (the "Company") consolidated financial statements and
the related notes thereto.
OVERVIEW
Founded in 1861, the Company is the largest manufacturer and marketer of cigars
in the world with an 8% market share and in the United States with a 31% market
share, measured by units sold in 1996. The Company's net sales have increased
from $163.3 million in 1994 to $225.2 million in 1996, representing a compound
annual growth rate of 17.4%. During the same period, the Company's operating
profit increased from $27.4 million (before restructuring expenses of $5.4
million) to $50.5 million, representing a compound annual growth rate of 35.8%.
The Company believes that its strong operating performance has been due to: (i)
the strength of the Company's brands, especially its Swisher Sweets brand, which
the Company believes is the largest selling cigar brand in the United States,
(ii) the resurgence in cigar smoking and the related growth in the consumption
and retail dollar sales of cigars, (iii) the Company's significant market
position in each of the major cigar product categories in which it competes,
(iv) its ability to increase prices of its major cigar product categories in
each of the last several years, (v) the growth in the retail dollar sales of
moist snuff smokeless tobacco products, and the Company's increasing market
share of this product category, (vi) its continuous efforts to reduce
manufacturing unit costs and improve its manufacturing processes and (vii) the
strength of the Company's sales and marketing organization.
The Company's profitability depends, to a significant extent, on the level of
utilization of its manufacturing capacity and the efficiencies of its
operations. As the Company has increased its volume, coupled with the Company's
processing improvements and pricing increases, the Company's gross margin
improved from 45.7% of net sales in the year ended December 31, 1994 to 49.5% of
net sales in the year ended December 31, 1996, and its operating profit margin
improved from 16.8% of net sales (before restructuring expenses of $5.4 million)
in the year ended December 31, 1994 to 22.4% of net sales in the year ended
December 31, 1996.
The Company believes that the gross profit margins in the cigar industry vary by
cigar product category. The Company's gross profit margins also vary. The
relative gross profit margins of its major cigar categories in descending order
are, generally, little cigars, premium cigars and mass market large cigars. In
general, the gross profit margins on smokeless tobacco products are higher than
the gross profit margins on cigar products.
<PAGE>
The Company has completed three major cost savings initiatives to streamline its
operations, increase its manufacturing efficiencies and improve its sales and
marketing organization while reducing overall administrative costs. In 1993, the
Company completed the consolidation of its dry snuff and moist snuff
manufacturing, packaging and shipping operations from its plant in Helmetta, New
Jersey, which it closed, to its Wheeling, West Virginia, facility. In 1994, as a
result of the merger of Helme Tobacco Company into Swisher International, Inc.
("Swisher International"), the Company realized significant reductions in
selling, general and administrative expenses. In 1995, the Company completed the
closing of its Waycross, Georgia, cigar plant and consolidated all of its cigar
manufacturing activities into its Jacksonville, Florida, facility. As a result
of these consolidations, the Company incurred pretax restructuring charges of
$5.4 million in 1994, $5.2 million in 1993 and $3.6 million in 1992, and has
realized significant cost savings in its base manufacturing and selling, general
and administrative expenses.
The Company's raw material inventory requirements for cigar production are
relatively modest due to its long standing relationships with major tobacco
suppliers who commit to supply tobacco as needed by the Company. The Company's
largest working capital requirements are driven by its smokeless tobacco
operations. The tobacco for dry and moist snuff and loose leaf chewing tobacco
requires aging of two to three years before being processed into finished
products. The Company maintains sufficient smokeless tobacco raw material
inventories to ensure proper aging and an adequate supply. Although the
Company's business is not seasonal, purchases of smokeless tobacco raw material
inventory typically occur from the middle of the fourth quarter through the end
of the first quarter of each year. Therefore, inventories at year end and at the
end of the first quarter are typically higher than during the rest of the year.
The Company currently purchases its premium cigars from third-party
manufacturers. Prices for each year are generally agreed to prior to the start
of the year. Typically, prices are subject to adjustment if the third-party
manufacturer can substantiate that its costs of manufacturing have increased by
a fixed percentage over the costs assumed in setting the prices. The Company's
ability to maintain its gross margins for premium cigars in the event of price
increases by the third-party manufacturers is dependent on its ability to pass
along these cost increases in the form of price increases to its customers. Over
the last few years, the Company has been able to raise retail prices to recover
product price increases, however, there is no assurance it will be able to do so
in the future to the full extent needed to maintain its gross margins.
<PAGE>
The Company sources its tobacco requirements from vendors in countries
throughout the world. In addition, approximately 4% of the Company's 1996 net
sales were to customers in foreign countries. Virtually all of the Company's
sales are denominated in U.S. dollars, as are its raw material and finished
product purchases. Thus, the Company has no material exposure to foreign
exchange gains or losses.
The Company is a holding company, which owns the outstanding capital stock of
Swisher International, through which the Company conducts its business
operations. The results of operations and financial position of the Company
reflect the consolidated results of operations and financial position of Swisher
International and its predecessors. Before November 6, 1995, Swisher
International was a wholly owned subsidiary of American Maize-Products Company
("AMPCo"). On November 6, 1995, the Company acquired all of the outstanding
shares of Swisher International (the "Acquisition"). Prior to the Acquisition, a
subsidiary of Swisher International owned certain trademarks, tradenames,
patents and copyrights used by Swisher International and AMPCo for which such
subsidiary received royalty income from Swisher International and AMPCo, which
is included in "Other expense (income), net" on the Statement of Operations. The
portion of such royalty income attributable to AMPCo is listed as a minority
interest on the financial statements of the predecessor company. Upon the sale
of Swisher International on November 6, 1995, this subsidiary was liquidated and
dissolved. The trademarks relating to the business of Swisher International are
currently owned by its wholly owned subsidiary, King Edward Technology, Inc.
The results of operations and financial position of the Company have been
significantly affected by adjustments resulting from the Acquisition, including
a substantial increase in debt associated with the Acquisition, the allocation
of purchase price and amortization of goodwill. As a result of these
adjustments, the results of operations and financial position of the Company
before the Acquisition are not comparable with its results of operations and
financial position thereafter. To facilitate the comparison of the predecessor
results of operations of the Company for the year ended December 31, 1994 and
the successor results of operations for the year ended December 31, 1996 with
the year ended December 31, 1995, the predecessor results of operations of the
Company for the period January 1, 1995 through November 6, 1995 have been
combined with the successor results of operations of the Company from the period
November 7, 1995 through December 31, 1995 and presented after giving pro forma
effect to the Acquisition as if the Acquisition had occurred on January 1, 1995.
<PAGE>
RESULTS OF OPERATIONS
dollars in thousands
The following table sets forth certain of the Company's statement of operations
data for each of the periods presented:
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------- -------------
Pro Forma
Year Ended Year Ended Year Ended
December 31, December 31, December 31,
1996 1995a 1994
---- ----- ----
Statement of Operations Data:
<S> <C> <C> <C>
Net sales ...................................... $ 225,229 $ 186,386 $ 163,285
Cost of sales .................................. 113,764 100,036 88,720
Gross profit ................................... 111,465 86,350 74,565
Selling, general and administrative expenses ... 61,008b 52,306 47,208
Restructuring expenses ......................... -- -- 5,400
Operating profit ............................... 50,457 34,044 21,957
Interest expense, net .......................... 9,505 8,445 5,503
Other expense (income), net .................... 153 -- (2,706)
Income before income taxes and minority interest 40,799 25,599 19,160
Provision for income taxes ..................... 16,006 10,132 7,461
Income before minority interest ................ 24,793 15,467 11,699
Minority interest .............................. -- -- (997)
Net income ..................................... $ 24,793 $ 15,467 $ 10,702
Statement of Operations Data
as a Percentage of Net Sales:
Net sales ...................................... 100.0% 100.0% 100.0%
Cost of sales .................................. 50.5 53.7 54.3
Gross margin ................................... 49.5 46.3 45.7
Selling, general and administrative expenses ... 27.1b 28.0 28.9
Restructuring expenses ......................... -- -- 3.3
Operating margin .............................. 22.4b 18.3 13.5
Interest expense, net .......................... 4.2 4.5 3.4
Other expense (income), net .................... .1 -- (1.7)
Income before income taxes and minority interest 18.1 13.8 11.8
Provision for income taxes ..................... 7.1 5.4 4.6
Income before minority interest ................ 11.0 8.4 7.2
Minority interest .............................. -- -- (.6)
Net income ..................................... 11.0% 8.4% 6.6%
</TABLE>
a The unaudited pro forma statement of operations data gives pro forma effect to
the Acquisition as if it had occurred on January 1, 1995 and to the Management
Services Agreement (see Note 13 to the Consolidated Financial Statements) as
if it had been in effect as of January 1, 1995. The unaudited pro forma data
is for information purposes only and does not purport to be representative of
results of operations or financial position of the Company had the Acquisition
actually taken place as of January 1, 1995 or had the Management Services
Agreement been in effect as of January 1, 1995.
b Selling, general and administrative expenses for the year ended December 31,
1996 includes a payment of approximately $4.7 million for one-time, special
bonuses to management. Excluding the $4.7 million from 1996 results, selling,
general and administrative expenses and operating margin as percentages of net
sales would have been 25.0% and 24.5%, respectively.
<PAGE>
1996 vs. 1995
YEAR ENDED DECEMBER 31, 1996 COMPARED TO
PRO FORMA YEAR ENDED DECEMBER 31, 1995
Net Sales
Net sales increased $38.8 million or 20.8% to $225.2 million for the year ended
December 31, 1996 from $186.4 million for the year ended December 31, 1995. The
increase in net sales was primarily due to higher sales of cigars and, to a
lesser extent, higher sales of smokeless tobacco products. Cigar sales increased
principally due to growth in unit volumes of premium, mass market large cigars
and little cigars. Cigar sales also increased as a result of a shift in sales
mix to higher priced cigars and price increases on all cigar brands. Smokeless
tobacco sales increased as a result of continued volume increases, particularly
in moist snuff.
Gross Profit
Gross profit increased $25.1 million or 29.1% to $111.5 million (49.5% of net
sales) for the year ended December 31, 1996 from $86.4 million (46.3% of net
sales) for the year ended December 31, 1995. The increase in gross profit for
1996 was due to the increase in net sales in the cigar and smokeless tobacco
product categories. As a percentage of net sales, gross profit increased due to
fixed manufacturing costs being spread over increased production volumes. In
addition, the Company incurred certain tobacco raw material cost increases which
it was able to offset by higher selling prices.
Selling, General and Administrative ("SG&A") Expenses
SG&A expenses increased $8.7 million or 16.6% to $61.0 million (27.1% of net
sales) for the year ended December 31, 1996 from $52.3 million (28.0% of net
sales) for the year ended December 31, 1995. A substantial portion of the
increase of $8.7 million is attributable to a payment of approximately $4.7
million for one-time special bonuses to management. The remainder of the
increase is due primarily to increases in sales personnel and marketing
programs.
The decrease, as a percentage of net sales, was primarily due to SG&A expenses
increasing at a lower rate relative to the increase in net sales as a
consequence of management's effort to monitor and reduce expenses. Excluding the
payment of approximately $4.7 million for one-time, special bonuses from 1996
results, SG&A expenses would have been 25.0% of net sales. (See Note 13 to the
Consolidated Financial Statements for a discussion of the Management Services
Agreement).
Operating Profit
Operating profit increased $16.4 million or 48.2% to $50.5 million (22.4% of net
sales) for the year ended December 31, 1996 from $34.0 million (18.3% of net
sales) for the year ended December 31, 1995. The increase was primarily due to
higher gross profit margins and a decrease in SG&A expenses as a percentage of
net sales. Excluding the payment of approximately $4.7 million for one-time,
special bonuses from 1996 results, operating profit would have been $55.1
million (24.5% of net sales).
Interest Expense, Net
Interest expense, net increased $1.1 million or 12.6% to $9.5 million for the
year ended December 31, 1996 from $8.4 million for the year ended December 31,
1995. The increase resulted from lower levels of interest income. For the year
ended December 31, 1996, the average debt balance was $122.9 million, with an
average effective interest rate of 7.7%. For the year ended December 31, 1995,
the average debt balance was $129.0 million, with an average effective interest
rate of 7.6%.
Income Taxes
The effective income tax rate was 39.2% and 39.6% for the year ended December
31, 1996 and 1995, respectively.
Net Income
Net income increased $9.3 million or 60.3% to $24.8 million (11.0% of net
sales), for the year ended December 31, 1996 from $15.5 million (8.4% of net
sales), for the year ended December 31, 1995.
<PAGE>
1995 vs. 1994
PRO FORMA YEAR ENDED DECEMBER 31, 1995
COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales
Net sales increased $23.1 million or 14.2% to $186.4 million for the year ended
December 31, 1995 from $163.3 million for the year ended December 31, 1994. The
increase in net sales was principally due to increases in unit sales of all
cigar product categories, with the largest percentage increase occurring in
premium cigars. Smokeless tobacco product net sales rose principally as a result
of unit volume increases in moist snuff and loose leaf tobacco. Price increases
occurred across all product categories.
Gross Profit
Gross profit increased $11.8 million or 15.8% to $86.4 million (46.3% of net
sales) for the year ended December 31, 1995 from $74.6 million (45.7% of net
sales) for the year ended December 31, 1994. The increase in gross profit was
due to the increase in net sales in the cigar and smokeless tobacco product
categories. As a percentage of net sales, gross profit increased due to lower
fixed manufacturing costs being spread over increased production volumes and the
ability to pass through raw material cost increases.
SG&A Expenses
SG&A expenses increased $5.1 million or 10.8% to $52.3 million (28.0% of net
sales) for the year ended December 31, 1995 from $47.2 million (28.9% of net
sales) for the year ended December 31, 1994. The increase, on a pro forma basis,
is primarily due to additional estimated corporate expenses, which would be
incurred on a stand alone basis and the amortization of goodwill.
Restructuring Expenses
In 1994, the Company incurred a pretax restructuring charge of $5.4 million as a
result of the merger of Helme into the Company and the closing of the Company's
Waycross, Georgia, cigar manufacturing plant.
Operating Profit
Operating profit increased $12.1 million or 55.1% to $34.0 million (18.3% of net
sales) for the year ended December 31, 1995 from $22.0 million (13.5% of net
sales) for the year ended December 31, 1994. The increase was primarily due to
higher gross profit margins and the lack of a restructuring charge in 1995
offset by higher SG&A expenses.
Interest Expense, Net
Interest expense, net increased $2.9 million or 53.5% to $8.4 million for the
year ended December 31, 1995 from $5.5 million for the year of December 31,
1994. The increase resulted from higher debt associated with the Acquisition.
For the year ended December 31, 1995, the average debt balance was $129.0
million, with an average effective interest rate of 7.6%. For the year ended
December 31, 1994, the average debt balance was $77.7 million, with an average
effective interest rate of 8.6%.
Income Taxes
The effective income tax rate was 39.6% and 38.9% for the years ended December
31, 1995 and 1994, respectively. The higher effective income tax rate for the
year ended December 31, 1995 is primarily due to higher state income taxes.
Net Income
Net income increased $4.8 million or 44.5% to $15.5 million (8.4% of net sales),
for the year ended December 31, 1995 from $10.7 million (6.6% of net sales), for
the year ended December 31, 1994.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net cash flows from operating activities were $27.6 million, $31.5 million and
$25.4 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The decrease of $3.9 million for the year ended December 31, 1996
compared to the year ended December 31, 1995 was primarily due to higher working
capital requirements resulting from increased inventory levels associated with
higher sales volumes, partially offset by a decrease in accounts receivable and
an increase in net income. The increase of $6.2 million from 1994 to 1995 was
primarily due to higher net income in 1995 and changes in working capital.
Historically, the Company's capital requirements have approximated its
depreciation expense. As the Company expands its manufacturing operations,
depreciation expense will increase, but in the near term will be less than
expenditures on capital projects. The Company will fund its projects using
internal cash flow and, if needed, bank borrowings.
Working capital requirements can be expected to grow as the Company's business
grows. The Company's raw material inventory requirements for cigar production
are relatively modest due to its long standing relationships with major tobacco
suppliers who commit to supply tobacco inventory as needed by the Company. The
Company's largest working capital requirements are driven by its smokeless
tobacco operations. The tobacco for dry and moist snuff and loose leaf chewing
tobacco requires aging of two to three years before being processed into
finished products. The Company maintains sufficient smokeless tobacco raw
material inventories to ensure proper aging and an adequate supply. Although the
Company's business is not seasonal, purchases of smokeless tobacco raw material
inventory typically occur from the middle of the fourth quarter through the end
of the first quarter of each year. Therefore, inventories at year end and at the
end of the first quarter are typically higher than during the rest of the year.
The Company will fund its seasonal working capital requirements through
operating cash flows, and, if needed, bank borrowings.
Cash flows used in investing activities were $5.7 million, $147.4 million and
$4.0 million in 1996, 1995 and 1994, respectively. Cash flows used in 1995 were
$141.2 million related to financing the Acquisition and $6.2 million for
purchases of property, plant and equipment. The capital expenditures in 1996 and
1995 primarily relate to investments in manufacturing equipment to expand the
Company's manufacturing capacity in mass market large cigars and little cigars.
Capital expenditures in 1994 were broad-based and part of the Company's
continuing maintenance and improvement program at its manufacturing facilities.
For 1997, the Company currently expects that capital expenditures will be
between $10 million and $15 million and will be used to expand its off-shore
premium cigar production capacity (approximately $4 million), expand its
domestic production capacity in mass market large cigars and little cigars and
continue its current maintenance capital program. Capital expenditures are
estimated to be between $4 million and $7 million for each of 1998 and 1999 and
are expected to be used to maintain existing equipment and facilities as well as
increase production capacity. The capital expenditures referred to above are
expected to be funded by cash flows from operations and, if needed, bank
borrowings.
<PAGE>
Cash flows provided (used) in financing activities were $(23.5) million, $127.6
million and $(21.9) million in 1996, 1995 and 1994, respectively. The 1996 use
is due principally to dividends paid to Hay Island and changes in short-term
debt, offset partially by the proceeds from the offering of Class A Common Stock
(the "Offering"). The 1995 amount is substantially higher due to increased debt
to finance the Acquisition. The 1994 use is due principally to changes in the
intercompany accounts with AMPCo.
The Second Amended Credit Agreement entered into by Swisher International and
the Company with the Bank of Boston Connecticut, as administrative agent (the
"Credit Agreement"), consists of a $27.0 million Revolving Credit Facility (the
"Revolver"), a $90.625 million 5-year Term Loan ("A Term Loan") and a $30.0
million 6-year Term Loan ("B Term Loan"). The Revolver and the A Term Loan
mature on November 6, 2000 and the B Term Loan matures on November 6, 2001. The
A Term Loan is subject to required quarterly amortization of at least $3.125
million, which began on August 1, 1996. The B Term Loan is subject to required
quarterly amortization of at least $250,000 which began on November 1, 1996. The
Credit Agreement is collateralized by first priority liens on all of the
material assets of Swisher International and its domestic subsidiaries and
pledges of the capital stock of all of Swisher International's subsidiaries
(with certain exceptions for the capital stock of foreign subsidiaries). The
Credit Agreement is guaranteed by the Company and all of the domestic
subsidiaries of Swisher International. The Credit Agreement also contains
various restrictive covenants including, among other things, limitations on the
ability of Swisher International and its subsidiaries to incur debt, create
liens, pay dividends, sell assets and make investments and acquisitions. The
Company's ability to pay dividends, other than with respect to the net proceeds
of the Offering, is limited to a pool of $10.0 million plus 50% of net income,
as defined, for the four quarters most recently ended prior to the dividend
payment date, less dividends paid. In addition, the Credit Agreement requires
the Company to maintain specified financial ratios and satisfy certain tests,
including maximum leverage ratios and minimum interest coverage ratios. The
Credit Agreement also contains customary events of default. As of December 31,
1996, borrowings under the A Term Loan were $87.5 million, borrowings under the
B Term Loan were $29.0 million and borrowings under the Revolver were $1.0
million and the Company had $29.525 million of unused availability thereunder,
after taking into account approximately $600,000 utilized to support letters of
credit.
To convert floating rate debt into fixed rate debt, the Company entered into two
interest rate swap agreements. As of December 31, 1996, the total notional
amount covered by existing swap agreements was $55.0 million. The agreements are
each for a period of three years. The agreement with respect to the A Term Loan
expires on November 16, 1998, and the agreement with respect to the B Term Loan
expires on July 2, 1999. The notional amount decreases to $50.0 million on
November 16, 1997 and $15.0 million on November 16, 1998. Under the terms of
these agreements, Swisher International receives a variable interest rate equal
to three-month LIBOR and pays a fixed rate of approximately 5.9% as of December
31, 1996. The Company entered into these agreements to convert a portion of its
floating rate senior bank debt into a fixed
<PAGE>
rate obligation and to take advantage of the disparity between fixed rate and
floating rate debt. If the Company terminated these agreements on December 31,
1996 or 1995, the effect, as of the end of each period, would have been
insignificant.
The Company believes that net cash flow generated from future operations and the
availability of borrowings under the Revolver will be sufficient to fund its
working capital requirements, capital expenditures and debt service requirements
for the foreseeable future.
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.
SEASONALITY
Although the Company's business is generally non-seasonal, consumption of
smokeless tobacco products increases slightly during the summer months.
Additionally, purchases of smokeless tobacco raw materials typically occur from
the middle of the fourth quarter to the end of the first quarter.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1995, Statement No. 121 of the Financial Accounting Standards Board
("FAS"), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" was issued, effective January 1, 1996. FAS No. 121
requires that in the event certain facts and circumstances indicate an asset may
be impaired, an evaluation of recoverability must be performed to determine
whether or not the carrying amount of the asset is required to be written down.
The adoption of this statement did not have a significant effect on the
Company's consolidated financial position or results of operations.
In October 1995, FAS Statement No. 123, "Accounting for Stock-Based
Compensation" was issued, effective January 1, 1996. The Company will continue
to measure compensation costs for its employee stock compensation plans as
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," as allowed under FAS No. 123 (see Note 12 to the
Consolidated Financial Statements).
REGULATION
On August 28, 1996, the FDA published a final rule on tobacco in the Federal
Register. Specifically, the rule makes the sale of cigarettes and smokeless
tobacco to children and adolescents, i.e., anyone younger than 18 years of age,
a federal violation. In addition, the rule requires manufacturers, distributors,
and retailers to comply with certain conditions regarding the sale, distribution
and promotion of tobacco products. It prohibits all free samples and limits
retail sales in most circumstances to face-to-face transactions. As a result,
vending machines and self-service displays are prohibited, except in facilities
where the retailer or operator ensures that no person younger than 18 is present
or is permitted to enter at any time. The rule limits advertising generally to a
black-and-white, text-only format, which the FDA believes will ensure that
advertising is not used to create demand for these products among young people
and thus undermine the restrictions on access. Billboards and other outdoor
advertising are prohibited within 1,000 feet of schools and public playgrounds.
The sale and distribution of non-tobacco items, such as hats and tee shirts that
carry cigarette logos, are prohibited, and sponsorship of sporting and other
events is limited to the corporate name only. The provisions of the regulations
will become effective between six months and two years after August 28, 1996.
This regulation could have a material adverse effect on the Company's business.
<PAGE>
EXCISE TAXES
Cigars and smokeless tobacco products have long been subject to federal, state
and local excise taxes, and such taxes have frequently been increased or
proposed to be increased, in some cases significantly, to fund various
legislative initiatives. In particular, there have been proposals by the federal
government in the past to reform health care through a national program to be
funded principally through increases in federal excise taxes on tobacco
products. Enactment of new or significant increases in existing federal, state
or local excise taxes would result in decreased unit sales of cigars and
smokeless tobacco products, which could have a material adverse effect on the
Company's business.
TOBACCO INDUSTRY LITIGATION
The tobacco industry has experienced and is experiencing significant
health-related litigation. Plaintiffs in such litigation are seeking
compensation and, in some cases, punitive damages, for various injuries
allegedly resulting from the use of tobacco products or the exposure to tobacco
smoke, including health care costs. A Florida jury recently rendered a damages
verdict in favor of a cigarette smoker. Also, recently, a study published in the
journal Science reported that a chemical found in cigarette smoke has been found
to cause genetic damage in lung cells that is identical to damage observed in
many malignant tumors of the lung. This study could affect pending and future
tobacco litigation. The Company is currently the subject of material
health-related litigation. Though claims have been made against manufacturers of
smokeless tobacco products and against manufacturers of cigars, the Company is
not aware of any adverse decision or judgment having been rendered against
smokeless tobacco or cigar manufacturers. In the opinion of management, the
cost, if any, of resolving all litigation and contingencies should not have a
significant impact on the Company's consolidated financial position. There can
be no assurance, however, that the Company may not be named as a defendant in
any future suits, nor can there be any assurance that such suits, if brought
against the Company, or the Company's existing litigation, will not result in an
adverse judgment against the Company which could have a material adverse effect
on the Company's business, future results of operations or cash flows. The
Company does not carry insurance to protect against health-related product
liability because the cost of obtaining such insurance is commercially
prohibitive. Additionally, a judgment against the Company with respect to a
product and any related products, could preclude the further sale of such
products, the result of which could have a material adverse effect on the
Company's business.
OTHER
For a discussion of other contingencies, see Note 14 to the Company's
consolidated financial statements.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations and other sections of this Annual Report contain forward-looking
statements that are based on current expectations, estimates and projections
about the industries in which the Company operates, management's beliefs and
assumptions made by management. Words such as "expects," "believes,"
"estimates," variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are not guarantees of
future performance and involve certain risks, uncertainties and assumptions
which are difficult to predict. Therefore, actual outcomes and results may
differ materially from what is expressed or forecasted in such forward-looking
statements. The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise.
<PAGE>
CONSOLIDATED BALANCE SHEETS
dollars in thousands
As of December 31, 1996 1995
- ------------------ ---- ----
ASSETS:
Current assets:
Cash and cash equivalents ............................... $ 1,744 $ 3,250
Accounts receivable, less allowance for
doubtful accounts of $1,783 and
$2,365, respectively ........................... 22,365 23,696
Inventories ............................................. 54,936 50,782
Deferred income taxes ................................... 1,512 286
Prepaid income taxes .................................... 323 --
Other current assets .................................... 2,247 1,760
Total current assets ........................... 83,127 79,774
Property, plant and equipment:
Land ........................................... 1,319 1,319
Buildings and improvements ..................... 10,054 9,471
Machinery and equipment ........................ 46,284 40,180
Construction in progress ....................... 2,848 3,882
60,505 54,852
Less, accumulated depreciation ................. 3,642 470
56,863 54,382
Goodwill, net of accumulated amortization
of $1,808 and $192, respectively ............... 48,437 50,053
Prepaid pension cost .................................... 4,660 4,320
Other assets ............................................ 6,152 5,701
Total assets ................................... $199,239 $194,230
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Current portion of long-term debt ....................... $ 17,102 $ 32,523
Accounts payable ........................................ 4,927 6,434
Accrued expenses ........................................ 8,087 7,437
Income taxes payable .................................... -- 1,455
Total current liabilities ...................... 30,116 47,849
Long-term debt .......................................... 100,583 95,629
Deferred income taxes ................................... 4,898 1,060
Accrued postretirement and postemployment benefits ...... 13,788 12,773
Other liabilities ....................................... 3,311 2,169
Total liabilities .............................. 152,696 159,480
Commitments and contingencies ..........................
Stockholders' equity:
Common Stock ............................................ 341 --
Paid-in capital ......................................... 45,428 31,128
Retained earnings ...................................... 774 3,622
Total stockholders' equity ..................... 46,543 34,750
Total liabilities and stockholders' equity ..... $199,239 $194,230
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
dollars in thousands except share amounts
<TABLE>
<CAPTION>
Successor Predecessor
---------------------------- --------------------------
Period from Period from
Year Ended November 7 to January 1 to Year Ended
December 31, December 31, November 6, December 31,
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales ...................................... $ 225,229 $ 31,266 $ 155,120 $ 163,285
Cost of sales .................................. 113,764 16,514 83,522 88,720
Gross profit .......................... 111,465 14,752 71,598 74,565
Selling, general and administrative expenses ... 61,008 7,207 40,331 47,208
Restructuring expenses ......................... -- -- -- 5,400
Operating profit ...................... 50,457 7,545 31,267 21,957
Interest expense, net .......................... 9,505 1,670 3,437 5,503
Other expense (income), net .................... 153 25 (2,360) (2,706)
Income before income taxes and minority interest 40,799 5,850 30,190 19,160
Provision for income taxes ..................... 16,006 2,228 11,536 7,461
Income before minority interest ................ 24,793 3,622 18,654 11,699
Minority interest in earnings of subsidiary ... -- -- (967) (997)
Net income ..................................... $ 24,793 $ 3,622 $ 17,687 $ 10,702
Earnings per share ............................. $ .73
Weighted average shares outstanding ........... 34,100
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS
OF STOCKHOLDERS' EQUITY
dollars in thousands except per share amounts
<TABLE>
<CAPTION>
Predecessor Successor
----------- ---------
Total
Common Common Paid-in Retained Stockholders'
Stock Stock Capital Earnings Equity
----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 ........ $ 13,000 $ 13,117 $ 43,546 $ 69,663
Net income ...................... -- -- 10,702 10,702
Balance, December 31, 1994....... 13,000 13,117 54,248 80,365
Dividend to AMPCo ............... -- -- (4,722) (4,722)
Net income ...................... -- -- 17,687 17,687
Balance, November 6, 1995 ....... $ 13,000 $ 13,117 $ 67,213 $ 93,330
Balance, November 7, 1995 ....... $ -- a $ 31,128 $ -- $ 31,128
Net income ...................... -- -- 3,622 3,622
Balance, December 31, 1995 ...... -- a 31,128 3,622 34,750
Common Stock Offering (Note 11) . 341 94,759 -- 95,100
Dividends to Hay Island ......... -- (80,459) (27,641) (108,100)
Net income ...................... -- -- 24,793 24,793
Balance, December 31, 1996 ...... $ 341b $ 45,428 $ 774 $ 46,543
</TABLE>
a Prior to the Common Stock Offering, and as of December 31, 1995, the Company
had 100 shares of issued and outstanding Common Stock with a $1 par value.
b As of December 31, 1996, the Company had 103,100,000 shares authorized with
34,100,000 shares issued and outstanding at a par value of $.01.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
dollars in thousands
<TABLE>
<CAPTION>
Successor Predecessor
------------------------------ -------------------------------
Period from Period from
Year Ended November 7 to January 1 to Year Ended
December 31, December 31, November 6, December 31,
1996 1995 1995 1994
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C> <C>
Net income ....................................................... $ 24,793 $ 3,622 $ 17,687 $ 10,702
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ................................ 5,580 817 3,824 4,513
Deferred income taxes ........................................ 2,612 773 (219) (853)
Restructuring expenses ....................................... -- -- -- 5,400
Minority interest in earnings of subsidiary .................. -- -- 967 997
Loss (gain) on disposal of property, plant and equipment ..... -- -- 126 (166)
Changes in assets and liabilities, net of impact of
acquisition:
Accounts receivable ...................................... 1,331 (4,360) 5,296 607
Inventories .............................................. (4,154) 449 5,660 1,845
Other current assets ..................................... (487) (46) (185) 83
Prepaid pension cost ..................................... (340) -- 145 (42)
Other assets ............................................. (1,573) -- -- --
Accounts payable and accrued expenses .................... (857) (5,317) (954) 1,117
Income taxes ............................................. (1,423) 1,455 1,990 1,834
Accrued postretirement and postemployment benefits ....... 1,015 -- -- --
Other liabilities ..... .................................. 1,142 -- -- --
Other, net ............................................... (26) (11) (180) (653)
Net cash provided by (used in) operating activities .............. 27,613 (2,618) 34,157 25,384
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ....................... (5,653) (842) (5,536) (4,456)
Proceeds from disposal of property, plant and equipment .......... -- -- 223 431
Acquisition of business, net of cash acquired of $8,558 .......... -- (141,215) -- --
Net cash used in investing activities ............................ (5,653) (142,057) (5,313) (4,025)
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in short-term debt ........................................ (20,000) -- (2,005) (405)
Long-term borrowings ............................................. 316,263 114,752 -- 40,150
Payments of long-term debt ....................................... (306,729) (6,600) (4,762) (40,855)
Dividends paid to Hay Island ..................................... (108,100) -- -- --
Proceeds from Common Stock Offering .............................. 95,100 -- -- --
Increase in intercompany receivable, net ......................... -- -- (13,592) (11,909)
Increase in note due from AMPCo................................... -- -- -- (8,900)
Issuance of common stock ......................................... -- 39,773 -- --
Net cash (used in) provided by financing activities .............. (23,466) 147,925 (20,359) (21,919)
Net (decrease) increase in cash and cash equivalents.............. (1,506) 3,250 8,485 (560)
Cash and cash equivalents, beginning of period ................... 3,250 -- 73 633
Cash and cash equivalents, end of period ......................... $ 1,744 $ 3,250 $ 8,558 $ 73
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest (net of amount capitalized) ......................... $ 10,545 $ 881 $ 5,169 $ 7,277
Income taxes ................................................. 14,782 -- 9,766 7,244
</TABLE>
SUPPLEMENTAL NON-CASH DISCLOSURE:
During the period from January 1, 1995 through November 6, 1995, a Note
receivable from AMPCo of $21,000 was reclassified to the Due from AMPCo account.
Additionally, the Company recorded a dividend to AMPCo of $4,722, which was
settled by adjusting the Due from AMPCo and the Liability to the Minority
Interest.
In addition, in connection with the Acquisition, the Company issued a $20,000
subordinated note payable to the seller.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
dollars in thousands except per share amounts
1. GENERAL AND ACQUISITION:
General
Swisher International Group Inc. and Subsidiaries (the "Company" or the
"Successor") manufactures and sells cigars and smokeless tobacco products. The
principal market for the Company's products is the United States.
Acquisition
Through November 6, 1995, Swisher International, Inc. (the "Predecessor") was a
wholly owned subsidiary of American Maize-Products Company ("AMPCo"). On
November 6, 1995, in connection with the acquisition of AMPCo and its
subsidiaries by Eridania Beghin-Say, S.A. ("EBS"), the common stock of the
Predecessor was simultaneously sold for $169,773 to the Company, which was a
wholly owned subsidiary of Hay Island Holding Corporation ("Hay Island") prior
to the Offering (see Note 11). This transaction is referred to as the
"Acquisition."
The aggregate purchase price was comprised of cash of $39,773, senior bank debt
of $110,000, the proceeds of which were paid to the seller, and subordinated
debt of $20,000 payable to the seller.
The Acquisition was accounted for as a purchase, which results in a new basis of
accounting for periods subsequent to the acquisition date. The fair value of
assets acquired aggregated $203,859, including goodwill of $50,245 (net), and
the fair value of liabilities aggregated $164,086. Based on Hay Island's
previous ownership interest in AMPCo, the amount of goodwill and shareholders'
equity recognized as of the acquisition date was reduced by $8,645. For income
tax purposes, the Acquisition has been treated as an asset purchase.
Accordingly, goodwill will be amortized over 15 years for income tax purposes.
As a result of the Acquisition, the Company's consolidated results of operations
for the year ended December 31, 1996 and for the period from November 7, 1995 to
December 31, 1995 are not comparable to prior periods. The following summarizes
the unaudited pro forma results of operations as if the Acquisition had taken
place as of January 1, 1995 and to the Management Services Agreement (see Note
13) as if it had been in effect on January 1, 1995. In addition, certain
one-time special bonuses to management in connection with the Offering have been
excluded from the pro forma results of operations.
Pro Forma Year ended December 31, 1996 1995
- --------------------------------- ---- ----
Net sales ........................... $ 225,229 $ 186,386
Net income .......................... 29,466 15,467
Earnings per share .................. .86 .45
The unaudited pro forma information is for informational purposes and does not
purport to be representative of the results of operations or financial position
of the Company had the Acquisition actually taken place as of January 1, 1995 or
the Management Services Agreement been in effect on January 1, 1995.
2. SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES:
Principles of Consolidation
The consolidated financial statements include the accounts of Swisher
International Group Inc. and its wholly owned subsidiaries. All intercompany
balances and transactions have been eliminated in consolidation. Except as
indicated to the contrary, all references to "the Company" are to the
Predecessor or to the Successor. The translation of the financial position and
results of operations of the Company's United Kingdom subsidiary did not have a
significant impact on the consolidated financial position or results of
operations.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Revenue Recognition
Revenue is recognized when shipments are made to customers.
<PAGE>
Earnings Per Share
Earnings per share for the year ended December 31, 1996 has been computed based
on the number of shares of Common Stock which are outstanding subsequent to the
completion of the Offering described in Note 11.
Advertising Costs
Advertising costs of $2,521, $117, $1,946 and $1,687 for the year ended December
31, 1996, the period from November 7, 1995 to December 31, 1995, the period from
January 1, 1995 to November 6, 1995, and the year ended December 31, 1994,
respectively, were expensed as incurred.
Research and Development Costs
Research and development expenditures are expensed as incurred. Expenditures
amounted to $956, $127, $827 and $643 for the year ended December 31, 1996, the
period from November 7, 1995 to December 31, 1995, the period from January 1,
1995 to November 6, 1995, and the year ended December 31, 1994, respectively.
Minority Interest
Through November 6, 1995, the Company owned 83% of the outstanding shares of
American Maize Technologies, Inc. ("AMTI"). The minority interest through
November 6, 1995, stated as a liability on the consolidated balance sheet, was
equal to the minority ownership percentage of AMTI's net assets. The minority
interest in the consolidated statements of operations was equal to the minority
ownership percent of AMTI's net income.
Cash and Cash Equivalents
Cash and cash equivalents comprise highly liquid investments with original
maturities of three months or less. The carrying value of cash equivalents
approximates fair value.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to a concentration
of credit risk are cash and cash equivalents and accounts receivable.
The Company maintains its cash and cash equivalents with various high quality
banks. Amounts held in individual banks may periodically exceed, for brief time
periods, federally insured amounts. The Company's customers are primarily
wholesale tobacco and candy distributors, wholesale grocers and food and drug
chains, in many geographic regions. To reduce credit risk, the Company performs
ongoing credit evaluations of its customers' financial condition but does not
generally require collateral.
Inventories
Inventories are stated at the lower of cost or market. The last-in, first-out
(LIFO) method is used to determine the cost of tobacco content in inventory. All
tobacco inventory is included in current assets in conformity with standard
industry practice, notwithstanding the fact that significant quantities of
inventory are carried for several years for purposes of the curing process. The
average cost and the first-in, first-out (FIFO) methods are used to calculate
the cost of the remaining inventories.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation.
Expenditures for new facilities and those which increase useful lives are
capitalized. Maintenance and repairs are expensed as incurred. When property,
plant and equipment is sold or retired, the cost and accumulated depreciation
applicable to assets retired are removed and any gain or loss on the transaction
is included in income.
Plant and equipment is depreciated over its estimated useful life, using the
straight-line method. Depreciation is based on the following useful lives:
buildings and improvements, 10 to 30 years; machinery and equipment, 5 to 15
years. Assets recorded under capital leases are amortized over the lease term
or, if title ultimately passes to the Company, over their estimated useful
lives. Depreciation expense approximated $3,172, $470, $3,088 and $3,843,
respectively, for the year ended December 31, 1996, the period from November 7,
1995 to December 31, 1995, the period from January 1, 1995 to November 6, 1995
and the year ended December 31, 1994.
<PAGE>
Goodwill
Goodwill arising from the Acquisition in November 1995 is being amortized over
40 years. Goodwill from acquisitions prior to November 6, 1995 of $14,632 was
also amortized over 40 years through November 6, 1995.
The Company periodically evaluates whether there has been a permanent impairment
in the carrying value of goodwill by comparing it to anticipated future
operating cash flows. Factors which management considers in performing this
assessment include current operating results and trends, demand, competition and
other economic factors.
Deferred Financing Costs
Deferred financing costs relate to costs incurred in connection with long-term
bank financing obtained by the Company to finance the Acquisition. Costs of
$4,815, which are included in other assets, are being amortized on a
straight-line basis (which approximates the interest method) over the term of
the financing agreements. Amortization expense for the year ended December 31,
1996, and for the period from November 7, 1995 to December 31, 1995 was $1,074
and $144, respectively.
Interest Rate Swaps
The Company periodically enters into interest rate swap agreements which changes
the interest payable on a portion of its outstanding long-term debt from a
variable to a fixed rate basis. These agreements involve the receipt of variable
rate payments in exchange for fixed rate payments over the life of the
agreements without an exchange of the underlying principal amount. The
differential to be paid or received is accrued and recognized as an adjustment
to interest expense as interest rates change.
Income Taxes
Under the liability method of accounting for income taxes, the Company
recognizes deferred tax liabilities and assets which are determined based on the
difference between the financial statement basis and tax basis of assets and
liabilities, using enacted tax rates in effect for the year in which the
differences are expected to reverse.
A valuation allowance against deferred tax assets is required if, based on
available evidence, it is more likely than not that some or all of the deferred
tax assets will not be realized. Management has determined, based on the
reversal of existing taxable temporary differences and its expectations for the
future, taxable income will more likely than not be sufficient to fully
recognize deferred tax assets.
3. INVENTORIES:
Inventories consist of the following:
As of December 31, 1996 1995
- ------------------ ---- ----
Finished goods .............. $12,489 $ 9,487
Work-in-process ............. 2,809 3,654
Raw materials ............... 31,023 29,426
Stores and supplies ......... 8,615 8,215
$54,936 $50,782
The tobacco content of inventories is stated using the LIFO method. As of
December 31, 1996 and 1995, inventories of $47,137 and $45,201, respectively,
are stated using the LIFO method of accounting. These amounts are greater than
the corresponding replacement costs by $2,216 and $1,719 as of December 31, 1996
and 1995, respectively.
4. DEBT:
Long-term debt consists of the following:
As of December 31, 1996 1995
- ------------------ ---- ----
Revolving credit borrowings with
interest from 7.93% to 9.50%a ........ $ 1,000 $ 8,100
Term loan with interest of 7.93%b ...... 116,500 100,000
Capital lease obligationsc ............. -- --
Subordinated note payable to an
affiliate of EBS with interest
at 6%d ............................... -- 20,000
Miscellaneous .......................... 185 52
117,685 128,152
Less, current portion................... 17,102 32,523
$ 100,583 $ 95,629
a Represents borrowings under $27,000 revolving credit facility.
b Payable in varying quarterly installments (minimum of $4,000) from February 1,
1997 through November 1, 2001.
c The Company leases land, buildings and equipment under a capital lease. As of
December 31, 1996, property, plant and equipment included $8,929 (net of
accumulated depreciation of $1,344), relating to the assets under lease. As of
November 1, 1995, the Company has extinguished its liability under the capital
lease by purchasing investments and placing such investments in an irrevocable
trust, which will be used to satisfy principal and interest payments for the
remainder of the lease.
d The note was repaid in June 1996, accordingly, the balance has been classified
as current portion of long-term debt as of December 31, 1995.
<PAGE>
In connection with the Acquisition, the Company entered into a credit agreement
(the "Agreement") which provided for a $100,000 term loan and a $25,000
revolving credit facility. In April 1996, the Agreement was amended to provide
an additional term loan of $30,000 to aggregate $130,000 and an addition of
$2,000 to the revolving credit facility to aggregate $27,000. The Agreement has
a maturity of November 1, 2001. The Agreement is collateralized by all Company
assets and common stock. At the Company's option, interest is payable based on
(a) "base rate," which is defined as the greater of the prime rate, or federal
funds rate plus .5%, plus an applicable margin, as defined, which was 8.50% as
of December 31, 1996, or (b) a Eurodollar rate plus an applicable margin, as
defined, which was 7.25% as of December 31, 1996. The weighted average interest
rate on all outstanding debt as of December 31, 1996 and 1995 was 7.72% and
7.55%, respectively.
In addition to scheduled maturities, the Agreement provides for mandatory
principal prepayments based on the Company's excess cash flows, as defined.
Presently, 75% of such excess cash flow, if any, is to be applied to principal
repayments. In accordance with the Agreement, no mandatory prepayment was
required as of December 31, 1996. The Agreement contains various restrictive
covenants which restrict, among other things, additional indebtedness, the sale
of assets and the payment of dividends. The Company's ability to pay dividends,
other than with respect to the net proceeds of the Offering, is limited to a
pool of $10.0 million plus 50% of net income, as defined, for the four quarters
most recently ended prior to the dividend payment date, less dividends paid. The
Agreement also includes covenants related to net worth, fixed charge coverage
and leverage ratios.
The Company entered into two three-year interest rate swap agreements having an
aggregate notional amount of $55,000 as of December 31, 1996. The notional
amount decreases to $50,000 on November 16, 1997 and $15,000 on November 16,
1998. Under the terms of the swap agreements, the Company pays a fixed interest
rate of 5.9% and receives a variable interest rate equal to three month LIBOR.
Such agreements effectively convert the interest on $55,000 of long-term debt
from a variable rate to a fixed rate of interest. In the event of nonperformance
by the counterparties, the Company could lose some or all of any future positive
cash flows. However, the Company does not currently anticipate nonperformance by
such counterparties. The fair value of interest rate swap agreement represents
the estimated receipts or payments that would be made to terminate the
agreements. As of December 31, 1996 and 1995, the Company would have had to pay
insignificant amounts to terminate the swap agreements.
The aggregate annual maturities of the Company's long-term debt as of December
31, 1996 are as follows:
1997 ............ $ 17,102
1998 ............ 21,083
1999 ............ 26,000
2000 ............ 28,500
2001 ............ 25,000
$ 117,685
The fair value of the Company's long-term debt approximates the carrying value
as of December 31, 1996 and 1995 based on interest rates available for debt with
similar terms.
Interest costs, including related party amounts disclosed in Note 13, incurred
during the year ended December 31, 1996, the period from November 7, 1995 to
December 31, 1995, the period from January 1, 1995 to November 6, 1995 and the
year ended December 31, 1994 were $9,638, $1,721, $5,321 and $6,770,
respectively. Interest capitalized in those periods approximated $223, $30, $26
and $59, respectively.
Interest income, including the related party amounts dis-closed in Note 13,
approximated $133, $20, $1,858 and $1,208 for the year ended December 31, 1996,
the period from November 7, 1995 to December 31, 1995, the period from January
1, 1995 to November 6, 1995 and the year ended December 31, 1994, respectively.
<PAGE>
5. INCOME TAXES:
Prior to the Acquisition, the Company's income tax filings were the
responsibility of AMPCo. For periods subsequent to November 6, 1995, the Company
will be included in consolidated income tax filings with Hay Island. In
accordance with a tax sharing agreement with Hay Island, the Company has
computed its provision for income taxes for the year ended December 31, 1996 and
for the period from November 7, 1995 through December 31, 1995 on a separate
company basis.
The provision for income taxes consists of:
Successor Predecessor
----------------------- -------------------------
Period from Period from
Year Ended Nov. 7 to Jan. 1 to Year Ended
Dec. 31, Dec. 31, Nov. 6, Dec. 31,
1996 1995 1995 1994
---- ---- ---- ----
Current:
Federal ................ $ 11,780 $ 1,220 $ 10,619 $ 7,552
State and local ........ 1,614 235 1,136 762
13,394 1,455 11,755 8,314
Deferred, principally
federal .............. 2,612 773 (219) (853)
$ 16,006 $ 2,228 $ 11,536 $ 7,461
The difference between the actual income tax provision and the income tax
provision computed by applying the statutory federal income tax rate to income
before provision for income taxes is attributable to the following:
Successor Predecessor
----------------------- -------------------------
Period from Period from
Year Ended Nov. 7 to Jan. 1 to Year Ended
Dec. 31, Dec. 31, Nov. 6, Dec. 31,
1996 1995 1995 1994
---- ---- ---- ----
Federal statutory
rate ................. 35.0% 34.0% 35.0% 35.0%
State and local income
taxes, net of federal
income taxes ......... 3.1 4.4 2.4 2.2
Goodwill amortization .. -- -- 0.3 0.7
Nondeductible
expenses ............. 0.4 0.3 0.4 0.8
Other, net ............. 0.7 (.6) 0.1 0.2
39.2% 38.1% 38.2% 38.9%
The components of net deferred tax assets and liabilities are as follows:
As of December 31, 1996 1995
- ------------------ ---- ----
Current deferred tax assets:
Workers' compensation .............. $ 193 $ --
Inventory capitalization ........... 1,310 286
Other .............................. 9 --
Current deferred income tax assets . $1,512 $ 286
Noncurrent deferred tax assets:
Postretirement and postemployment
benefit accruals ................. $ 355 $ --
Other .............................. 86 --
441 --
Noncurrent deferred tax liabilities:
lifo inventory ..................... 601 551
Goodwill ........................... 962 180
Fixed assets and depreciation ...... 3,389 178
Pension ............................ 190 72
Other .............................. 197 79
5,339 1,060
Noncurrent deferred income tax
liabilities ...................... $4,898 $1,060
<PAGE>
6. PENSION PLANS:
The Company has several non-contributory defined benefit pension plans which
cover substantially all employees. Pension benefits are generally based on
either years of service and employee compensation during the last years of
employment, or years of service times a multiplier. The Company's policy is to
make annual contributions sufficient to meet the minimum funding requirements
set forth in the Employee Retirement Income Security Act of 1974 ("ERISA").
Actuarially determined pension costs are accrued currently and include amounts
for current service and prior service costs, which are amortized on a
straight-line basis over the participants' estimated remaining service period.
Pension expense (income) includes the following:
Successor Predecessor
----------------------- -------------------------
Period from Period from
Year Ended Nov. 7 to Jan. 1 to Year Ended
Dec. 31, Dec. 31, Nov. 6, Dec. 31,
1996 1995 1995 1994
---- ---- ---- ----
Service cost .......... $ 1,342 $ 182 $ 793 $ 1,327
Interest cost ......... 3,091 495 2,445 2,771
Curtailment lossa ..... -- -- -- 737
Actual return on
plan assets ......... (7,387) (1,383) (3,336) (4,318)
Net amortization and
deferral ............ 2,646 618 (75) 50
$ (308) $ (88) $ (173) $ 567
a During 1994, the Company recognized a pension curtailment loss of $737 which
related to a plant consolidation.
The assumptions used in the calculation of the projected benefit obligation and
the net periodic pension expense (benefit) as of and for the periods ended were
as follows:
Successor Predecessor
----------------------- -------------------------
Period from Period from
Year Ended Nov. 7 to Jan. 1 to Year Ended
Dec. 31, Dec. 31, Nov. 6, Dec. 31,
1996 1995 1995 1994
---- ---- ---- ----
Assumed rates of return
on plan assets ....... 10.0% 10.0% 10.0% 10.0%
Assumed discount rates
(used to measure
year-end projected
benefit obligation)... 7.5 7.0 7.1 8.5
Assumed rates of
compensation
increases ............ 5.0-9.7 5.0-9.7 5.0-9.7 5.0-9.7
As of December 31, 1996 and 1995, the plans' assets were primarily invested in
equity and fixed income securities. The plans' funded status and amounts
recognized in the Company's consolidated balance sheets were as follows:
1996 1995
---------------------- -----------------------
Overfunded Underfunded Overfunded Underfunded
Plans Plans Plans Plans
----- ----- ----- -----
Accumulated benefit
obligation:
Vested benefit
obligation .............. $ 36,965 $ 1,076 $ 19,066 $ 19,087
Non-vested benefit
obligation .............. 935 40 392 312
$ 37,900 $ 1,116 $ 19,458 $ 19,399
Projected benefit
obligation .............. $ 42,686 $ 1,631 $ 23,794 $ 19,949
Plan assets at
fair value .............. 51,659 1,630 29,814 18,121
Plan assets over (under)
projected benefit
obligation .............. 8,973 (1) 6,020 (1,828)
Unrecognized net (gain)
loss .................... (4,607) (244) 57 71
Unrecognized prior service
cost .................... 539 -- -- --
Prepaid (accrued) pension
cost .................... $ 4,905 $ (245) $ 6,077 $ (1,757)
<PAGE>
Supplemental Plan
In addition to benefits provided under the Company's qualified pension plans,
the Company also provides pension benefits under a non-contributory supplemental
retirement plan (the "Supplemental Plan"). The Supplemental Plan, which covers
certain executives and other key employees, provides for benefits in addition to
the funded plans for limitations enacted under ERISA and the Internal Revenue
Code, and maintains pre-1989 benefit levels for service prior to that date.
The Company recorded pension expense under the Supplemental Plan of $610, $45,
$234 and $405 for the year ended December 31, 1996, the period from November 7,
1995 to December 31, 1995, the period from January 1, 1995 to November 6, 1995
and the year ended December 31, 1994, respectively.
Savings Plan
The Company has a savings plan (the "Plan") under Section 401(k) of the Internal
Revenue Code, to provide its eligible employees with additional income upon
retirement. The Plan requires specified contributions and allows discretionary
contributions by the Company. Expense under the Plan was $526, $80, $373 and
$450 for the year ended December 31, 1996, the period from November 7, 1995 to
December 31, 1995, the period from January 1, 1995 to November 6, 1995 and the
year ended December 31, 1994, respectively.
7. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS:
The Company provides certain health care benefits for retired employees and
their eligible dependents. A significant number of the Company's employees may
become eligible for these benefits if they are employed until retirement age and
have fulfilled certain service requirements.
The provision for postretirement benefits included the following:
Successor Predecessor
----------------------- -------------------------
Period from Period from
Year Ended Nov. 7 to Jan. 1 to Year Ended
Dec. 31, Dec. 31, Nov. 6, Dec. 31,
1996 1995 1995 1994
---- ---- ---- ----
Service cost .......... $ 443 $ 64 $ 249 $ 404
Interest cost ......... 720 122 565 666
Amortization of gain... (75) (14) (153) --
$ 1,088 $ 172 $ 661 $ 1,070
As permitted, in 1993 the Company recorded its transition obligation on the
immediate recognition basis.
The amount recognized in the Company's consolidated balance sheets for
postretirement benefits other than pensions is as follows:
As of December 31, 1996 1995
- ------------------ ---- ----
Actuarial present value of
accumulated postretirement
benefit obligation:
Retirees .............................. $ 4,594 $ 4,397
Fully eligible active participants .... 2,055 2,221
Other active participants ............. 3,755 3,518
Unrecognized gain ..................... 2,794 2,084
$ 13,198 $ 12,220
The assumptions used in the calculation of the accumulated postretirement
benefit obligation are as follows:
As of December 31, 1996 1995
- ------------------ ---- ----
Discount rates ........................ 7.75% 7.25%
The health care cost trend rate used as of December 31, 1996 is 11.0%,
decreasing gradually to 5.5% in 2001.
A one percentage point increase in the assumed health care cost trend rate in
each period would increase the accumulated postretirement benefit obligation as
of December 31, 1996 by $1,452, and the aggregate of the service cost and
interest cost by $273 for the year ended December 31, 1996.
<PAGE>
8. POSTEMPLOYMENT BENEFITS OTHER THAN TO RETIREES:
The Company provides certain postemployment benefits to former or inactive
employees after employment but before retirement. Postretirement service cost
expense amounted to approximately $207, $7, $157 and $196 for the year ended
December 31, 1996, the period from November 7, 1995 to December 31, 1995, the
period from January 1, 1995 to November 6, 1995 and the year ended December 31,
1994, respectively.
The amount recognized on the Company's consolidated balance sheets for
postemployment benefits other than to retirees is as follows:
As of December 31, 1996 1995
- ------------------ ---- ----
Actuarial present value of accumulated
postemployment benefit obligations:
Former employees ....................... $ 514 $ 555
Unrecognized gain (loss) ............... 76 (2)
$ 590 $ 553
The assumed discount rate used to determine the accumulated postemployment
benefit obligation is 7.5%, 7.0%, 8.25% and 8.25% for the year ended December
31, 1996, the period from November 7, 1995 to December 31, 1995, the period from
January 1, 1995 to November 6, 1995 and the year ended December 31, 1994,
respectively.
9. RESTRUCTURING:
During 1994, the Company recorded a restructuring charge of $5,200. The charge
related principally to costs of consolidation and reorganization of its plants,
divestiture of non-performing assets and other organizational changes. The
restructuring was fully completed by November 6, 1995.
10. COMMITMENTS AND OTHER:
As of December 31, 1996, the Company was committed under long-term operating
leases expiring through 2002. Minimum annual rental commitments were as follows:
Transportation
Year ending December 31: Equipment Other Total
- ------------------------ --------- ----- -----
1997 ...................... $1,803 $ 500 $2,303
1998 ...................... 1,882 141 2,023
1999 ...................... 255 121 376
2000 ...................... 259 62 321
2001 ...................... 243 50 293
Thereafter ................ 255 34 289
Rent expense was $2,555, $246, $1,450 and $1,810 for the year ended December 31,
1996, the period from November 7, 1995 to December 31, 1995, the period from
January 1, 1995 to November 6, 1995 and the year ended December 31, 1994,
respectively.
Commitments relating to contracts to purchase tobacco from various suppliers
approximated $5,310 as of December 31, 1996.
During the year ended December 31, 1996, the period from November 7, 1995 to
December 31, 1995, the period from January 1, 1995 to November 6, 1995 and the
year ended December 31, 1994, sales to one customer aggregated approximately
14%, 17%, 11% and 10%, respectively.
<PAGE>
11. STOCKHOLDERS' EQUITY:
On December 18, 1996, the Company completed an initial public offering (the
"Offering") of 6,000,000 shares of Class A Common Stock at a price of $17 per
share, resulting in net proceeds (after issuance costs) of $95.1 million. The
net proceeds were paid as a dividend to Hay Island.
Prior to consummation of the Offering, the Company amended its authorized
capital stock to 75,000,000 shares of Class A Common Stock and 28,100,000 shares
of Class B Common Stock and converted each outstanding share of its current
common stock into 281,000 shares of its newly created Class B Common Stock
(totaling 28,100,000 shares of Class B Common Stock). Immediately after
consummation of the Offering and as of December 31, 1996, the Company had
6,000,000 shares of Class A Common Stock and 28,100,000 shares of Class B Common
Stock outstanding.
The preference and relative rights of the Class A Common Stock and the Class B
Common Stock are substantially identical in all respects except for disparity in
voting power and conversion rights. Each share of Class A Common Stock and Class
B Common Stock entitles the holder of record to one vote and ten votes,
respectively. The Class A Common Stock has no conversion rights.
12. STOCK OPTION PLAN:
During 1996, the Company adopted the 1996 Stock Option Plan (the "Plan"),
whereby selected employees, consultants and directors may be granted incentive
stock options, nonqualified stock options and stock appreciation rights ("SARs")
at exercise prices not less than the fair market value per share at the date of
grant. Pursuant to the Plan, the aggregate number of shares of Class A Common
Stock which may be made subject to awards of stock options or SARs shall not
exceed at any time 10% of the then outstanding shares of Common Stock. The
maximum term of any stock option granted under the Plan is ten years and
generally will vest in annual one-third increments. Concurrently with the
consummation of the Offering, the Company granted 1,564,000 options under the
Plan at an exercise price of $17 per share. No SARs were granted during 1996. As
of December 31, 1996, 1,846,000 shares were available for grant of options or
SARs. No additional stock options were granted, exercised or forfeited during
1996.
The Company has adopted the disclosure-only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"), but applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for the Plan. If the Company had elected to recognize compensation
cost for the Plan consistent with the method prescribed by SFAS No. 123, net
income and earnings per share would not have been significantly different than
reported.
The fair value of stock options used to compute pro forma net income and
earnings per share in accordance with SFAS No. 123 is the estimated present
value at grant using the Black-Scholes option-pricing model with the following
weighted average assumptions for 1996: dividend yield of 0%; expected volatility
of 30.0%; a risk free interest rate of 6.14% and an expected holding period of
five years.
<PAGE>
13. RELATED PARTIES:
Prior to November 6, 1995, AMPCo provided the Company with certain support in
areas of finance, tax and accounting, treasury and risk management and human
resources. Charges incurred for such services, which were allocated based on
estimated costs incurred by AMPCo on behalf of the Company, for the period from
January 1, 1995 to November 6, 1995 and the year ended December 31, 1994 were
$1,500 and $1,900, respectively. In the opinion of management, the amounts
allocated are reasonable based on the level of support provided by AMPCo and
reflect all services provided by AMPCo.
AMPCo also provided the Company with financing for its short and long-term needs
and held the bonds on a certain capital lease (see Note 4). Interest costs for
the period from January 1, 1995 to November 6, 1995 and for the year ended
December 31, 1994 were $2,393 and $6,758, respectively.
Through November 6, 1995, a subsidiary of the Company held certain patents,
copyrights and tradenames used by the Company and AMPCo. Royalty income of
$2,293 and $2,727 is included in other expense (income), net for the period from
January 1, 1995 to November 6, 1995 and the year ended December 31, 1994,
respectively.
Interest income recorded under a Note Receivable from AMPCo approximated $1,537
and $986, respectively for the period from January 1, 1995 to November 6, 1995
and the year ended December 31, 1994.
Certain members of the Company's Board of Directors are affiliated with entities
which provide legal, consulting and other advisory services to the Company.
Payments to such entities aggregated $922, $2,500, $101 and $22 for the year
ended December 31, 1996, the period from November 7, 1995 to December 31, 1995,
the period from January 1, 1995 to November 6, 1995 and the year ended December
31, 1994, respectively.
As of December 31, 1996, accounts receivable includes $1,405 due from Hay
Island. Such amount was repaid in full in February 1997.
In connection with the Offering, the Company and Hay Island entered into a
Management Services Agreement. The services provided by Hay Island to the
Company include, among other things, treasury and cash management, risk
management, human resource management, marketing support, long-term strategic
planning, business development and investor relations.
The Management Services Agreement has a term of five years and will
automatically renew thereafter for successive one-year terms. After the initial
five-year term, the Management Services Agreement may be terminated at any time
by either party upon six months' prior written notice. The Management Services
Agreement will also be terminable by either the Company or Hay Island upon six
months' written notice if Hay Island ceases to own shares of Common Stock
representing more than 50% of the combined voting power of the Common Stock of
the Company.
The amount payable under the Management Services Agreement for the year ended
December 31, 1997 will be $925, payable in twelve monthly installments. The
Management Services Agreement will provide that the amounts payable thereunder
will be reviewed on an annual basis and, based on an agreed upon allocation of
Hay Island's costs for the services performed, the amount payable thereunder
will be increased or decreased, provided that any increase in such amount will
be limited to a percentage increase based upon the change in the Consumer Price
Index for all Urban Consumers, Northeast for the preceding twelve-month period.
Each party will agree to indemnify the other, except in certain limited
circumstances, against liabilities that the other may incur that are caused by
or arise in connection with such party's failure to fulfill its material
obligations under the Management Services Agreement.
It is currently estimated that the Company's selling, general and administrative
expenses will be reduced by approximately $2,000 as a result of the Management
Services Agreement.
<PAGE>
14. CONTINGENCIES:
The Company has been named in three actions brought by plaintiffs against a
number of smokeless tobacco manufacturers and certain other organizations. These
actions seek damages and other relief in connection with injuries allegedly
sustained as a result of smokeless tobacco products. The Company believes that
it has a number of meritorious defenses to such pending litigation. All such
cases are, and will continue to be, vigorously defended.
The Company is also subject to other litigation, claims and contractual
agreements arising in the ordinary course of business. In the opinion of
management, the cost, if any, of resolving all litigation and contingencies
should not have a significant impact on the Company's consolidated financial
position. However, the cost of resolving such litigation and contingencies, if
any, could have a significant effect on future results of operations and cash
flows.
The Food and Drug Administration ("FDA") has published a proposal to regulate
tobacco products. The Company filed suit in Federal District Court in
Greensboro, North Carolina, seeking judicial confirmation that the FDA lacks
jurisdiction to regulate smokeless tobacco products. The Company is not able to
predict the outcome of the FDA's proposal or assess the future effect, if any,
that this proposal may have on its consolidated financial position, results of
operations or cash flows.
The Company is subject to laws and regulations relating to the protection of the
environment. While it is not possible to quantify with certainty the potential
impact of future actions regarding environmental matters, in the opinion of
management, compliance with the present environmental protection laws, will not
have a material adverse impact, if any, upon the Company's consolidated
financial position, results of operations or cash flows.
In addition, the Company has guaranteed certain leases of a predecessor
discontinued operation which requires lease payments which aggregate a maximum
amount of approximately $3,600 as of November 6, 1995. Under an Indemnity
Agreement, dated as of November 6, 1995, AMPCo provided the Company with
indemnification of these guarantees.
15. RECENTLY ISSUED ACCOUNTING STANDARDS:
In March 1995, SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed of" ("SFAS No. 121") was issued,
effective January 1, 1996. SFAS No. 121 requires that in the event certain facts
and circumstances indicate an asset may be impaired, an evaluation of
recoverability must be performed to determine whether or not the carrying amount
of the asset is required to be written down. The adoption of this statement did
not have a significant effect on the Company's consolidated financial position
or results of operations.
16. QUARTERLY FINANCIAL DATA (UNAUDITED):
Quarter ended: Mar. 31 June 30 Sept. 30 Dec. 31
- -------------- ------- ------- -------- -------
1996
Net sales ...................... $48,628 $58,978 $61,212 $56,411
Gross profit ................... 23,677 30,078 29,180 28,530
Operating profit ............... 9,695 15,399 13,326 12,037
Income before income taxes ..... 7,317 13,041 10,848 9,594
Net income ..................... 4,447 7,925 6,592 5,830
Earnings per share ............. $ .13 $ .23 $ .19 $ .17
Pro forma net income a ......... $ 5,615 $ 9,093 $ 7,760 $ 6,998
Pro forma earnings per share a.. $ .16 $ .27 $ .23 $ .21
Stock price high .............. -- -- -- $17-1/2
Stock price low ................ -- -- -- $15-1/2
1995
Net sales ...................... $40,533 $48,486 $49,339 $48,028
Gross profit ................... 17,900 22,508 23,853 22,089
Operating profit ............... 6,913 11,109 11,459 9,331
Income before income taxes and
minority interest ............ 6,274 10,882 11,105 7,779
Net income ..................... 3,630 6,423 6,531 4,725
Pro forma net income a ......... $ 2,198 $ 4,902 $ 5,180 $ 3,187
Pro forma earnings per share a.. $ .06 $ .14 $ .15 $ .09
a Pro forma net income and earnings per share assumes the Acquisition had taken
place as of January 1, 1995, the Management Service Agreement had been in effect
on January 1, 1995 and excludes from 1996 results certain one-time special
bonuses to management in connection with the Offering.
<PAGE>
Report of Independent Accountants
We have audited the accompanying consolidated balance sheets of Swisher
International Group Inc. and Subsidiaries (the "Successor") as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for the year ended December 31, 1996 and the
period from November 7, 1995 to December 31, 1995. We have also audited the
accompanying consolidated statements of operations, stockholders' equity and
cash flows of Swisher International, Inc. and Subsidiaries (the "Predecessor")
for the period from January 1, 1995 to November 6, 1995 and the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above presents fairly, in
all material respects, the consolidated financial position of Swisher
International Group Inc. and Subsidiaries as of December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for the year
ended December 31, 1996 and the period from November 7, 1995 to December 31,
1995, and the consolidated results of operations and cash flows of Swisher
International, Inc. and Subsidiaries for the period from January 1, 1995 to
November 6, 1995 and for the year ended December 31, 1994, all in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, prior to
November 6, 1995, the Predecessor was a wholly owned subsidiary of American
Maize-Products Company ("AMPCo"). On November 6, 1995, AMPCo was aquired by
Eridania Beghin-Say, S.A. ("EBS"), which simultaneously entered into an
agreement to sell the Predecessor to the Successor. As a result of the
acquisition on November 6, 1995, the Successor's consolidated results of
operations and cash flows for the year ended December 31, 1996 and for the
period from November 7, 1995 to December 31, 1995 are not comparable to prior
periods.
Coopers & Lybrand L.L.P.
New York, New York
February 5, 1997
<PAGE>
CORPORATE DIRECTORY
BOARD OF DIRECTORS
Cynthia Z. Brighton 4
Vice President-Financial Services
Tresurer
Robert A. Britton 1
Executive Vice President
Chief Financial Officer
Nicholas J. Cevera, Jr.
Executive Vice President
Operations
C. Keith Hartley 1,2,3,4
Managing Partner-Corporate Finance
Forum Capital Markets L.P.
Alfred F. La Banca 2,3
Chairman of the Board
Mailex Corporation
Timothy Mann 1
President
Donald E. McNicol 1,2,3,4
Counsel
Schnader, Harrison, Segal and Lewis
Charles H. Mullen 2,3
Private Investor
J. Thomas Ryan, III
Executive Vice President
Sales and Marketing
John R. Tweedy 2,3
Private Investor
William T. Ziegler 1
Chairman of Executive Committee
Chief Operating Officer
William Ziegler, III 1
Chairman of the Board
Chief Executive Officer
EXECUTIVE OFFICERS
William Ziegler, III
Chief Executive Officer
William T. Ziegler
Chief Operating Officer
Timothy Mann
President
Robert A. Britton
Executive Vice President
Chief Financial Officer
Nicholas J. Cevera, Jr.
Executive Vice President
Operations
J. Thomas Ryan, III
Executive Vice President
Sales and Marketing
Justo S. Amato
Senator Vice President
Finance
Paul M. Arvia
Senior Vice President
Sales
Barry L. Drugg
Senior Vice President
Human Resources
John E. Fraleigh
Senior Vice President
Tobacco Procurement
Peter J. Ghiloni
Senior Vice President
Marketing
Cynthia Z. Brighton
Vice President-Financial Services
Treasurer
Karl H. Ziegler
Secretary
- --------------
1. Member of Executive Committee
2. Member of Audit Committee
3. Member of Compensation Committee
4. Member of Pension Committee
<PAGE>
CORPORATE INFORMATION
Common Stock
The Common Stock of Swisher International Group Inc. is traded on the New York
Stock Exchange under the symbol SWR. As of December 31, 1996, there were
approximately 3,358 shareholders of record.
Stock Transfer Agent & Registrar
Boston EquiServe
150 Royall Street
Canton, MA 02021
Corporate Offices
20 Thorndal Circle
Darien, Connecticut 06820
203.656.8000
Form 10-K
A copy of Form 10-K Annual Report filed with the Securities and Exchange
Commission for the year ended December 31, 1996, is available upon written
request from Investor Relations at Swisher's corporate offices.
Requests may also be faxed to 203.656.3151.
Annual Meeting
The Annual Meeting of Stockholders will be held at the Maritime Aquarium at
Norwalk on May 1, 1997, in Norwalk, Connecticut, at 10:00am.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1996 AND STATEMENT OF INCOME FOR THE YEAR
ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> SWISHER INTERNATIONAL GROUP INC.
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<PERIOD-START> JAN-01-1996
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0
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