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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1
to
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(B)
OR 12 (G) OF THE SECURITIES EXCHANGE ACT OF 1934
TAMBORIL CIGAR COMPANY
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(Name of Small Business Issuer in Its Charter)
DELAWARE 65-0656268
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(State of Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2600 S.W. 3RD AVENUE, MIAMI, FL 33129
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(Address of Principal Executive Offices) (Zip Code)
(305) 860-9887
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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NONE NONE
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Securities to be registered pursuant to Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.0001 PER SHARE
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(Title of Class)
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INFORMATION REQUIRED IN
REGISTRATION STATEMENT
ITEM 1. DESCRIPTION OF BUSINESS.
(A) BUSINESS DEVELOPMENT.
TAMBORIL CIGAR COMPANY (hereinafter referred to as the "Company"
and/or the "Issuer"), a Delaware corporation, manufactures and markets premium,
hand-rolled cigars under the TAMBORIL/TM/, CORDOVA/TM/ and FORE/TM/ brand names.
The Company was incorporated in April of 1996 to commercialize the efforts of
its founders in order to create a new premium brand of cigar. These founders
believed that the strong growth in the popularity of cigar smoking which can be
traced back to 1992 had created a demand for additional premium brands. Abraham
Shafir, President of the Company's manufacturing subsidiary, had previously
lived in the Dominican Republic and was intimately familiar with the long
history of quality tobacco growing and cigar production in that country. After
investigating the availability of a steady supply of high quality tobacco and
the skilled labor pool necessary to produce premium cigars by hand, the founders
settled on the town of Tamboril, acquired a warehouse and manufacturing facility
and began the process of formulating the blend of tobaccos and perfecting the
fermenting, curing, aging and rolling processes that have resulted in the
Company's Tamboril line of cigars.
The Company conducts its business through two principal operating
subsidiaries: Tamboril Cigar International, Inc., a Delaware corporation
("TCI"), and Tabacalera Tamboril, S.A., a corporation organized and existing
under the laws of the Dominican Republic ("Tabacalera"). Tabacalera conducts
its business in the Dominican Republic, where it contracts with tobacco growers
and manufactures, packs and ships Tamboril cigars to the United States. TCI is
the U.S. sales and marketing company through which Tamboril cigars are sold to
tobacconists throughout the U.S. The Company has established a third
subsidiary, Diversified Tobacco Company, a Delaware corporation ("Diversified"),
to manufacture and/or distribute private label cigars and non-tobacco-related
products intended to capitalize on the Tamboril/TM/ brand recognition.
Diversified is to begin operations in the latter part of 1997 as part of the
Company's plan to address other market segments. TCI is wholly-owned by the
Company and, in turn, owns all the issued and outstanding common stock of
Diversified and 99.4% of the issued and outstanding capital stock of Tabacalera,
with the remaining 0.6% owned by Dominican citizens as required by the laws of
that country.
The Company's corporate structure was established through a
reorganization that was completed in October 1996 (the "Reorganization"). The
Reorganization was effected through an Acquisition Agreement and Plan of
Reorganization dated October 23, 1996 by and between the Company and TCI (the
"Reorganization"). In the Reorganization the Company acquired all the issued
and outstanding common stock of TCI in exchange for 5,281,671 shares of the
Company's Common Stock. The Company was originally formed under the laws of
the State of Washington on May 24, 1937 for the primary purpose of engaging in
the mining business and operated under the name "Idaho Leadville Mines Co."
Available corporate records indicate that the Company did operate in the mining
business at various times since its inception. The Company engaged in only
minimal activity for at least five (5) years prior to the Reorganization and for
the two (2) years prior to the Reorganization the Company's business plan was to
reorganize itself as a vehicle to effect a merger, exchange of capital stock,
asset acquisition, or other similar combination with one or more operating
businesses. From its formation until the consummation of the Reorganization,
the Company did not conduct any significant commercial operations. Pursuant to
the Reorganization, and in furtherance of its new business plan, the Company's
name was changed to "Tamboril Cigar Company" and its state of incorporation was
changed to Delaware. The Company's remaining mining claims were, pursuant to
the Reorganization, transferred to a corporation controlled by the former
controlling shareholders of the Company ("Mining Co."). The principal
shareholder of Mining Co. received the sum of $50,000 plus 50,000 shares of
Common Stock. The Company retained a small minority interest (1,000 shares) in
Mining Co.
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TCI commenced business in early 1996 under the name "Conquistador
Cigar Company" and changed its name to "Tamboril Cigar Company" to reflect its
business plan to market and distribute premium cigars under the "Tamboril" brand
name. As part of the Reorganization, the operating subsidiary changed its name
to "Tamboril Cigar International, Inc." Tabacalera was established in the
Dominican Republic for the purpose of purchasing, processing, rolling, finishing
and packaging tobacco grown in the Tamboril region into finished and packaged
cigars for export to the U.S. market. Tabacalera sells all its finished product
to TCI which markets and distributes premium cigars in the U.S. under the
TAMBORIL/TM/, CORDOVA/TM/ AND FORE/TM/ brand names.
(B) BUSINESS OF THE ISSUER.
PRODUCTS
The Company's product line now consists of 22 cigars of varying styles
and sizes which are sold in over 500 upscale tobacconists nationwide at retail
prices from $4 to $9.50 per cigar. Premium cigars are generally defined as
cigars that are hand-made from high quality, natural leaf binder, long-filler
and wrapper tobaccos and that retail for $1 or more per cigar. The principal
elements that determine the quality of the cigar are the quality of the tobacco,
the curing and aging process and the skill of the hand-roller. The Company's
binder and filler tobaccos are Cuban-seed Piloto Cubano and Olor Dominicano
varieties from the Tamboril region of the Dominican Republic. These varieties
of tobacco were introduced to the Dominican Republic by immigrants who fled Cuba
after the United States imposed a trade embargo on all imports from Cuba in
1962. Many tobacco growers fled Cuba at that time, taking with them seeds from
what have always been considered the world's finest cigar tobaccos and
resettling in various areas of Latin America, including the Dominican Republic.
The Company's wrapper tobaccos are of two varieties: Connecticut shade-grown
(universally regarded as the world's finest wrapper tobacco) and Sumatra leaf, a
darker more spice-laden tobacco than the Connecticut variety. These wrapper
styles define the Company's principal two products lines: The CONNECTICUT
COLLECTION and the SUMATRA COLLECTION.
Company employees in the Dominican Republic purchase whole-leaf
tobacco, which is then shipped to the Company's facilities in the town of
Tamboril where it is inspected, graded and re-graded. Tobacco that passes
inspection is sprayed with a red wine solution to enhance flavor, fermented,
dried, stripped, aged and hand-rolled into Tamboril cigars. In the rolling
process, binder tobacco is hand-wrapped around the filler tobacco to create a
"bunch," which is then pressed into a mold to ensure uniformity of shape.
Wrapper tobacco is then hand-wrapped around the bunch to complete the cigar,
which is then banded and boxed for shipment. The Company also manufactures the
boxes in which Tamboril cigars are shipped at its factory in the Dominican
Republic.
The Company's principal business strategy is to expand sales of the
current product line through increased sales, marketing and promotional
activities through existing distribution channels and expansion into new
channels. The Company intends to become a significant factor in the market for
premium cigars by (i) continuing to establish and extend the brand recognition
of the Tamboril name, (ii) establishing its reputation for uncompromising
quality, (iii) focusing on hands-on customer service to establish a loyal
following among tobacconists and (iv) expanding its product line to cover other
market segments. As product awareness of the Company's cigars grows, the
Company will seek to introduce additional cigar and non-cigar products to
capitalize on the status of the Tamboril name as a recognized luxury brand.
The Company is currently introducing a moderately priced line of
cigars under the brand name "CORDOVA." The Cordova brand is made of Sumatran
wrapper and Dominican filler and binder tobaccos, is treated with cocoa for a
milder, somewhat sweeter smoke than the Company's other cigars and is available
in eight sizes. Cordova is being positioned through marketing and pricing as an
entry-level cigar for the new cigar smoker. This line will be positioned to
appeal to a broader market and will be intended to enable the Company to expand
its distribution channels to retailers in several distribution channels that
have not before been exploited by the Company, including fine restaurants, hotel
gift shops and executive gift programs.
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The Company has also introduced a golf-theme novelty line of cigars
under the brand name "FORE." Fore cigars are displayed in a unique 30-cigar
package, are sold in a novelty glass tube with a golf motif and are available in
one size only. The Fore cigar is targeted towards country club pro shops and
golf equipment and accessories shops throughout North America.
The Company also currently sells less expensive cigars under a private
label licensing arrangement. Sales under the private label arrangement totaled
approximately $93,000 in the period ended December 31, 1996.
The Company's business strategy is intended to take advantage of the
significant growth in the market for premium cigars over the past few years.
Retail sales of cigars of all categories have risen dramatically since 1992,
both in terms of numbers of cigars and total dollar sales. Even in this strong
market, sales of premium cigars have grown significantly faster than the cigar
market as a whole. The number of premium cigars sold in the United States has
grown over 64% since 1992 to more than 176,000,000 cigars in 1995 (the last full
year for which statistics are available). Industry experts have estimated that
this total will have grown to approximately 265,000,000 cigars for 1996, as
premium cigar imports in the first half of 1996 grew 48.6% over 1995's totals to
just over 115,000,000 cigars. Total dollar sales of cigars have expanded even
more dramatically as prices have continued to rise significantly. Total dollar
sales of all cigars in the U.S. were in excess of 1 Billion Dollars in 1995.
Premium cigars, the market segment the Company's products are intended to
penetrate, constituted just over 4% of the number of cigars sold, but accounted
for a significantly larger percentage of total dollar sales.
The rapid growth in the cigar market has led to significant back
orders across the entire industry as existing inventories were insufficient to
meet demand. Several of the Company's larger competitors have had difficulty in
filling these back orders and are adding additional capacity to meet consumer
demand. The Company believes this places it in an advantageous competitive
position, as the current mismatch of supply and demand creates unprecedented
opportunity for new brands to penetrate the market. Management believes that
the success of its initial sales and marketing efforts, as evidenced by its
penetration into over 500 of the country's finer tobacco retailers, is a strong
indication that the Company's cigars are well positioned to take advantage of
the ongoing growth of the premium cigar market.
Management of the Company believes the increased popularity of cigar
smoking in the United States is due to certain demographic and social trends
that should continue for at least the next few years. The Company believes that
the principal changes that have contributed to growth in the cigar market are
(1) the emergence of an expanding base of younger new cigar smokers, both male
and female, (2) increasing popularity of cigars among celebrities who are viewed
as trend-setters, (3) increased media interest, especially the successful launch
and continued popularity of Cigar Aficionado magazine, (4) promotion of "cigar
friendly" restaurants and nightclubs and (5) the increase in the population of
people over 50 years of age, a group that has traditionally been viewed as
consuming more luxury goods, including cigars, than other demographic groups.
SALES AND MARKETING; DISTRIBUTION
The Company's sales and marketing efforts are conducted from its
headquarters in Miami, Florida. The initial focus of the Company's sales
efforts has been the establishment of positive relationships with premium
tobacconists nationwide, with a strong emphasis on added-value to the retailer
through superior customer service, promotional events and supporting point of
sales. To date, the Company's product introductions have been conducted with
over 500 retail outlets throughout the United States.
The Company began operations in April 1996 and in the period from
inception to December 31, 1996 recorded sales in excess of $1,400,000. For the
six months ended June 30, 1997, sales were just over $2,500,000. On July 7,
1997, the Company entered into a distribution agreement (the "Distribution
Agreement") with Hubbard Imports that will result in sales of at least
$5,000,000 in the period between June 1, and December 31, 1997. Sales of
$1,150,000 to Hubbard were booked in June 1997 in respect of shipments against
purchase orders issued in anticipation of signing the definitive Distribution
Agreement. Until June of 1997 the company sold its products through distributors
and directly to retail tobacconists. The Company pursued its relationship with
Hubbard to take advantage of Hubbard's broad network of tobacco subdistributors
in order to more rapidly expand the Company's sales. Pursuant to the
Distribution Agreement, Hubbard will be the sole distributor of the Company's
products in the U.S. until December 31, 2000 so long as Hubbard meets minimum
annual purchase requirements that are to be set in January of each year for the
current calendar year.
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The Company has begun an extensive advertising and promotional
campaign centered on a series of full-page, four-color ads in the major cigar
publications such as Cigar Aficionado, Smoke, Tobacconist and Smoke Shop, as
well as several regional cigar magazines, installation of in-store point-of-sale
displays at major upscale tobacconist shops and a nationwide series of cigar
tastings to be co-sponsored with local cigar retailers and cigar-friendly
restaurants. This advertising and promotional campaign is intended to support
Hubbard's sales efforts relating to the Company's products.
The Company has opened TAMBORIL AT THE PARK, an upscale cigar bar and
lounge at the Lombardy Hotel in midtown New York City. TAMBORIL AT THE PARK,
which opened in May 1997, is intended to serve as a flagship for the TAMBORIL
and CORDOVA brands, to piggy-back on the success that both branded (such as Club
Macanudo) and unbranded cigar clubs have experienced in the past few years and
to reinforce the premium, luxury status of the TAMBORIL and CORDOVA brands and
their association with fine food and wine. The project, which is anchored by a
350 seat restaurant named THE PARK, has been orchestrated by restaurateur John
Scotto of New York's FRESCO restaurant, who has brought together a team
including designer Robert Denning of DENNING & FOURCADE (whose clients include
Oscar de la Renta and Henry Kravis) and chef Fabrizzio Salerni (formerly of New
York's LESPINASSE) to bring new life to a space where William Randolph Hearst
(and his then-girlfriend, film star Marion Davies) lived and where Rudi Vallee
once crooned to full houses. TAMBORIL AT THE PARK will seat 30, with sidewalk
cafe seating for an additional 20, and will feature cigars from the Company's
CONNECTICUT, SUMATRA and CORDOVA Collections. TAMBORIL AT THE PARK will be
complemented by THE PARK'S casual yet-upscale bar menu and a selection of fine
wines, cognacs, vintage ports and single malt Scotches. The Company plans to use
TAMBORIL AT THE PARK as the center of promotional events such as tastings and
new product launches.
RAW MATERIALS: TOBACCO
The Company's Tabacalera subsidiary was established in the Tamboril
region of the Dominican Republic, which is universally recognized to be one of
the finest tobacco growing regions in the world, and where there is a large pool
of skilled cigar rollers. Dominican cigars currently account for just under 50%
of the world's production of premium cigars. Other noted growing and producing
areas include Honduras, Costa Rica, Indonesia, the Canary Islands and Mexico.
Tabacalera has established relationships with several of the largest growers in
the Dominican Republic and believes that its requirements for tobacco have been
arranged for through the year 2000 through the execution of financing/harvesting
agreements with its key growers. The Company and Tabacalera cement these
relationships by providing financing for growers to enable them to plant and
harvest their crops, which are then committed to the Company. While the Company
believes its requirements for high-grade tobacco to produce "Tamboril" cigars
will be met for the foreseeable future, the current demand for high-grade
tobacco for use in premium cigars may result in higher prices and/or scarcities
which could, if they occur, have a materially adverse impact on the Company's
business.
EMPLOYEES
The Company currently employs approximately 100 full-time employees:
12 in its Miami offices and 88 in the Dominican Republic. Of these,
approximately 5 are engaged in sales and marketing, 8 in administrative roles,
and 87 in manufacturing. None of the Company's employees are covered by any
labor union. The Company believes its relationships with its employees are
generally good.
The ability of the Company to fulfill its goals will be highly
dependent on its ability to recruit and maintain a skilled work force of rollers
in the Dominican Republic. Tabacalera recruits rollers on the basis of
favorable working conditions at the Company's new facilities and competitive
wages. Tabacalera maintains an extensive training program to ensure the quality
of its cigars and to provide a continuing source of skilled rollers. While the
Company believes its requirements for skilled workers will be met for the
foreseeable future, there can be no assurance that the significant backlog of
orders in the cigar industry and the increased demand for workers to meet that
demand will not make it difficult or prohibitively expensive for the Company to
attract and retain a sufficient staff of skilled rollers to meet its business
plan.
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TRADEMARKS
Trademarks and brand names are central to the business of marketing
and distributing premium cigars and are, accordingly, highly important to the
Company's business. The Company has applied for trademark protection on the
marks and/or design logos TAMBORIL, CORTADITO, DIABLO, THE OFFICIAL CIGAR OF
WALL STREET, SERIOUS CIGARS MADE BY SERIOUS SMOKERS and CONQUISTADOR, and has
made application for the marks FORE and CORDOVA in the United States. The
Company also relies on certain non-patentable trade secrets to produce the
distinctive flavors and aromas of its brands of cigars. There can be no
assurance that the Company will be able to prevent unauthorized use or
disclosure of such proprietary information or that other competitors will not be
able to develop substantially similar formulations. The Company intends to
vigorously defend, police, and maintain its trademarks and trade secrets.
COMPETITION
The Company has several large, well-financed competitors in the market
for premium cigars, each of whom enjoys strong, well-known brand names and a
history of successful product launches. These companies compete directly with
the Company for consumer sales, as well for supplies of tobacco and employees.
The largest of these competitors are Consolidated Cigar Holdings Inc. (NYSE
symbol: "CIG"), General Cigar Co. Inc., a division of Culbro Corporation (NYSE
symbol: "CUC"), and Swisher International Group Inc. (NYSE symbol: "SWR").
Each of these companies has substantially greater capital resources,
manufacturing, sales and marketing experience, substantially longer and more
extensive relationships with growers and long standing brand recognition and
market acceptance than the Company. The Company believes, however, that the
market for premium cigars is growing rapidly enough to support the entry of new
brands such as those offered by the Company and that the inability of the
entrenched competitors to meet current demand, as evidenced by their large back
order positions, supports this position. Hubbard currently distributes several
brands of cigars that compete directly with the Company's products.
POSSIBLE CONSTRAINTS ON MEETING DEMAND
The substantial growth in demand for cigars has caused several of the
Company's largest competitors to experience substantial growth in their order
backlog and difficulty in obtaining sufficient inventories of tobacco and
sufficient skilled rollers to meet market demand. While (i) the Company has not
yet experienced such shortages, (ii) the Company believes that its relationships
with growers (including the Company's practice of financing growers' production)
ensure it a sufficient supply of tobacco for the foreseeable future and (iii)
the Company's relationships with its workers are sufficiently good and the
supply of skilled workers in the Tamboril region is sufficiently large to ensure
that it will continue to have a sufficient staff of skilled rollers, there can
be no assurance that the Company will not experience such shortages as it seeks
to expand sales and production capabilities. While the Company's competitors
have geographically diverse operations, the Company is dependent on supplies of
tobacco in the Dominican Republic. Shortages of Dominican tobacco, whether from
natural disaster, economic forces or otherwise, could have a material adverse
effect on the business and prospects of the Company.
REGULATION AND LITIGATION IN THE TOBACCO INDUSTRY
Cigar manufacturers, like other producers of tobacco products, are
subject to regulation at the federal, state and local levels. Since the early
1970's the trend has been for increasing regulation, which when coupled with
changing public attitudes toward smoking, has had the effect of reducing overall
consumption of tobacco products in the United States. Federal law has required
warning labels on cigarettes since 1965, though no such warnings have been
required for cigars. Recent federal law enacted by Congress has required states
applying for certain federal grants for substance abuse programs to adopt a
minimum age of 18 for purchase of tobacco products and to establish elaborate
enforcement programs to support this requirement. Legislation proposed but not
enacted by Congress has sought to impose (1) bans on advertising of tobacco
products or on the deductibility of such advertising expenses for federal tax
purposes, (2) additional labeling, warnings or listings of additives, (3)
preemption of state law to impose civil liabilities on manufacturers and
distributors of tobacco products, (4) reimbursement to the federal government
for health care costs
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incurred in connection with tobacco-related conditions and (5) regulation of
tobacco products by the Food and Drug Administration as a possibly addictive
"drug." Moreover, the Environmental Protection Agency has concluded that
widespread exposure to so-called "secondary smoke" may present a serious and
substantial public health concern. The impact of this finding and the EPA's
authority to regulate "secondary smoke" are the subject of ongoing litigation.
Many states and local governments have passed statutes or ordinances
severely limiting the types of establishments (such as restaurants and office
buildings), and the areas within such establishments, in which persons may
smoke.
The Company cannot predict the outcome of these legislative and
regulatory initiatives or of litigation in the future. Presumably, the trend
toward increased regulation will continue at all levels. Depending on these
outcomes, there may be a materially adverse effect on the tobacco products
industry in general and the Company in particular.
EXCISE TAXES
Cigars have long been subject to federal, state and local excise taxes
and it is frequently suggested that additional excise taxes be levied on such
products to support various legislative programs. The federal excise tax on
large cigars, such as those manufactured and distributed by the Company, is
currently 12.75% of the manufacturer's selling price net of the excise tax and
certain other exclusions, with a maximum tax of $30 per 1,000 cigars. The
Company is unable to predict whether significant increases in excise taxes on
its products will be enacted in the future. Such increases were proposed by the
Clinton Administration in 1993 to fund that administration's health care reform
initiatives, but were not enacted by Congress. Imposition of significant
increases in excise taxes could have a material adverse impact on the large
cigar industry in general and the Company in particular.
DEPENDENCE ON KEY CUSTOMERS
Management of the Company believes that its Distribution Arrangement
with Hubbard will enable the Company to expand sales more rapidly than it would
be able to do through its direct sales force. However, since Hubbard will be the
exclusive U.S. distributor of the Company's products, the Company will be
totally dependent on Hubbard for its U.S. sales. The Distribution Agreement
provides that minimum annual purchase commitments will be mutually agreed upon
by Hubbard and the Company in January for each year of the Distribution
Agreement. Should the Company and Hubbard fail to reach agreement on such
minimum commitments, the Distribution Agreement could terminate. In the event
the Distribution Agreement is terminated or if Hubbard fails to honor its
minimum purchase commitments, the Company would be forced to obtain another
distributor or distributors for its product and/or to implement an internal
sales force to sell the Company's products to retail tobacconists and other
outlets. The termination of the Distribution Agreement or the failure of Hubbard
to purchase its minimum commitments from the Company would have a material
adverse effect on the business and prospects of the Company.
Hubbard also distributes several brands of cigars that compete
directly with the Company's products.
In the six months ended June 30, 1997, $1,150,000 of the Company's
$2,538,988 in sales (45.29%) were made to Hubbard. All of the sales to
Hubbard were in the month of June pursuant to Hubbard's first purchase
order.
The Company made approximately $170,000, or 12%, of its
$1,413,815 in sales during the period from commencement of operations in April
1996 through December 31, 1996 to Famous Smoke Shop, located in New York, New
York. No other customer accounted for 10% of the Company's sales during that
period.
RESEARCH AND DEVELOPMENT
The Issuer has no material research and development expenses.
COMPLIANCE WITH ENVIRONMENTAL LAWS
The Issuer has no material expenses and no material impact on its
business occasioned by compliance with environmental laws.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Registrant was incorporated in April 1996 to commercialize the
efforts of its founders to establish a business to manufacture and distribute
premium cigars. The Registrant began operations on April 15, 1996 and commenced
sales in the fourth quarter of 1996. Sales of cigars bearing the TAMBORIL/TM/
and CORDOVA/TM brand names constituted 100% of the Company's sales for the
period ended December 31, 1996 and for the six months ended June 30, 1997.
The market for sales in the United States of premium cigars, generally
defined to be those made by hand and retailing for prices in excess of $1, has
expanded considerably since 1993 after declining consistently from 1964 through
1993. Management of Registrant believes that the demographic factors underlying
the growth in the cigar market since
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1993 will contribute to continued expansion of the market for at least the next
few years. Among these factors are (1) the emergence of an expanding base of
younger new cigar smokers, both male and female, (2) increasing popularity of
cigars among celebrities who are viewed as trend-setters, (3) increased media
interest, especially the successful launch of Cigar Aficianado magazine, (4)
promotion of "cigar friendly" restaurants and nightclubs and (5) the increase in
the population of people over fifty years of age, a group that has traditionally
been viewed as consuming more luxury goods, including cigars, than any other
demographic group.
The Company has established one manufacturing facility in the
Dominican Republic and is building a second facility to meet estimated increased
demand for the Company's cigars. The growth of the demand for cigars in general,
and premium cigars in particular, has created substantial competition within the
industry for the purchase of raw tobacco used in manufacturing cigars and for
the skilled labor required to roll cigars by hand. While the Company has not yet
experienced any shortages of tobacco or labor, there can be no assurance that it
will not encounter such difficulties as it expands its operations. The effect of
any shortages of materials or labor could be to prevent the Company from filling
demand or to make the cost of doing so prohibitive.
RESULTS OF OPERATIONS
The following discussion relates to the consolidated operations of the
Company and its subsidiaries, Tamboril Cigar International, Inc. ("TCI") and
Tabacalera Tamboril, S.A. ("Tabacalera") for the period from inception at April
15, 1996 through December 31, 1996 and for the period from January 1, 1997
through June 30, 1997. The Company is a holding company, the sole assets of
which are the capital stock of TCI and Tabacalera and the operations summarized,
therefore, relate to the operations of these operating subsidiaries.
Net sales for the period ended December 31, 1996 were $1,413,815,
representing sales of the Company's first two product lines, the CONNECTICUT
COLLECTION and the SUMATRA COLLECTION from April 15 through December 31, 1996.
Most of these sales occurred in the fourth quarter of 1996, as the initial
period was spent organizing the Company's facilities, hiring a skilled work
force and formulating the blends of tobacco and other ingredients used in
manufacturing the Company's brands. The Company intends to increase sales of
these two product lines by increasing the number of retail tobacconists to whom
the products are distributed and by opening additional distribution channels
such as large tobacco distributors. In addition, the Company has introduced two
new product lines in April 1997, the CORDOVA/TM/ Collection, which is a more
moderate priced series of cigars, and FORE/TM/, a golf-motif packaged cigar
designed for sale in golf pro shops and golf equipment outlets. The Company
believes that its products are well-placed to take advantage of the continued
growth of the cigar market and that the results from the period from inception
to December 31, 1996 support management's views.
Net sales for the six month period ended June 30, 1997 were
$2,538,988. Of this total, $1,150,000 was attributable to sales to Hubbard in
the month of June pursuant to its distribution arrangement with the Company.
Comparisons with the comparable period in 1996 are not possible, since the
Company was still in its initial stages of operations and had no sales and
virtually no manufacturing operations during the period from April 15, 1996
(commencement of operations) through June 30, 1996.
The Company is currently building a second manufacturing facility to
increase capacity four-fold from 200,000 cigars to approximately 800,000 cigars
per month. The Company believes that market conditions for cigars generally and
for the Company's products (based on initial product reaction) are sufficient to
account for this additional capacity and that the Company's sales have the
potential to grow considerably from the results reflected in the financial
statements for the period from April 15, 1996 through December 31, 1996 and
January 1, 1997 through June 30, 1997. There can be no assurance, however, that
the Company's products will receive market acceptance or that sales will
increase, or even maintain the initial sales figures.
Cost of goods sold in the period from April 15, 1996 through December
31, 1996 amounted to $573,687 or 40.58% of sales, leaving gross profits of
$840,128, or 59.42%. In the period from January 1, 1997 through June 30, 1997
cost of goods sold was $906,380 or 35.70% of sales. Gross profits for the period
were $1,632,608, or 64.30%. The Company believes that these levels are above
average for the industry, but the limited nature of the Company's operations
make comparisons difficult. Gross margins should decline as the Company develops
products, such as CORDOVA and FORE which are aimed at broader, but less
expensive, market segments. The use of distributors to sell the Company's
products, rather than relying on direct sales by the Company, may also have a
depressive effect on gross margins. The impact of these changes is impossible to
assess, given the limited operations of the Company to date.
7
<PAGE>
Selling, general and administrative expenses totaled $1,034,386, or
73.16% of sales in the period from April 15, 1996 through December 31, 1996,
representing the costs of establishing the Company infrastructure. In the period
from January 1, 1997 through June 30, 1997 selling, general and administrative
expenses were $1,498,411 or 59.0% of sales. These levels should continue to
decline substantially as the Company's operations in manufacturing and sales
expand. The Company spent approximately $120,000 in the period from April 15,
1996 through December 31, 1996 in advertising and travel expenses for new brand
introductions. Expenses in this category should increase in actual dollars, but
should decline as a percentage of total sales if the Company is successful in
expanding its sales according to plan.
The Company's loss from operations in the period from April 15, 1996
through December 31, 1996 was $194,258, principally due to the expenses of
establishing the Company and formulating and promoting its first product lines.
Interest expense was $27,369, representing the expense associated with loans
obtained by the Company to support start-up costs and operations. In the period
from January 1, 1997 through June 30, 1997 the Company had operating income of
$294,697 and net income of $212,659. Interest expense for the period was
$82,806. The Company has incurred additional debt of $1,975,000 since December
31, 1996 and may incur additional debt to support the completion of construction
of its second manufacturing facility. The Company's interest expense may
increase considerably, although the Company is exploring sources of equity
financing to retire much, if not all of that debt, which would have the effect
of reducing interest expense. There can be no assurance, however that such
equity financing will be available on terms acceptable to the Company or at all.
Although the Company had a net profit of $221,659, for the six months
ended June 30, 1997, there can be no assurance that the Company will attain
significant sales, will be able to contain expenses or will be able to sustain
itself through operations.
LIQUIDITY AND CAPITAL RESOURCES
In the period from April 15, 1996 through December 31, 1996, the
Company had negative cash flows from operations of $221,627 and net cash used in
operating activities of $1,410,528 for the period. Cash inflows from financing
activities in that period totaled $2,040,589, representing $931,810 in net
proceeds from sales of its capital stock and $975,000 in proceeds of loans
evidenced by promissory notes from investors and $133,779 in advances from a
related party. This resulted in cash available at the end of the period of
$245,939.
In the period from January 1, 1997 through June 30, 1997, the Company
had negative cash flows from operations of $1,808,013, representing a
significant expansion of the Company's operations. Net cash inflows from
financing activities during the period were $1,975,000, representing the
proceeds of loans from shareholders. Cash on hand at the end of the period was
$124,321.
After June 30, 1997 the Company's cash position and liquidity were
enhanced by payment of approximately $1,075,000 by Hubbard in respect of sales
made to Hubbard prior to June 30, 1997.
The Company has incurred additional debt of $1,975,000 in the period
from December 31, 1996 to support continued construction of its second
manufacturing facility in the Dominican Republic and construction costs for
TAMBORIL AT THE PARK, an upscale cigar lounge and bar which opened in May at the
historic Lombardy Hotel in midtown New York City. The Company intends to use the
TAMBORIL AT THE PARK facility as a sales outlet for its cigars, to promote its
brands and to introduce new brands. Additional costs of completing the
manufacturing facility are approximately $700,000, which the Company intends to
fund from additional debt or equity financing. The Company has no lines of
credit or similar arrangements with banks or other traditional lending services.
The Company plans to seek a capital infusion of from $2 million to $7
million in equity capital to retire debt and support expansion of manufacturing
(including additional inventory purchases of tobacco) and sales and marketing
activities. The Company will be dependent on an infusion of at least the minimum
amount of this additional capital to support expansion. Failure to obtain such
equity capital could have a material adverse impact on the Company's ability to
expand its operation. There can be no assurance that equity capital will be
available to the Company on acceptable terms or at all.
INFLATION
Inflationary trends in the time the Company has been in operation have
not been material. Historically, cigar companies, especially manufacturers of
premium cigars, have been able to pass most inflationary increase through to
their customers through price increases.
TAXATION AND REGULATION; EXCISE TAXES
Cigars have long been subject to federal, state and local excise taxes
and it is frequently suggested that additional excise taxes be levied on such
products to support various legislative programs. The federal excise tax on
large cigars, such as those manufactured and distributed by the Company, is
currently 12.75% of the manufacturer's selling price net of the excise tax and
certain other exclusions, with a maximum tax of $30 per 1,000 cigars. The
Company is unable to predict whether significant increases in excise taxes on
its products will be enacted in the future. Such increases were proposed by the
Clinton Administration in 1993 to fund that administration's health care reform
initiatives, but were not enacted by Congress. Imposition of significant
increases in excise taxes could have a material adverse impact on the large
cigar industry in general and the Company in particular.
8
<PAGE>
REGULATION
Cigar manufacturers, like other producers of tobacco products, are
subject to regulation at the federal, state and local levels. Since the early
1970's the trend has been for increasing regulation, which when coupled with
changing public attitudes toward smoking, has had the effect of reducing overall
consumption of tobacco products in the United States. Federal law has required
warning labels on cigarettes since 1965, though no such warnings have been
required for cigars. Recent federal law enacted by Congress has required states
applying for certain federal grants for substance abuse programs to adopt a
minimum age of 18 for purchase of tobacco products and to establish elaborate
enforcement programs to support this requirement. Legislation proposed but not
enacted by Congress has sought to impose (1) bans on advertising of tobacco
products or on the deductibility of such advertising expenses for federal tax
purposes, (2) additional labeling, warnings or listings of additives, (3)
preemption of state law to impose civil liabilities on manufacturers and
distributors of tobacco products, (4) reimbursement to the federal government
for health care costs incurred in connection with tobacco-related conditions and
(5) regulation of tobacco products by the Food and Drug Administration as a
possibly addictive "drug." Moreover, the Environmental Protection Agency has
concluded that widespread exposure to so-called "secondary smoke" may present a
serious and substantial public health concern. The impact of this finding and
the EPA's authority to regulate "secondary smoke" are the subject of ongoing
litigation.
Many states and local governments have passed statutes or ordinances
severely limiting the types of establishments (such as restaurants and office
buildings), and the areas within such establishments, in which persons may
smoke.
The Company cannot predict the outcome of these legislative and
regulatory initiatives in the future. Presumably, the trend toward increased
regulation will continue at all levels. Depending on these outcomes, there may
be a materially adverse effect on the tobacco products industry in general and
the Company in particular.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for certain forward-looking statements. The forward-looking statements
contained in this Form 10-SB are subject to certain risks and uncertainties.
Actual results could differ materially from current expectations. Among the
factors that could affect the Company's actual results and could cause results
to differ from those contained in the forward-looking statements contained
herein is the Company's ability to implement its business strategy successfully,
which will be dependent on business, financial, and other factors beyond the
Company's control, including, among others, prevailing changes in consumer
preferences, access to sufficient quantities of raw material, availability of
trained laborers and changes in tobacco products regulation. There can be no
assurance that the Company will continue to be successful in implementing its
business strategy. Other factors could also cause actual results to vary
materially from the future results covered in such forward-looking statements.
ITEM 3. DESCRIPTION OF PROPERTY.
(a) The Company maintains its administrative, sales and marketing
offices in its headquarters which consists of approximately 5,800 square feet of
space leased from an unrelated party at 2600 S.W. 3rd Avenue, Miami, FL 33129.
The Company's lease extends to March, 2001, with an option to renew for an
additional 5 years, and is at rates which the Company believes are competitive
for like space in its area. Annual rental payments under this lease are $93,000
as of April 1, 1997, $99,000 as of April 1, 1998, with annual increases
thereafter tied to the Consumer Price Index. The Company believes this facility
will be adequate for the foreseeable future and that, if additional space were
needed, it could be obtained in close geographic proximity at similar rates.
The Company's obligations under the lease are guaranteed by Viking Investment
Group II, Inc. ("Viking"), which is a substantial shareholder of the Company.
Ian Markofsky, the President and sole shareholder of Viking, is the father of
Anthony A. Markofsky, the Company's President and a Director.
9
<PAGE>
The Company's manufacturing facilities are housed in a mixed use
facility of approximately 6,700 square feet leased by Tabacalera at Calle Real
#167, Tamboril, Santiago de los Caballeros, Republica Dominica. This facility
also houses warehouse and administrative offices of Tabacalera. Tabacalera is
currently building an additional facility on land owned outright by Tabacalera
adjacent to its existing facility. This facility will consist of approximately
33,000 square feet and is projected to approximately quadruple the Company's
existing manufacturing capacity.
(b) The Issuer does not invest in real estate, other than as incident
to its manufacturing operations.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) Security Ownership of Certain Beneficial Owners.
The following information relates to those persons known to the Issuer to be the
beneficial owner of more than five percent (5%) of the Common Stock, par value
$.0001 per share, the only class of voting securities of the Issuer outstanding.
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND NATURE OF
TITLE OF ADDRESS OF BENEFICIAL
CLASS BENEFICIAL OWNER OWNERSHIP PERCENTAGE OF CLASS
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Abraham Shafir 800,000 shares 14.35%
Stock, par c/o Tamboril Cigar Company
value $.0001 2600 S.W. Third Ave. Direct
per share Miami, FL 33129
- --------------------------------------------------------------------------------------------
" South Edge International, Inc. 425,000 shares 7.62%
P.O. Box HM 279
Hamilton HM AX Direct
Bermuda
- --------------------------------------------------------------------------------------------
Ian Markofsky
" c/o Viking Investment Group II, Inc. 1,500,000 shares (a) 26.90%
630 Third Ave.
New York, NY 10017 Direct
- --------------------------------------------------------------------------------------------
</TABLE>
(b) Security Ownership of Management.
The number of shares of Common Stock of the Issuer owned by the
Directors and Executive Officers of the Issuer is as follows:
_________________
(a) Represents 1,500,000 shares owned of record by Viking Investment
Group II Inc., of which Ian Markofsky is President and Sole Shareholder.
10
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND
NAME AND NATURE OF
TITLE OF ADDRESS OF BENEFICIAL
CLASS BENEFICIAL OWNER OWNERSHIP PERCENTAGE OF CLASS
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common Anthony Markofsky 90,000 Shares 1.61%
Stock, par Director, President and Chief
value $.0001 Executive Officer Direct
per share c/o Tamboril Cigar Company
2600 S.W. 3rd Ave.
Miami, FL 33129
- -----------------------------------------------------------------------------------------
" Thomas E. Knudson 90,000 Shares 1.61%
Director, Vice President
c/o Tamboril Cigar Company Direct
2600 S.W. 3rd Ave.
Miami, FL 33129
- -----------------------------------------------------------------------------------------
" Abraham Shafir 800,000 Shares 14.35%
Director
c/o Tamboril Cigar Company Direct
2600 S.W. 3rd Ave.
Miami, FL 33129
- -----------------------------------------------------------------------------------------
" David S. Rector 120,000 Shares 2.15%
Director, Secretary
c/o David Stephen Group Direct
1640 Terrace Way
Walnut Grove, CA 94596
- -----------------------------------------------------------------------------------------
" Dr. William F. Coyro, Jr. 6,000 Shares 0.1%
Director
c/o National TechTeam Inc. Direct
22000 Garrison Ave.
Dearborn, MI 48124
- -----------------------------------------------------------------------------------------
" Pedro J. Mirones -0- N/A
Vice President and Chief
Financial
Officer
c/o Tamboril Cigar Company
2600 S.W. 3rd Ave.
Miami, FL 33129
- -----------------------------------------------------------------------------------------
" All Officers and Directors 1,106,000 19.84%
as a Group
- -----------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
(a) The Directors and Executive Officers of the Company are as
follows. Directors of the Company serve for a term of one year or until their
successors are elected. Officers are appointed by, and serve at the pleasure
of, the Board.
ANTHONY MARKOFSKY, 30, PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR.
Mr. Markofsky became President and Chief Executive Officer of the
Company on April 28, 1997. He has been a Director since October 1996. Prior to
that time, Mr. Markofsky served as Vice President and Sales Administration
Manager of the Company, a position he has held with TCI since its founding in
March 1996. From April 1995 to January 1996, Mr. Markofsky served as a
consultant to Intercare Inc., a medical management company. From April 1991 to
April 1995, he held various positions with CareFlorida Inc., a health
maintenance organization. Mr. Markofsky is also a Director and Secretary of
United Health Partners Inc., a company listed as a "Related Party" in the Notes
to the Consolidated Financial Statements included as Exhibit "C" to this
Memorandum. UHP currently has no operations. Mr. Markofsky's father is Ian
Markofsky, President and sole shareholder of Viking Investment Group II., Inc.,
a substantial shareholder of the Company and guarantor of the Company's
obligations under the lease for its Miami premises.
THOMAS E. KNUDSON, 42, DIRECTOR, VICE PRESIDENT OF SALES.
Mr. Knudson joined the TCI in June of 1996 and has occupied his
current position and has been a Director of the Company since October 1996.
Prior to that time, Mr. Knudson was a principal of several entrepreneurial
ventures including serving as Secretary of Leadville Development Corp., a
commercial real estate developer (1990 until June 1996), President and owner of
Cocobianco, a clothing importer and retailer (1986 to 1996) and Principal of
Fast Incorporated, a BMW dealership, all located in and around Sun Valley Idaho.
Mr. Knudson is also a Director and President of United Health Partners Inc.
("UHP"), a company listed as a "Related Party" in the Notes to the Consolidated
Financial Statements included as Exhibit "C" to this Memorandum. UHP currently
has no operations.
PEDRO J. MIRONES, 57, VICE PRESIDENT, FINANCE AND ADMINISTRATION,
CHIEF FINANCIAL OFFICER AND TREASURER.
Mr. Mirones joined the Company in his current position in December,
1996. From 1978 until January of 1996, Mr. Mirones held several positions with
Suave Shoe Corporation, a publicly traded manufacturer and distributor of shoes,
which is now known as French Fragrances, Inc. These positions included Vice
President Finance and Controller of the Manufacturing Division, Vice President
Finance--Corporate and Senior Vice President Finance and Administration. From
January 1996 until joining the Company in December 1996, Mr. Mirones attended
Florida International University. Prior to joining Suave, Mr. Mirones was
associated with the public accounting firm of Ernst & Young from 1969 to 1978.
Mr. Mirones is a member of the Florida Institute of Certified Public
Accountants.
12
<PAGE>
ABRAHAM SHAFIR, 48, DIRECTOR, PRESIDENT OF TABACALERA.
Mr. Shafir, a citizen of the State of Israel, relinquished the post of
President of the Company on April 28, 1997 to focus his energies on the
manufacturing operations of Tabacalera, where he has spent much of his time with
the Company. Mr. Shafir served as President and Chief Executive Officer and a
Director of TCI since its founding in March of 1996 and of the Company from
October 1996 to April 1997. He will continue in his role as a Director. From
1994 to 1995, Mr. Shafir served as President of Bagel Factory, a baked goods
manufacturing company located in the State of Israel. From 1988 to 1993, Mr.
Shafir was President of Mesa Gold, a jewelry import and sales company located in
Miami, Florida and New York, New York. From 1979 to 1988, Mr. Shafir owned and
operated various manufacturing and import sales companies in Israel and Miami,
Florida. Mr. Shafir lived and worked in the Dominican Republic for three years
and was Vice President, Manufacturing of the Weaving Division of Casa Central, a
major garment manufacturer located in Santo Domingo, from 1972 to 1975.
DAVID S. RECTOR, 50, DIRECTOR, SECRETARY
Mr. Rector has been a Director since August, 1996. From August 1996 to
March 1997, Mr. Rector was also Executive Vice President and General Manager of
the Company, where he was instrumental in organizing the Company's operations
and administration. In June of 1997, Mr Rector became Secretary of the company,
replacing Grant M Harasyn, who joined an affiliate of Hubbard in connection with
the company's distribution arrangement. Over the past two decades, Mr. Rector
has served as a business consultant to, and held senior positions in, a variety
of ventures. From July of 1995 until July 1996, Mr. Rector was principal of
David Stephen Group, a business consulting firm. Mr. Rector was Chief Operating
Officer of Headstrong Group, a manufacturer and distributor of hats, from July
to November 1995. From January to June of 1995 Mr. Rector was General Manager of
Bemiss-Jason, a distributor of paper products. From June 1992 to April 1994 he
was President of Supercart International, a distributor of shopping carts. From
April 1986 to June 1992 he was principal of Blue Moon, a distributor of garment
buttons. From 1980 to 1985, Mr. Rector served as President of Sunset Designs, a
designer of leisure time craft. From 1972 to 1980, Mr. Rector held various
managerial sales and marketing positions with Crown Zellerbach Corporation, a
multi-billion dollar manufacturer of paper and forest products.
DR. WILLIAM F. COYRO, JR., 54, DIRECTOR.
Dr. Coyro became a Director of the Company in February 1997. Dr. has
been Chief Executive Officer and Chairman of the Board of National TechTeam,
Inc., a publicly traded systems integration company (NASDAQ Symbol "TEAM") with
over 1,500 employees, since founding that company in 1987. From 1982 to 1987,
Dr. Coyro was chairman and Chief Executive Officer of Computer Trade Development
Co., a predecessor to National TechTeam. Dr. Coyro has been a practicing dentist
in private practice since 1972 and is a veteran of the U.S. Navy and holds a
Bachelor of Science from the University of Michigan in Chemistry and a Doctor of
Dental Surgery degree from the University of Detroit. Dr. Coyro is affiliated
with the National Hispanic Business Network, the Hispanic Economic Club of
Detroit, The American Professional Practice Association and the Economic Club of
Detroit. He is a member of the Oakland University Foundation Board of Directors
and the Presidents Club of Oakland University. He has won several
entrepreneurial and technological awards for his work in founding and running
National TechTeam.
Each of the Directors and officers of the Company also serve in the
same capacities in TCI and Diversified. Mr. Shafir is Director and President and
Mr. Knudson is Director, Treasurer and Vice President of Tabacalera.
(b) Another key employee of the Company is MR. JUAN CAPELLAN, GENERAL
MANAGER OF TABACALERA. Mr. Capellan, who has spent over 20 years in the cigar
industry in the Dominican Republic, is operations manager at Tabacalera. Prior
to joining Tabacalera in May, 1996, Mr. Capellan was Factory Manager in charge
of Human Resources and Product Development at the Anillo de Oro plant in
Tamboril and was production supervisor at the E. Leon Jimenes factory, also in
Tamboril. Prior to that Mr. Capellan worked as a cigar roller at various
facilities in the Tamboril area.
13
<PAGE>
(c) Anthony Markofsky, President and a Director of the Issuer, is the
son of Ian Markofsky, the President and sole shareholder of Viking Investment
Group II, Inc., which is a principal shareholder of the Issuer. Mr. Ian
Markofsky was instrumental in the founding of the Issuer and plays a significant
role in promoting the Issuer to the investment community.
ITEM 6. EXECUTIVE COMPENSATION.
The annual compensation for the Chief Executive Officer and the next
most highly compensated executive officers of the Issuer, on an annual basis,
for the fiscal year ended December 31, 1996 was:
<TABLE>
<CAPTION>
Other
Office Name Year Salary Compensation Total
- -------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
CEO, Abraham Shafir 1996 $120,000 $37,000 $157,000
President
- -------------------------------------------------------------------
</TABLE>
No other executive officer received total compensation in excess of $100,000 for
the fiscal year ended December 31, 1996. No stock, stock option or other
compensatory awards were granted during the fiscal year ended December 31, 1996.
Amounts listed under Other Compensation relate to life insurance payments made
by the Issuer on behalf of Mr. Shafir.
David S. Rector, a Director, Secretary, and formerly Executive Vice
President of the Issuer, was paid $31,200 during the year ended December 31,
1996, based on an annual salary of $108,000.
The Company has no employment agreements with any members of its
management.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(a) Abraham Shafir, Anthony Markofsky, Thomas Knudson and David Rector
each received the shares of the Issuer's Common Stock, par value $.0001 per
share, listed in Item 4, above, as founders shares in consideration of their
services in organizing TCI, arranging for the manufacturing facility in
Tamboril, staffing that operation and commencing the product development process
that led to the Company's Connecticut Collection and Sumatra Collection product
lines and negotiating the Reorganization transaction described in Item 1, above.
At the time of issuance, the shares were of nominal value, and the Board of
Directors of TCI determined that the value of services rendered by each of
Messrs. Shafir, Markofsky, Knudson and Rector exceed the par value of the shares
so issued. The shares in TCI held by each of these individuals were exchanged
for shares of the Issuer in connection with the Reorganization on the same terms
as all shareholders of TCI.
(b) The Company has obtained loans totaling $2,700,000 from certain
shareholders of the Company to help finance its operations to date.
The names of all shareholders who are also the company's creditors, the amounts
and the maturity dates of their loans are:
<TABLE>
<CAPTION>
Lender Amount of Loan Maturity Date
- ------ -------------- --------------
<S> <C> <C>
Jenadosa Holdings Limited $ 75,000 August 1998
Jenadosa Holdings Limited 100,000 September 1998
South Edge International Inc. 200,000 August 1998
Shangri La Investments Ltd. 150,000 October 1998
Shangri La Investments Ltd. 200,000 December 1998
Tradewinds Investments Ltd. $ 300,000 January 1998
Tradewinds Investments Ltd. 375,000 March 1998
Tradewinds Investments Ltd. 500,000 April 1998
Tradewinds Investments Ltd. 50,000 May 1998
Tradewinds Investments Ltd. 300,000 June 1998
Spear Leeds 250,000 May 1998
Spear Leeds 200,000 June 1998
</TABLE>
These loans bear interest at a rate of ten percent (10%) per annum and are each
evidenced by a promissory note in a face amount equal to the principal amount of
the loan to which it relates. The Loan Agreements entered into in connection
with the loans and the Promissory Notes provide for acceleration of the debt
upon the occurrence of certain events of default. One loan, in the amount of
$200,000 was made to the Company by South Edge International, Inc., which owns
7.62% of the issued and outstanding Common Stock of the Issuer.
14
<PAGE>
(c) Viking Investment Group II, Inc. ("Viking"), which owns 1,500,000
shares (26.9%) of the Issuer's Common Stock, received those shares as founder's
shares in connection with Viking's efforts in founding the Issuer in conjunction
with Messrs. Shafir, Markofsky, Knudson and Rector as described above. Ian
Markofsky, the President and sole shareholder of Viking, is the father of
Anthony Markofsky, President and a Director of the Issuer. Viking has also
guaranteed the Company's obligations on the lease for its Miami facilities. See
Item 3, above.
(d) The shares of South Edge and Viking in TCI were exchanged for
shares of the Issuer pursuant to the Reorganization on the same terms as all
other shareholders of TCI.
(e) In April 1996 the Company assumed the lease on its current Miami
premises from United Health Partners ("UHP") and in connection with the
assumption of the lease purchased certain furniture and fixtures from UHP.
Anthony Markofsky, President and a Director, and Thomas Knudson, Vice President
and a Director of the Corporation, are also directors and officers of UHP. The
Company is indebted to UHP in the amount of approximately $134,000 for advances
on operating expenses made by UHP. The debt is non-interest bearing and is
payable on demand. UHP no longer has any operations.
ITEM 8. LEGAL PROCEEDINGS.
The Issuer is not party to any pending legal proceeding, nor is its
property the subject of any pending legal proceeding that is not routine
litigation that is incidental to its business.
The Company has been advised on May 14, 1997 by counsel to Carlin
Equities, Inc. ("Carlin") that, under a letter agreement between the Company and
Carlin dated January 21, 1997 (the "Agreement"), Carlin believes that it is
entitled to placement agent fees and other incidental compensation in the event
that the Company completes certain types of private placement financing within
the term of the Agreement. During the period from January 21, 1997 through April
30, 1997 various meetings took place between Carlin and the Company and their
respective counsel and documents and correspondence were exchanged. The Company
provided Carlin and its counsel with a Confidential Offering Memorandum,
subscription and related documents, all drafted to the specifications of Carlin
and its counsel. From January 21, 1997 through July 25, 1997 Carlin has
introduced no prospective investors to the Company. In early July, Carlin filed
a complaint in the United State District Court for the Southern District of New
York asserting it is entitled to fees and other compensation totaling at least $
1,680,000. The Company has not been served with any summons and complaint.
Counsel for the Company has asked counsel for Carlin to withdraw the suit and
that request is under consideration.
The Company's position is that (i) the Agreement terminated upon the
Company's decision not to go forward with the proposed offering addressed by the
Agreement, (ii) Carlin abandoned the proposed offering and at that time there
were several unsatisfied conditions precedent to Carlin's rights to receive fees
under the Agreement and, (iii) accordingly, Carlin is not entitled to any
compensation. The amount in controversy is based upon a percentage fee formula
relating to the amount of capital raised by Carlin under the Agreement.
Management of the Company believes that, under the broadest interpretation of
the Agreement, the amount in controversy would be approximately $500,000 to
$720,000, plus the issuance of certain warrants to purchase the Company's common
stock. The Company intends to proceed with its financing activities and to
vigorously defend any claim by Carlin under the Agreement.
ITEM 9. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
(a) The Issuer's Common Stock trades on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board under the trading symbol of
"SMKE." The Common Stock resumed trading under that symbol on November 5, 1996.
Prior to that time, the Common Stock was listed for trading under the symbol
"ILLD," but there was no established bid price for the Common Stock.
Accordingly, the high and low bid prices for the Issuer's Common Stock for each
quarter within the last two fiscal years and the 1st and 2nd Quarters of 1997,
as reported by National Quotation Bureau, LLC, are as follows:
<TABLE>
<CAPTION>
QUARTER HIGH BID PRICE LOW BID PRICE
- ---------------------------------------------------------------------
<S> <C> <C>
1995 Q1 (1/3-3/31) None None
- ---------------------------------------------------------------------
Q2 (4/3-6/30) None None
- ---------------------------------------------------------------------
Q3 (7/3-9/29) None None
- ---------------------------------------------------------------------
Q4 (10/2-12/29) None None
- ---------------------------------------------------------------------
1996 Q1 (1/2-3/29) None None
- ---------------------------------------------------------------------
Q2 (4/1-6/28) None None
- ---------------------------------------------------------------------
Q3 (7/1-9/30) None None
- ---------------------------------------------------------------------
Q4 (10/1-11/4) None None
- ---------------------------------------------------------------------
(11/5-12/31) $11.375 $7.50
- ---------------------------------------------------------------------
1997 Q1 (1/2-3/31) 11.0625 7.25
- ---------------------------------------------------------------------
Q2 (4/1-6/30) 7.50 4.625
- ---------------------------------------------------------------------
</TABLE>
Prices for the period November 5, 1996 through December 31, 1996 reflect closing
bid prices and a 1-for-20 reverse stock split. These quotations reflect inter-
dealer prices, without retail mark-up, mark-down or commission, and may not
represent actual transactions.
15
<PAGE>
(b) The approximate number of holders of record of the Issuer's Common
Stock according to its transfer agent is 321. The Issuer has not contacted
stock brokerage firms showing on the Issuer's stock transfer records to
determine the number of actual holders holding in "street name."
(c) The Issuer has not paid any cash dividends on its Common Stock,
nor does it intend to do so in the foreseeable future. Under the General
Corporation Law of the State of Delaware, the Issuer may only pay dividends out
of capital and surplus, or out of certain delineated retained earnings, all as
defined in the General Corporation Law. There can be no assurance that the
Issuer will have such funds legally available for the payment of dividends in
the event that the Issuer should decide to do so.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In March and April of 1996 TCI issued 2,600,000 shares to its
founders, which shares were valued at their par value of $.0001 per share. The
founders' shares were issued in reliance upon the exemptions in Sections 4(2)
and 4(6) under the Securities Act and Rule 506 under Regulation D. From April
15, 1996 through October 23, 1996, TCI sold 2,833,338 shares of Common Stock to
domestic and foreign accredited investors at a purchase price of $.35 per share
(for total consideration of $990,000) under Rule 504 of Regulation D. TCI also
issued 25,000 shares to counsel to TCI in satisfaction of legal fees due and
owing in the amount of $5,000, which valued such shares at $.20 per share, under
Rule 701 under the Securities Act.
As of October 23, 1996, pursuant to the Reorganization, all 5,281,671
shares of TCI Common Stock then outstanding were exchanged on a one-share-for-
one-share basis for 5,281,671 shares of Common Stock of the Issuer. 2,606,671 of
those shares were issued in reliance upon the exemption from registration
contained in Rule 504, an additional 2,650,000 restricted shares were issued to
officers and directors and the Company's largest shareholder and 25,000 shares
were issued in reliance upon Rule 701. Accordingly, the latter 2,675,000 shares
are "restricted securities" pursuant to Rule 144, stop transfer orders were
entered with the Issuer's transfer agent in respect of the restricted shares and
each certificate issued to evidence those shares bears the appropriate
restrictive legend.
ITEM 11. DESCRIPTION OF SECURITIES.
COMMON STOCK
The only security of the Issuer outstanding is its Common Stock, par
value $.0001 per share. The Company is authorized to issue up to 20,000,000
shares of Common Stock, par value $.0001 per share, of which 5,575,310 shares
are outstanding on the date hereof. Holders of Common Stock are entitled to one
vote for each share held of record on each matter submitted to a vote of
stockholders. There is no cumulative voting for election of directors. Subject
to the prior rights of any series of preferred stock which may from time to time
be outstanding, if any, holders of Common Stock are entitled to receive ratably,
dividends when, as, and if declared by the Board of Directors out of funds
legally available therefor and, upon the liquidation, dissolution, or winding up
of the Company, are entitled to share ratably in all assets remaining after
payment of liabilities and payment of accrued dividends and liquidation
preferences on the preferred stock, if any. Holders of Common Stock have no
preemptive rights and have no rights to convert their Common Stock into any
other securities. The outstanding Common Stock is validly authorized and
issued, fully paid, and nonassessable.
SERIES A PREFERRED STOCK
The Company is authorized to issue up to five million (5,000,000)
shares of preferred stock par value $.0001 of any number of classes or series
with such rights, preferences, powers and limitations as shall be determined by
the Board of Directors of the Company. Pursuant to a Certificate of
Designations, Preferences and Rights of the Series A Preferred Stock, adopted as
of April 25, 1997, the Board of Directors authorized the issuance of up to one
million five hundred thousand (1,500,000) shares of Series A Cumulative
Convertible Preferred Stock, par value $.0001 per Share, (the "Series A
Preferred Stock"). The Shares of Series A Preferred Stock pay an annual
dividend of four percent (4%), which is fully cumulative, payable quarterly on
each March 31, June 30, September 30 and December 31, out of funds legally
available therefor in either cash, shares of Common Stock or any combination of
cash and Common Stock, all
16
<PAGE>
as determined by the Board of Directors of the Company. Any payment of any
portion of any dividend in shares of Common Stock is to be calculated in
accordance with the Conversion Price, as defined below.
The Shares are, from and after the one hundred and eightieth (180th)
day following their date of issuance (the "Issue Date"), convertible into shares
of the Company's Common Stock, par value $.0001 per share (the "Common Stock").
The Conversion Price for each Share of Series A Preferred Stock is equal to the
lesser of (i) $6.00 or (ii) eighty percent (80%) of the market price per share
of the Common Stock, defined as the mean average of the last sale price on the
ten (10) trading days immediately preceding the date upon which the Company
receives notice of the holder's intention to convert (the "Conversion Date").
The Shares are, from and after the three hundred and sixty-fifth
(365th) day following the Issue Date, redeemable by the Company at a Redemption
Price per Share equal to the amount of all accrued but unpaid dividends, plus:
<TABLE>
<S> <C>
From 1st anniversary to 2nd
anniversary of Issue Date Issue Price
2nd anniversary to 3rd
anniversary of Issued Date 105% of Issue Price
3rd anniversary to 4th
anniversary of Issue Date 110% of Issue Price
4th anniversary to 5th
anniversary of Issue Date 115% of Issue Price
After 5th anniversary of Issue Date 120% of Issue Price
</TABLE>
The Company may elect to redeem any portion of the then outstanding Shares of
Series A Preferred Stock and, if redeeming a portion of the outstanding Shares,
will do so pro rata for all holders. Upon any proposed redemption by the
Company, the holder of any Series A Preferred Stock may elect to convert any or
all of the Shares into Common Stock in lieu of redemption.
OTHER PREFERRED STOCK
Under the Company's Amended and Restated Certificate of Incorporation,
the Board of Directors of the Company is authorized to designate, and cause the
Company to issue, up to five million (5,000,000) shares of preferred stock of
any class or series, having such rights, preferences, powers and limitations as
the Board shall determine. As the Series A Preferred Stock consists of
1,500,000 Shares, the Board could, in the future, authorize and cause the
Company to issue up to 3,500,000 shares of preferred stock of one or more series
or classes, having rights, preferences and powers as determined by the Board,
which could be senior to those of the Series A Preferred Stock, including the
right to receive dividends and/or preferences upon liquidation, dissolution or
winding-up of the Company in excess of, or prior to, the rights of the holders
of the Series A Preferred Stock. This could have the effect of materially
impairing the rights of the holders of the Series A Preferred Stock to receive
such dividends or preferential payments and/or of reducing, or eliminating, the
amounts that would otherwise have been available for payment to the holders of
the Series A Preferred Stock.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Issuer's Amended and Restated Certificate of Incorporation and By-
laws contain provisions eliminating the personal liability of a director to the
Issuer and its stockholders for certain breaches of his or her fiduciary duty of
17
<PAGE>
care as a director. This provision does not, however, eliminate or limit the
personal liability of a director (i) for any breach of such director's duty of
loyalty to the Company or its stockholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Delaware statutory provisions making directors personally
liable, under a negligence standard, for unlawful dividends or unlawful stock
repurchases or redemptions, or (iv) for any transaction from which the director
derived an improper personal benefit. This provision offers persons who serve
on the Board of Directors of the Company protection against awards of monetary
damages resulting from breaches of their duty of care (except as indicated
above), including grossly negligent business decisions made in connection with
takeover proposals for the Company. As a result of this provision, the ability
of the Company or a stockholder thereof to successfully prosecute an action
against a director for a breach of his duty of care has been limited. However,
the provision does not affect the availability of equitable remedies such as an
injunction or recision based upon a director's breach of his duty of care. The
Securities and Exchange Commission (the "Commission") has taken the position
that the provision will have no effect on claims arising under the federal
securities laws.
In addition, the Amended Certificate and By-Laws provide mandatory
indemnification rights, subject to limited exceptions, to any person who was or
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact that such person is
or was a director or officer of the Company, or is or was serving at the request
of the Company as a director or officer of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. Such
indemnification rights include reimbursement for expenses incurred by such
person in advance of the final disposition of such proceeding in accordance with
the applicable provisions of the Delaware General Corporation Law.
ITEM 13. FINANCIAL STATEMENTS.
Registrant's Consolidated Financial Statements as of December 31, 1996
and for the period from April 15, 1996 (Date Operations Commenced) to December
31, 1996, and the independent auditors' report of Goldstein Golub Kessler &
Company, P.C., independent certified public accountants, with respect thereto,
appear on pages F-1 to F-10 of this Form 10-SB. Registrant's Unaudited
Consolidated Financial Statements as of June 30, 1997 and for the Six Months
ended June 30, 1997 appear on pages F-11 to F-19 of this Form 10-SB. These
financial statements are incorporated by reference herein by reference
thereto.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Registrant's Consolidated Financial Statements as of December 31,
1996 and for the period from April 15, 1996 (Date Operations Commenced) to
December 31, 1996, and the independent auditors' report of Goldstein Golub
Kessler & Company, P.C., independent certified public accountants, with respect
thereto, are included at Pages F-1 through F-10 of this Form 10-SB.
Registrant's Unaudited Consolidated Financial Statements as of June
30, 1997 and for the Six Months ended June 30, 1997 appear on pages F-11 to F-19
of this Form 10-SB.
(b) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C>
2 Acquisition Agreement and Plan of Reorganization dated as
of October 23, 1996 by and between Idaho Leadville Mines
Company and Tamboril Cigar Company *
3.1 Amended and Restated Certificate of Incorporation of
Registrant. *
3.2 By-laws of Registrant *
4.1 Certificate of Designation for Registrant's Series A
Preferred Stock *
</TABLE>
18
<PAGE>
<TABLE>
<S> <C>
10.1 Lease for Miami Premises
10.2 Distribution Agreement between the Company
and Hubbard Imports
21 List of Subsidiaries of the Registrant
</TABLE>
- ---------------
* Previously filed.
19
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
TAMBORIL CIGAR COMPANY
Date: July 25, 1997 By /s/ Anthony Markofsky
-------------------------------------------
Anthony Markofsky
President and Chief Executive Officer
Date: July 25, 1997 By /s/ Pedro J. Mirones
-------------------------------------------
Pedro J. Mirones
Vice President and Chief Financial Officer
20
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
================================================================================
INDEPENDENT AUDITOR'S REPORT F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Balance Sheet F-3
Statement of Operations F-4
Statement of Stockholders' Equity F-5
Statement of Cash Flows F-6
Notes to Consolidated Financial Statements F-7 - F-10
F-1
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Tamboril Cigar Company
We have audited the accompanying consolidated balance sheet of Tamboril Cigar
Company and Subsidiaries as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from April 15, 1996 (date operations commenced) to December 31, 1996. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tamboril Cigar
Company and Subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the period from April 15, 1996 (date
operations commenced) to December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ Goldstein Golub Kessler & Company, P.C.
GOLDSTEIN GOLUB KESSLER & COMPANY, P.C.
New York, New York
January 24, 1997
F-2
<PAGE>
<TABLE>
<CAPTION>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
==============================================================================================
<S> <C>
DECEMBER 31, 1996
- -----------------------------------------------------------------------------------------------
ASSETS (Note 10)
Current Assets:
Cash (Note 1) $ 245,939
Accounts receivable - less allowance for doubtful accounts of $15,000 275,696
Inventory (Notes 1 and 2) 813,938
Advances to suppliers 181,588
Other current assets 31,419
TOTAL CURRENT ASSETS 1,548,580
- -----------------------------------------------------------------------------------------------
Property and Equipment, net (Notes 1 and 3) 359,798
Other Assets 103,550
- -----------------------------------------------------------------------------------------------
TOTAL ASSETS $2,011,928
===============================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 122,308
Accrued expenses and other current liabilities 65,658
Due to related party (Note 6) 133,779
- -----------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 321,745
Notes Payable (Note 4) 250,000
Notes Payable - stockholders (Note 7) 725,000
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,296,745
- -----------------------------------------------------------------------------------------------
Commitments (Note 8)
Stockholders' Equity (Notes 1 and 5):
Common stock - $.0001 par value; authorized 20,000,000 shares, issued 5,575,310 557
Additional paid-in capital 936,253
Accumulated deficit (221,627)
- -----------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY 715,183
- -----------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $2,011,928
===============================================================================================
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
===========================================================================
PERIOD FROM APRIL 15, 1996 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
- ---------------------------------------------------------------------------
<S> <C>
Net sales (Notes 1 and 10) $1,413,815
Cost of goods sold 573,687
- ---------------------------------------------------------------------------
Gross profit 840,128
Selling, general and administrative expenses 1,034,386
- ---------------------------------------------------------------------------
Loss from operations (194,258)
Interest expense 27,369
- ---------------------------------------------------------------------------
Net loss $ (221,627)
===========================================================================
Net loss per common share (Note 1) $ (.05)
===========================================================================
Weighted average number of common shares outstanding (Note 1) 4,651,502
===========================================================================
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
==================================================================================================
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 2,600,000 $260 $ (50) - $ 210
Issuance of common stock for
professional services 25,000 2 4,998 - 5,000
Issuance of common stock for cash 2,833,338 283 989,717 - 990,000
Issuance of common stock in reverse
acquisition (Note 1) 116,972 12 (58,412) - (58,400)
Net loss - - - $(221,627) (221,627)
- --------------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,575,310 $557 $936,253 $(221,627) $ 715,183
==================================================================================================
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
======================================================================================
PERIOD FROM APRIL 15, 1996 (DATE OPERATIONS COMMENCED) TO DECEMBER 31, 1996
- --------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net loss $(221,627)
Provision for doubtful accounts 15,000
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 24,324
General and administrative expenses paid by issuance of stock 5,000
Changes in operating assets and liabilities:
Increase in accounts receivable (290,696)
Increase in other current assets (31,419)
Increase in advances to suppliers (181,588)
Increase in inventory (813,938)
Increase in other assets (103,550)
Increase in accounts payable 122,308
Increase in accrued expenses and other current liabilities 65,658
- --------------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,410,528)
- --------------------------------------------------------------------------------------
Cash flows from investing activity - purchase of property and equipment (384,122)
- --------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable 250,000
Proceeds from issuance of notes payable - stockholders 725,000
Proceeds from advances by related party 133,779
Net proceeds from issuance of common stock 931,810
- --------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 2,040,589
- --------------------------------------------------------------------------------------
Net increase in cash and cash at end of period $ 245,939
======================================================================================
</TABLE>
F-6
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
1. PRINCIPAL Tamboril Cigar Company is a manufacturer and
BUSINESS distributor of handmade cigars. The tobacco is
ACTIVITY AND purchased and the cigars are manufactured at
SIGNIFICANT facilities in the Dominican Republic and sold to
ACCOUNTING retail tobacconists throughout the United States.
POLICIES:
The accompanying consolidated financial statements
at December 31, 1996 and for the period from April
15, 1996 (date operations commenced) to December
31, 1996 include the accounts of Idaho Leadville
Mines Co. (an inactive company), Tamboril Cigar
Company and Tamboril Cigar Company's wholly owned
and majority-owned subsidiaries, Diversified
Tobacco Company and Tabacalera Tamboril SA.
(collectively the "Company"). All intercompany
transactions and balances have been eliminated in
consolidation.
On October 23, 1996, Idaho Leadville Mines Co.
acquired all of the outstanding common stock of
Tamboril Cigar Company. For accounting purposes
the acquisition has been treated as a
recapitalization of Tamboril Cigar Company with
Tamboril Cigar Company as the acquirer (reverse
acquisition).
Subsequent to December 31, 1996, Tamboril Cigar
Company changed its name to Tamboril Cigar
International Inc. and Idaho Leadville Mines Co.
reincorporated in the state of Delaware by merging
into a newly formed Delaware company called
Tamboril Cigar Company.
Revenue from the sale of products is recognized at
the date of shipment to customers.
Depreciation of property and equipment is provided
for by the straight-line method over the estimated
useful lives of the respective assets.
Amortization of leasehold improvements is provided
for over the related lease term.
The Company maintains cash balances in bank
accounts which, at times, may exceed federally
insured limits. It has not experienced any losses
to date resulting from this policy.
Inventory is stated at the lower of cost
(first-in, first-out method) or market. In
accordance with generally recognized industry
practice, all leaf tobacco inventory is classified
as current although portions of such inventory,
because of the duration of the aging process,
ordinarily would not be utilized within one year.
Loss per share is calculated based upon the
weighted average number of shares of common stock
outstanding during the year.
Management does not believe that any recently
issued, but not yet effective, accounting
standards if currently adopted would have a
material effect on the accompanying consolidated
financial statements.
The Company and the cigar industry in general have
recently experienced shortages in certain types of
natural wrapper and filler due to the increase in
demand for tobacco for premium cigars. Although
the shortages have not materially impacted cigar
production, no assurance can be made that future
shortages will not have an adverse effect on the
Company.
F-7
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================
Based on the borrowing rates currently available
for loans with similar terms and average
maturities, the fair value of the notes payable
and notes payable - stockholders approximates the
carrying amount.
Costs incurred for producing and communicating
advertising are expensed as incurred and are
included in selling, general and administrative
expenses in the accompanying consolidated
statement of operations. Advertising expenses
were approximately $70,000 for the period ended
December 31, 1996.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires the use of estimates by
management affecting reported amounts of assets
and liabilities and revenue and expenses and the
disclosure of contingent assets and liabilities.
Actual results could differ from these estimates.
<TABLE>
<CAPTION>
2. INVENTORY: Inventory consists of the following:
<S> <C>
Raw materials $454,789
Finished goods 359,149
-----------------------------------------------------------------
$813,938
=================================================================
3. PROPERTY AND Property and equipment, at cost, consists of the following:
EQUIPMENT:
Estimated
Useful Life
-----------------------------------------------------------------
Machinery and equipment $176,821 5 to 7 years
Land 97,691
Buildings and building
improvements 41,206 20 years
Furniture and fixtures 16,194 5 years
Computers 11,118 5 years
Leasehold improvements 41,092 Term of lease
-----------------------------------------------------------------
384,122
Less accumulated depreciation
and amortization 24,324
------------------------------------------------------------------
$359,798
==================================================================
Approximately $270,000 of the Company's property and equipment
(net of $13,856 accumulated depreciation) is located in the
Dominican Republic.
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
==============================================================================================
4. NOTES PAYABLE: Notes payable consist of the following:
<S> <C>
Note payable - Highgate Resources Ltd.:
Due April 1998 bearing interest at 10% per annum $ 50,000
--------------------------------------------------------------------
Note payable - Alphacom Data Security Services Ltd.:
Due October 1998 bearing interest at 10% per annum $200,000
--------------------------------------------------------------------
$250,000
====================================================================
5. STOCKHOLDERS' On April 16, 1996, the Company issued 25,000 shares of common stock
EQUITY: to its attorney in exchange for services valued at $5,000. On
October 23, 1996, the Company issued 116,972 shares of common stock
to the stockholders of Idaho Leadville Mines Co. in a transaction
accounted for as a reverse acquisition (see Note 1).
6. RELATED PARTY The Company purchased furniture and fixtures from United Health
TRANSACTIONS: Partners, Inc. ("UHP"), a company that has a stockholder and
officer that is a stockholder and officer of the Company.
The Company assumed the office lease of UHP in April 1996.
There is an amount due UHP of approximately $134,000 that is
noninterest-bearing and due on demand.
7. NOTES PAYABLE - Notes payable - stockholders consist of the following:
STOCKHOLDERS:
Notes payable - Jenadosa Holdings Limited:
Due August 1998 bearing interest at 10% per annum $ 75,000
Due September 1998 bearing interest at 10% per annum 100,000
Note payable - South Edge International Inc.:
Due August 1998 bearing interest at 10% per annum 200,000
Notes payable - Shangri La Investments Ltd.:
Due October 1998 bearing interest at 10% per annum 150,000
Due December 1998 bearing interest at 10% per annum 200,000
--------------------------------------------------------------------
$725,000
====================================================================
</TABLE>
F-9
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
<TABLE>
<CAPTION>
<C> <S>
8. COMMITMENTS: The Company has entered into noncancelable operating leases for
office and warehouse facilities, which expire in March 2001.
The approximate future minimum rental commitments under these leases,
exclusive of required payments for increases in certain operating
costs, are as follows:
Year ending December 31,
1997 $ 87,000
1998 93,000
1999 99,000
2000 99,000
2001 25,000
--------------------------------------------------------------------
$403,000
====================================================================
The office lease has an option to renew for five years at a base rent,
as defined. Rent expense for the period ended December 31, 1996 was
approximately $38,000.
The Company's lease commitment for office space is guaranteed by a
stockholder of the Company.
9. INCOME TAXES: As of December 31, 1996, the Company has a net operating loss
carryforward for both financial reporting and income tax purposes
of approximately $223,000 available to offset future income through
2011. There were no material temporary differences between the book
bases and tax bases of assets and liabilities. This resulted in a
deferred income tax asset of approximately $55,000 for which the
Company recorded a full valuation allowance due to uncertainty
of future realization of such losses.
10. Foreign Operations: The Company operates principally in two geographic areas: the United
States and the Dominican Republic. Following is a summary of information
by area for 1996:
Net sales to unaffiliated customers:
United States $1,413,815
Dominican Republic 0
----------
Net sales as reported in the accompanying
consolidated statement of operations $1,413,815
==========
Inter-area sales:
United States $0
Dominican Republic 538,604
----------
Total inter-area sales $538,604
==========
Loss from operations:
United States ($14,801)
Dominican Republic (206,826)
----------
Net loss as reported in the accompanying
consolidated statement of operations ($221,627)
==========
Identifiable assets:
United States $806,453
Dominican Republic 1,182,378
----------
1,988,831
General corporate assets 23,097
----------
Total assets as reported in the accompanying
consolidated balance sheet $2,011,928
==========
Inter-area sales are accounted for at cost and are eliminated in
consolidation in the accompanying consolidated statement of operations.Identifiable
assets are those that are identifiable with operations in each geographic
area. General corporate assets consist of organizational costs.
</TABLE>
F-10
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 124,321 $ 245,939
Accounts receivable 1,689,936 275,696
Inventory 1,486,886 813,938
Prepaid expenses and other current assets 403,253 213,007
- --------------------------------------------------------------------------------
Total current assets 3,704,396 1,548,580
- --------------------------------------------------------------------------------
Property and equipment 620,038 359,798
Other assets 220,724 103,550
- --------------------------------------------------------------------------------
TOTAL ASSETS $4,545,158 $2,011,928
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 257,393 122,308
Accrued expenses and other current
liabilities 276,144 65,658
Due to related party 133,779 133,779
- --------------------------------------------------------------------------------
Total current liabilities 667,316 321,745
================================================================================
Long term debt
Notes payable 250,000 250,000
Notes payable stockholders 2,700,000 725,000
- --------------------------------------------------------------------------------
Total liabilities 3,617,316 1,296,745
- --------------------------------------------------------------------------------
Equity
Common stock--$.0001 par value 557 557
Additional paid-in capital 936,253 936,253
Accumulated deficit (8,968) (221,627)
- --------------------------------------------------------------------------------
Stockholders' Equity 927,842 715,183
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $4,545,158 $2,011,928
================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-11
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS PERIOD ENDED
JUNE 30, 1997
-------------
<S> <C>
Net sales $1,750,989
Cost of goods sold 646,281
- --------------------------------------------------------------------------------
Gross profit 1,104,708
- --------------------------------------------------------------------------------
Selling, general and administrative expenses (738,261)
Proceeds from insurance (net of $69,890 cost of cigars lost) 160,500
- --------------------------------------------------------------------------------
Income from operations 526,947
- --------------------------------------------------------------------------------
Interest expense, net of $431 interest income 53,944
- --------------------------------------------------------------------------------
Income before income taxes 473,003
- --------------------------------------------------------------------------------
Income taxes:
Current 51,000
Deferred (51,000)
- --------------------------------------------------------------------------------
Net income 473,003
================================================================================
- --------------------------------------------------------------------------------
Net income per common share $ 0.08
================================================================================
Weighted average number of common shares outstanding 5,575,310
================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-12
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS PERIOD ENDED
JUNE 30, 1997
-------------
<S> <C>
Net sales $ 2,538,988
Cost of goods sold 906,380
- --------------------------------------------------------------------------------
Gross profit 1,632,608
- --------------------------------------------------------------------------------
Selling, general and administrative expenses (1,498,411)
Proceeds from insurance (net of $69,890 cost of cigars lost) 160,500
- --------------------------------------------------------------------------------
Operating Income 294,697
- --------------------------------------------------------------------------------
Interest expense, net of $768 interest income 82,038
- --------------------------------------------------------------------------------
Income before income taxes 212,659
- --------------------------------------------------------------------------------
Income taxes:
Current 51,000
Deferred (51,000)
- --------------------------------------------------------------------------------
Net income 212,659
================================================================================
- --------------------------------------------------------------------------------
Net income per common share $ 0.04
================================================================================
Weighted average number of common shares outstanding 5,575,310
================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-13
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL
COMMON STOCK PAID-IN ACCUMULATED STOCKHOLDERS
SHARES AMOUNT CAPITAL DEFICIT EQUITY
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock 2,600,000 $260 $ (50) -- $ 210
Issuance of common stock
for professional services 25,000 2 4,998 -- 5,000
Issuance of common stock
for cash 2,833,338 283 998,717 -- 990,000
Issuance of common stock
in reverse acquisition 116,972 12 (58,412) -- (58,400)
Net loss -- -- -- $(221,627) (221,627)
- -------------------------------------------------------------------------------------------
Balance at December 31, 1996 5,575,310 $557 $936,253 $(221,627) $ 715,183
- -------------------------------------------------------------------------------------------
Net income -- -- -- 212,659 212,659
- -------------------------------------------------------------------------------------------
Balance at June 30, 1997 5,575,310 $557 $936,253 $ (8,968) $ 927,842
- -------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-14
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
FOR THE SIX MONTHS PERIOD ENDED JUNE 30, 1997
<S> <C>
Cash flows from operating activities:
Net income $ 212,659
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 28,365
Changes in operating assets and liabilities:
Increase in accounts receivable (1,414,240)
Increase in prepaid expenses and other current
assets (190,246)
Increase in inventory (672,948)
Increase in other assets (117,174)
Increase in accounts payable 135,085
Increase in accrued expenses and other current
liabilities 210,486
- --------------------------------------------------------------------------------
NET CASH USED IN OPERATING ACTIVITIES (1,808,013)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Cash flows used in investing activity--purchase of property
and equipment (288,605)
- --------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of notes payable--stockholders 1,975,000
- --------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 1,975,000
- --------------------------------------------------------------------------------
NET DECREASE IN CASH (121,618)
- --------------------------------------------------------------------------------
Cash at beginning of the period 245,939
- --------------------------------------------------------------------------------
CASH AT END OF THE PERIOD $ 124,321
- --------------------------------------------------------------------------------
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
F-15
<PAGE>
TAMBORIL CIGAR COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
GENERAL
- -------
The accompanying financial statements have been prepared in accordance with
generally accepted accounting principles applicable to interim financial
statements and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of the management of Tamboril Cigar Company (the "Company"), the
accompanying financial statements reflect all adjustments necessary to present
fairly the financial position of the Company as of June 30, 1997. Furthermore,
all adjustments were of a normal recurring nature.
PRINCIPAL BUSINESS ACTIVITY
- ---------------------------
Tamboril Cigar Company is a manufacturer and distributor of handmade cigars.
The tobacco is purchased and the cigars are manufactured at facilities in the
Dominican Republic and sold to retail tobacconists throughout the United States.
The accompanying consolidated financial statements include the accounts of
Tamboril Cigar Company (formerly known as Idaho Leadville Mines Co.), Tamboril
Cigar International, Inc. ( formerly known as Tamboril Cigar Company), and
Tamboril Cigar Company's wholly owned and majority-owned subsidiaries,
Diversified Tobacco Company and Tabacalera Tamboril S.A. (collectively the
"Company"). All intercompany transactions and balances have been eliminated in
consolidation.
On October 23, 1996, Idaho Leadville Mines Co. acquired all of the outstanding
common stock of Tamboril Cigar Company. For accounting purposes the acquisition
has been treated as a recapitalization of Tamboril Cigar Company with Tamboril
Cigar Company as the acquirer (reverse acquisition).
Tamboril Cigar Company changed its name to Tamboril Cigar International Inc. and
Idaho Leadville Mines Co. reincorporated in the state of Delaware by merging
into a newly formed Delaware company called Tamboril Cigar Company.
ACCOUNTING POLICIES
- --------------------
Revenue from the sale of products is recognized at the date of shipment to
customers.
Depreciation of property and equipment is provided for by the straight-line
method over the estimated useful lives of the respective assets. Amortization
of leasehold improvements is provided for over the related lease term.
Approximately $523,546 of the Company's property plant and equipment (net of
$30,528 accumulated depreciation) is located in the Dominican Republic.
F-16
<PAGE>
The Company maintains cash balances in bank accounts, which, at times, may
exceed federally insured limits. It has not experienced any losses to date
resulting from this policy.
Inventory is stated at the lower of cost (first-in, first-out method) or market.
In accordance with generally recognized industry practice, all leaf tobacco
inventory is classified as current although portions of such inventory, because
of the duration of the aging process, ordinarily would not be utilized within
one year. Approximately $1,427,573 of the Company's inventory is located in the
Dominican Republic.
Income (loss) per share is calculated based upon the weighted average number of
shares of common stock outstanding during the year.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying consolidated financial statements.
The Company and the cigar industry in general have recently experienced
shortages in certain types of natural wrapper and filler due to the increase in
demand for tobacco for premium cigars. Although the shortages have not
materially impacted cigar production, no assurance can be made that future
shortages will not have an adverse effect on the Company.
Based on the borrowing rates currently available for loans with similar terms
and average maturities, the fair value of the notes payable and notes payable
stockholders approximates the carrying amount.
Costs incurred for producing and communicating advertising are expensed as
incurred and are included in selling, general and administrative expenses in the
accompanying consolidated statement of operations
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management affecting
reported amounts of assets and liabilities and revenue and expenses and the
disclosure of contingent assets and liabilities. Actual results could differ
from these estimates.
SEASONALITY
- -----------
The results of operations for the six months period ended June 30, 1997 are not
indicative of the results to be expected for the entire year because the
Company's operations are seasonal.
F-17
<PAGE>
NOTES PAYABLE:
- --------------
<TABLE>
<S> <C>
Notes payable consist of the following:
Note payable--Highgate Resources Ltd:
Due April 1998 bearing interest at 10% per annum $ 50,000
Note payable--Alphacom Data Security Services Ltd.:
Due October 1998 bearing interest at 10% per annum 200,000
$ 250,000
NOTES PAYABLE STOCKHOLDERS:
- ---------------------------
Notes payable--stockholders consist of the following:
Notes payable--Jenadosa Holdings Limited:
Due August 1998 bearing interest at 10% per annum $ 75,000
Due September 1998 bearing interest at 10% per annum 100,000
Notes payable--South Edge International Inc. :
Due August 1998 bearing interest at 10% per annum 200,000
Notes payable--Shangri La Investments Ltd.:
Due October 1998 bearing interest at 10 % per annum 150,000
Due December 1998 bearing interest at 10% per annum 200,000
Notes payable--Tradewinds Investments Ltd.:
Due January 1998 bearing interest at 10% per annum 300,000
Due March 1998 bearing interest at 10% per annum 375,000
Due April 1998 bearing interest at 10% per annum 500,000
Due May 1998 bearing interest at 10% per annum 50,000
Due June 1998 bearing interest at 10% per annum 300,000
Notes payable--Spear Leeds:
Due May 1998 bearing interest at 10% per annum 250,000
Due June 1998 bearing interest at 10% per annum 200,000
$2,700,000
</TABLE>
F-18
<PAGE>
INFORMATION ABOUT MAJOR CUSTOMER
- --------------------------------
During the quarter ended June 30, 1997, the Company entered into a Distribution
Agreement with Hubbard Imports. Under the terms of the Distribution Agreement,
the Company is expected to sell approximately $5,000,000 of cigars to Hubbard
during the year 1997. Sales to Hubbard for the six month period ended June 30,
1997 amounted to $1,153,692 (45.4% of total sales).
Hubbard will be the exclusive importer of the Company's brands into the United
States through December 31, 2000. Annual minimum sales commitments will be set
by mutual agreement on a yearly basis.
INCOME TAXES
- ------------
As of June 30, 1997 the Company has a net operating loss carryforward for both
financial reporting and income tax purposes of approximately $10,000 available
to offset future income through 2011.
WORKING CAPITAL
- ---------------
The Company has no lines of credit or similar arrangements with banks or other
traditional lending institutions. The Company has utilized its sales of capital
stock and proceeds of loans evidenced by promissory notes from investors, and
shareholders and advances from a related party to fund its negative cash flow
from operations and its increased commitments to complete its manufacturing
facility in the Dominican Republic.
The Company plans to seek a capital infusion of from $2 million to $7 million in
equity capital to retire debt and support expansion of manufacturing (including
additional purchases of tobacco) and sales and marketing activities. There can
be no assurance that equity capital will be available to the Company on
acceptable terms at all.
F-19
<PAGE>
EXHIBIT 10.1
------------
LEASE AGREEMENT
LANDLORD:
APREMONT, INC.
a Florida corporation
TENANT:
CONQUISTADOR CIGAR COMPANY
a Delaware corporation
DATED: April 5, 1996
-
Effective: April 1, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
ARTICLE 1
BASIC LEASE PROVISIONS........................................ 1
Section 1.1 Leased Premises.................................................... 1
---------------
Section 1.2 Use of Additional Areas............................................ 1
-----------------------
Section 1.3 Term............................................................... 2
----
Section 1.4 Condominium Regime................................................. 2
------------------
ARTICLE 2
RENT................................................ 2
Section 2.1 Base Rent.......................................................... 2
---------
Section 2.2 Additional Rent.................................................... 4
---------------
ARTICLE 3
COMMON USE AREAS AND FACILITIES............................. 4
Section 3.1 Control of Common Areas by Association............................. 4
--------------------------------------
Section 3.2 Licenses........................................................... 5
--------
ARTICLE 4
BASIC LEASE PROVISIONS........................................ 5
Section 4.1 Services........................................................... 5
--------
Section 4.2 Directories........................................................ 6
-----------
Section 4.3 Signage............................................................ 6
-------
ARTICLE 5
USE........................................ 6
Section 5.1 Use................................................................ 6
---
Section 5.2 Compliance With Laws and Regulations............................... 6
------------------------------------
ARTICLE 6
INSURANCE AND INDEMNITY................................... 6
Section 6.1 Liability Insurance................................................ 6
-------------------
Section 6.2 Contents Insurance and Business Loss Insurance..................... 7
----------------------------------------------
Section 6.3 Special Policy Provision........................................... 7
------------------------
Section 6.4 Increase of Fire Insurance Premium................................. 7
----------------------------------
Section 6.5 Indemnification.................................................... 8
---------------
Section 6.6 Mutual Waiver of Subrogation....................................... 8
----------------------------
ARTICLE 7
DESTRUCTION AND CONDEMNATION........................................... 8
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 7.1 Fire or Other Casualty.......................................... 8
----------------------
Section 7.2 Condemnation.................................................... 10
------------
ARTICLE 8
DEFAULTS AND REMEDIES................................. 11
Section 8.1 Events of Default............................................... 11
-----------------
Section 8.2 Landlord's Remedies and Obligations in Event of Tenant's Default 12
----------------------------------------------------------------
Section 8.3 Landlord's Lien................................................. 14
---------------
Section 8.4 WAIVER OF JURY TRIAL............................................ 14
--------------------
Section 8.5 Rights Cumulative............................................... 15
-----------------
Section 8.6 Attorney's Fees................................................. 15
---------------
Section 8.7 Notice of Default: Service of Three Day Notice.................. 15
----------------------------------------------
Section 8.8 Expenses of Enforcement......................................... 15
-----------------------
Section 8.9 Surrender and Holding Over...................................... 16
--------------------------
ARTICLE 9
ALTERATIONS........................................... 16
ARTICLE 10
TRADE FIXTURES........................................ 17
ARTICLE 11
QUIET ENJOYMENT....................................... 17
ARTICLE 12
MAINTENANCE........................................... 17
ARTICLE 13
SIGNS................................................. 18
ARTICLE 14
PARKING............................................... 19
ARTICLE 15
MISCELLANEOUS PROVISIONS......................... 20
Section 15.1 No Recording of Lease........................................... 20
---------------------
Section 15.2 Notices......................................................... 20
-------
Section 15.3 Access to Leased Premises....................................... 21
-------------------------
Section 15.4 Assignment and Subletting....................................... 21
-------------------------
Section 15.5 Subordination................................................... 23
-------------
Section 15.6 Construction Liens.............................................. 24
------------------
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 15.7 Entire Agreement........................................... 24
----------------
Section 15.8 No Partnership............................................. 24
--------------
Section 15.9 Captions and Section Numbers............................... 24
----------------------------
Section 15.10 Partial Invalidity......................................... 24
------------------
Section 15.11 Governing Law.............................................. 25
-------------
Section 15.12 Waiver..................................................... 25
------
Section 15.13 Accord and Satisfaction.................................... 25
-----------------------
Section 15.14 Successors and Assigns..................................... 25
----------------------
Section 15.15 Brokerage Indemnity........................................ 26
-------------------
Section 15.16 Condition of Leased Premises............................... 26
----------------------------
Section 15.17 Taxes...................................................... 26
-----
Section 15.18 Prior Occupancy............................................ 26
---------------
Section 15.19 Time and Consent........................................... 26
----------------
Section 15.20 Leasehold Improvements..................................... 27
----------------------
Section 15.21 Security................................................... 27
--------
Section 15.22 Hazardous Waste............................................ 28
---------------
Section 15.23 Radon Gas Disclosure....................................... 28
--------------------
Section 15.24 Option to Renew Lease...................................... 28
---------------------
EXHIBIT A
- ----------
GUARANTY....................................................................... 1
</TABLE>
iii
<PAGE>
CONDOMINIUM OFFICE BUILDING LEASE AGREEMENT
THIS LEASE AGREEMENT is made April 5, 1996, and between APREMONT,
INC., a Florida corporation, having offices at 2600 S.W. Third Avenue, PH-A,
Miami, Florida 33129, ("Landlord"), and CONQUISTADOR CIGAR COMPANY, a Delaware
--------
corporation, having offices at 2600 S.W. Third Avenue, Suite 100, Miami, Florida
33129 ("Tenant").
------
ARTICLE 1
BASIC LEASE PROVISIONS
Section 1.1 Leased Premises. Subject to and upon the terms, provisions,
---------------
covenants, and conditions hereinafter set forth, and each in consideration of
the duties, covenants, and obligations of the other hereunder, Landlord does
hereby lease, demise, and let to Tenant and Tenant does hereby lease, demise,
and let from Landlord those certain premises (hereinafter called the "Leased
------
Premises") located in the building known as VIZCAYA VIEW PLAZA (the
- --------
"Condominium") described as follows:
-----------
Units 100, 200, and 250 of VIZCAYA VIEW PLAZA, a
condominium, according to the Declaration thereof as
recorded on June 15, 1982, in Official Records Book
11469 at page 2196 of the Public Records of Dade County,
Florida.
and situate at 2600 S.W. Third Avenue, Miami, Florida 33129.
The parties conclusively agree that the Leased Premises consist of
approximately 5,815 square feet of leasable space. The parties further agree
that the Base Rent (as defined in Article 2 hereof) is not based upon the actual
amount of square feet of leasable space in the Leased Premises and any alleged
or actual variation thereof will not be a basis for adjusting the Base Rent or
the Additional rent (as defined in Article 2 hereof).
Section 1.2 Use of Additional Areas. The use and occupation by Tenant of
-----------------------
the Leased Premises shall include the non-exclusive use, in common with all
others entitled thereto, of the Common Areas (as defined in Article 3 hereof) in
accordance with the terms and conditions of the Condominium Documents (as
defined in Section 1.4) of this Lease (including, without limitation, Article 3)
and the Rules and Regulations for the use thereof as prescribed from time to
time by the Association (as defined in Section 1.4) and subject to the rights of
other unit owners and tenants.
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
--------------------------
Tenant: [SIGNATURE ILLEGIBLE]
----------------------------
<PAGE>
Section 1.3 Term. The term of this Lease shall be for five (5) year(s)
----
commencing on April 1, 1996 (the "Commencement Date") and ending on Mach 31,
-----------------
2001 (hereinafter called the "Lease Term" or "Term"). This Lease may be sooner
---------- ----
terminated as provided herein.
Section 1.4 Condominium Regime. Tenant acknowledges that the Leased
------------------
Premises consist of three condominium units of a multi-unit condominium and that
this Lease is subject to the provisions of the condominium documents which
include the Declaration of Condominium, as recorded on June 15, 1982, in
Official Records Book 11469 at page 2196 of the Public Records of Dade County,
Florida, the Articles of Incorporation of the Vizcaya View Plaza Condominium
Association, Inc. (the "Association"), the By-laws and rules of the Association,
-----------
and any management or similar agreement, all of which were established by the
developer, and any and all amendments thereto (collectively, the "Condominium
-----------
Documents"), and that copies of all the foregoing are available for inspection
- ---------
at the office of the Association. Tenant shall abide by all of the rules,
regulations, and other provisions of the Condominium Documents. All maintenance
fees, Association assessments, management fees, and other such payments to which
the owner of a condominium unit is responsible shall be paid by Landlord, except
for assessments and/or fines respecting actions or inactions by Tenant.
ARTICLE 2
RENT
Section 2.1 Base Rent.
---------
(a) Tenant shall pay Landlord as fixed minimum annual rent ("Base
----
Rent") the sum shown in the following table (subject to increases effective
- ----
April 1, 1999) as provided in Section 2.1 (d) hereof), payable to Landlord in
twelve (12) equal monthly installments, as shown in the following table (subject
to increases effective April 1, 1999) as provided in Section 2.1 (d) hereof),
plus applicable Florida Sales Tax (currently six and one-half percent (6.5%)),
on or before the first (1st) day of each month in advance, at the office of
Landlord, above designated, or to such other recipient or place as shall be
designated by Landlord from time to time, without any prior demand thereof, and
without any deduction, offset, or counterclaim whatsoever, except as
specifically herein permitted.
<TABLE>
<CAPTION>
================================================================================
Monthly Installments of
Lease Year Commencing Annual Base Rent Annual Base Rent
- --------------------------------------------------------------------------------
<S> <C> <C>
April 1, 1996 $87,225.00 $7,268.75
- --------------------------------------------------------------------------------
April 1, 1997 $93,040.00 $7,753.33
- --------------------------------------------------------------------------------
April 1, 1998 $98,855.00 $8,237.92
- --------------------------------------------------------------------------------
</TABLE>
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
2
<PAGE>
================================================================================
Monthly Installments of
Lease Year Commencing Annual Base Rent Annual Base Rent
- --------------------------------------------------------------------------------
April 1, 1999 See Sec. 2.1(d)
- --------------------------------------------------------------------------------
April 1, 2000 See Sec. 2.1(d)
================================================================================
(b) In the event that any installment of Base Rent that is not paid
within ten (10) days of its due date or is paid by a check that is returned by
its drawee bank for any reason whatsoever other than failure of Landlord to
endorse it, Tenant shall pay to Landlord as additional rent a Collection Fee
equal to five percent (5%) of the unpaid or uncollected sum in order to
reimburse Landlord for the administrative expenses that Landlord will incur as a
result of said late or uncollected payment, together with any bank charges
incurred by Landlord.
(c) Notwithstanding anything to the contrary provided herein, Tenant
shall not be required to pay the monthly installments of Base Rent that would
otherwise be due on the first days of April through July, 1996.
(d) Commencing with the lease year commencing April 1, 1999, Base
Rent as provided in Section 2.1(a) shall be subject to annual increases in
order to reflect increases in the cost of living as indicated by the Revised
Consumer Price Index for All Urban Consumers published by the Bureau of Labor
Statistics of the United States Department of Labor, for U.S. City Average, All
Items (1982-84 = 100) (the "Price Index"):
-----------
(i) The term "Base Price Index" shall mean the Price Index of
----------------
the fourteen (14) month period prior to the commencement of the year of the
Term to which the increase applies.
(ii) The term "Current Price Index" shall mean the Price Index
------------------
of the two (2) month period prior to the commencement of the (12 month
period) year of the Term to which the increase applies (the "Escalation
----------
Period").
-------
(iii) Base Rent for each Escalation Period shall equal the
result of multiplying the prior year's Base Rent (as adjusted by this
provision), by the Current Price Index divided by the Base Price Index as
set forth below:
Current Price Index
Prior Base Rent*-------------------=New Base Rent
Base Price Index
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
3
<PAGE>
(iv) Notwithstanding anything to the contrary provided in this
Lease, no increase in Base Rent provided in this Paragraph 2.1 (d) shall
exceed four percent (4%) of the Base Rent for the immediately preceding
lease year.
(v) If in any Escalation Period, the 1982-84 average of 100 is
no longer used as the basis of calculating the Price Index, then, for
purposes of this Section 2.1 (d), the Price Index for such Escalation
Period shall be recalculated as though such 1982-84 average of 100 was
still the basis of calculating the Price Index. In the event such Price
Index (or a substitute successor index) is not available, a reliable
governmental or other non-partisan publication evaluating the information
theretofore used in determining the Price Index shall be used to reflect
the increase in the national cost of living.
(c) Commencing with the lease year commencing April 1, 1999, Tenant
shall pay as Additional Rent any increases in the monthly maintenance
assessment due to the Association over the monthly maintenance assessment in
effect on the date of commencement of the term of this Lease.
(f) Tenant shall pay the Base Rent in twelve (12) equal installments,
due on the first (1st) day of each month. If the Base Rent and the Additional
Rent under this Lease is due on a day other than the first (1st) day of a month,
Tenant shall pay such rent for the fractional month on a per diem basis
(calculated on the basis of a thirty (30) day month) payable on the day Base
Rent is due under the terms of this Lease. Any rental payment hereunder for any
other fractional month shall likewise be calculated and paid on a per diem
basis.
Section 2.2 Additional Rent. Any and all sums of money or charges required
---------------
to be paid by Tenant under this Lease, whether or not the same be so designated,
shall be considered "Additional Rent." If such amounts or charges are not paid
---------------
at the time provided in this Lease, they shall, nevertheless, be collectible as
Additional Rent with the next installment of Base Rent thereafter falling due
hereunder, but nothing herein contained shall be deemed to suspend or delay the
payment of any amount of money or charges as the same become due and payable
hereunder, or limit any other remedy of Landlord (Base Rent and Additional Rent
is herein sometimes collectively referred to as "Rent").
----
ARTICLE 3
COMMON USE AREAS AND FACILITIES
Section 3.1 Control of Common Areas by Association. All common elements and
--------------------------------------
facilities of the Condominium or furnished by the Association and designated for
the general
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
4
<PAGE>
use in common of occupants of the Condominium, including Tenant hereunder, its
officers, agents, employees and invitees, including, but not limited to, parking
areas (including the parking garage), streets, sidewalks, canopies, roadways,
loading platforms, washrooms, shelters, ramps, landscaped areas, stairways,
corridors, lobbies, elevators, and other similar facilities (collectively, the
"Common Areas"), shall at all times be subject to the exclusive control and
------------
management of the Association, subject to the provisions of the Condominium
Documents. Tenant hereunder, and any other sub-tenants and licensees, shall
comply with all Rules and Regulations made by Association pertaining to the
operation and maintenance of the Common Areas including, but not limited to,
such reasonable requirements pertaining to sanitation; handling of trash and
debris; loading and unloading of trucks and other vehicles; and safety and
security against fires, theft, vandalism, personal injury, and other hazards.
Landlord shall have no liability to Tenant for any action or inaction
by the Association.
Section 3.2 Licenses. All common areas and facilities not within the Leased
--------
Premises, with Tenant may be permitted to use and occupy, are to be used and
occupied under a revocable license, and if any such license is revoked, or if
the amount of such area is diminished or if the Association exercises any of its
rights under the Condominium Documents with respect to the Common Areas,
Landlord shall not be subject to any liability nor shall Tenant be entitled to
any compensation or diminution or abatement of Base Rent or Additional Rent,
nor shall such revocation or diminution or such area be deemed constructive or
actual eviction.
ARTICLE 4
BASIC LEASE PROVISIONS
Section 4.1 Services. Landlord will furnish no services to Tenant, but
--------
Tenant shall be entitled to receive the same services from the Association that
the Association furnishes respect to each unit of the Condominium, subject to
the provisions of the Condominium Documents. Landlord shall not be responsible
or liable to Tenant, nor shall any claim for damages against Landlord or
abatement of Base Rent or Additional Rent for failure to furnish any such
services shall be made by Tenant or allowed by Landlord for any failure of
Association to supply such services.
No electric current shall be used except that furnished or approved
by the Association, nor shall electric cable or wire be brought into the Leased
Premises, except upon the written consent and approval of Landlord and the
Association if required by the Condominium Documents. Tenant shall use only
office machines and equipment which do not
Please Initial:
---------------
Landlord: [SIGNATURE ILLEGIBLE]
----------------------
Tenant: [SIGNATURE ILLEGIBLE]
------------------------
5
<PAGE>
overload the Building's circuits from which Tenant obtains electric current.
Tenant shall pay for all electric current used within the Leased Premises,
which shall be separately metered.
Section 4.2 Directories. Tenant may use obtain a listing on any a central
-----------
directory on the main or ground floor of the Condominium for the listing of the
names of the tenants within the Condominium, subject to the requirements of the
Association. The spaces provided on the directory board shall be at no cost to
Landlord.
Section 4.3 Signage. Subject to the requirements of the Association, Tenant
-------
may use at no cost to Landlord the two exterior signs at the corner of Third
Avenue and 26th Road.
ARTICLE 5
USE
Section 5.1 Use. Tenants shall not use, permit or suffer the use of the
---
Leased Premises or any part thereof, for any purpose other than as general
offices and for no other purpose. Tenant further agrees that the Leased Premises
are leased exclusively for business purposes and may never be used at any time
for residential or any other purposes.
Section 5.2 Compliance With Laws and Regulations. Tenant shall, at Tenant's
------------------------------------
sole cost and expense, comply with all laws, statues, ordinances, rules and
regulations (including orders concerning environmental protection) of all
federal, state, county, municipal, and other applicable governmental
authorities, and the Association, now in force, or which may hereafter be in
force, pertaining to Tenant or its use of the Leased Premises (collectively the
"Regulations"), and shall observe all of them. Tenant shall indemnify, defend
-----------
and save Landlord harmless against any and all claims, penalties, fines, costs,
expenses or damages including reasonable attorneys' fees which Landlord may
hereafter be liable for, suffer, incur, or pay arising out of any act, activity
or violation of any applicable laws, false or breached warranty and
representation on the part of Tenant, its agents, employees, legal
representatives or assigns, resulting from Tenant's failure to observe, keep and
perform the Regulations obligations in this paragraph including those arising
out of any handling, storage, treatment, transportation, disposal, release or
threat of release of hazardous waste or hazardous substances from or on the
Leased Premises.
ARTICLE 6
INSURANCE AND INDEMNITY
SECTION 6.1 Liability Insurance. Tenant shall, during the entire Term, keep
-------------------
in full force and effect, a policy of public liability and property damage
insurance with respect to the Leased Premises and the business operated by
Tenant, and any permitted sub-tenant of Tenant in the
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
----------------------
TENANT: [SIGNATURE ILLEGIBLE]
-----------------------
6
<PAGE>
Leased Premises, in which the limits of public liability are a single limit for
liability per incident, per person and property damage of no less than One
Million and No/100 Dollars ($1,000,000.00) and such greater amount from time to
time determined by Landlord which is customary for tenancies of comparable size,
space and business use.
Section 6.2 Contents Insurance and Business Loss Insurance. Tenant shall
----------------------------------------------
maintain insurance, naming Landlord and Tenant as insured, in an amount adequate
to cover the cost of replacement of all decorations, fixtures, contents and
improvements in the Leased Premises in the event of fire, vandalism, mischief,
and/or casualties including special extended coverage, and said insurance shall
include but not be limited to, coverage against all water damage to contents
and/or personal property of Tenant. Tenant shall also maintain a policy of
business loss insurance for a twelve (12) month period, which shall be updated
annually.
Section 6.3 Special Policy Provision. All insurance policies which Tenant
------------------------
is required to secure and maintain pursuant to this Article 6, shall be written
by companies acceptable to the Landlord, shall name Landlord, any persons, firms
or corporations designated by Landlord, and Tenant as insured, and shall contain
a clause that the insurer will not cancel or change the insurance without first
giving Landlord thirty (30) days prior written notice. Further, said policies
shall contain an express waiver of any right of subrogation against Landlord and
other named insurers, designated by Landlord. Tenant will further deposit the
policies, or certificates thereof, with Landlord together with evidence of
payment of the premium, at all times, commencing with the date Tenant first
enters upon the Leased Premises for any purpose. In no event shall the limits of
any insurance policies required herein be considered as limiting the liability
of Tenant under this Lease.
Section 6.4 Increase of Fire Insurance Premium. In addition, Tenant agrees
----------------------------------
that it will not keep, use, sell or offer for sale in or upon the Leased
Premises any article which may be prohibited by the standard form of fire
insurance policy or by the Association. Tenant agrees to pay any increase in
premiums for fire and extended coverage insurance that may be charged during the
Term of this Lease or the amount of such insurance which may be carried by
Landlord on the Leased Premises or the Building of which they are a part
resulting from any acts or omissions of Tenant or any change in use by Tenant.
In determining whether increased premiums are the result of Tenant's use of the
Leased Premises, a schedule, issued by the organization in making the insurance
rate on the Leased Premises, showing the various components of such rate, shall
be conclusive evidence of the several items and charges which make up the fire
insurance rate for the Leased Premises.
In the event that Tenant's occupancy causes any increase of the
premium for the fire and/or casualty rates on the Leased Premises or any part
thereof above the rate for the least hazardous type of occupancy legally
premitted in the Leased Premises, Tenant shall
Please Initial:
---------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
7
<PAGE>
pay the additional premium on the fire and/or casualty insurance policies by
reason thereof. Tenant also shall pay in such event any additional premium
necessitated by the character of Tenant's use of the Leased Premises on such
rent insurance policy as may be carried by Landlord for its protection against
rent loss through fire. Bills for such additional premiums shall be rendered by
Landlord to Tenant at such times as Landlord or the Association may elect, and
shall be due from and payable by Tenant when rendered, and the amount thereof
shall be deemed to be, and shall be paid as Additional Rent.
Section 6.5 Indemnification. Tenant will indemnify Landlord and save it
---------------
harmless from and against any and all claims, actions, damages, liability, and
expense in connection with loss of life, personal injury, and/or damage to
property occurring in or about, or arising from or out of the Leased Premises
and adjacent sidewalks and loading platforms or other areas occasioned wholly or
in part by any act or omission of Tenant, its agents, contractor, invitee or
employees. In case Landlord shall, without fault on its part, be made a party to
any litigation commenced by or against Tenant, then Tenant shall protect and
hold Landlord harmless and shall pay all costs, expenses and reasonable
attorneys' fees incurred or paid by Landlord in connection with such litigation
at all levels and such fees incurred in enforcing this indemnity.
Section 6.6 Mutual Waiver of Subrogation. Notwithstanding anything set
----------------------------
forth in this Lease to the contrary, Landlord and Tenant each hereby waive any
and all right of recovery, claim, action or cause of action against the other,
their respective agents, officers and employees (a) for any loss or damage that
may occur to the leased Premises, the Condominium, or any of the improvements
thereto, by reason of fire, the elements or any other cause which could be
insured against under the terms of a standard fire and extended coverage
insurance policy or policies, with vandalism, malicious mischief and all-risk
coverage, or (b) for which Landlord or Tenant may be reimbursed as a result of
insurance coverage affecting any loss suffered by either party, regardless of
cause of cause or origin, including the negligence of Landlord or Tenant or
their respective agents, officers and employees. In addition, all insurance
policies carried by either party covering the Leased Premises, the Condominium
or contents, shall expressly waive any right on the part of the insurer against
the other party for damage to or destruction of the Leased Premises, the
Building or contents, resulting from the acts, omissions or negligence of the
other party.
ARTICLE 7
DESTRUCTION AND CONDEMNATION
Section 7.1 Fire or Other Casualty. If the Leased Premises shall be damaged
----------------------
by fire or other casualty normally covered by policies of fire and extended
coverage insurance, but are not thereby rendered untenable in whole or in part,
Landlord shall, to the extent insurance proceeds are available from the
Association's casualty insurance or any other available
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
--------------------------
Tenant: [SIGNATURE ILLEGIBLE]
----------------------------
8
<PAGE>
insurance, cause such damage to be repaired, and the Base Rent and Additional
Rent payable hereunder shall not abate. In the event that the Leased Premises
shall be damaged by fire or other casualty covered in full under the fire and
extended coverage insurance carried by Landlord, and less than fifty percent
(50%) thereof is rendered untenantable, Landlord shall, to the extent
insurance proceeds are available from the Association's casualty insurance or
any other available insurance, forthwith proceed to repair such damage, and
restore the Leased Premises, not including any of Tenant's trade fixtures and/or
leasehold improvements, to at least substantially their condition prior to the
time of such damage (subject, however, to changes required by zoning and
building laws then in existence) and the Base Rent due in respect of the size of
the Leased Premises payable hereunder meanwhile shall be abated proportionately
as to the portion of the Leased Premises rendered untenantable, but only if such
casualty is not caused by Tenant or its agents, employees or invitees.
If fifty percent (50%) or more of the Leased Premises shall be
rendered untenantable by reason of such occurrence, Landlord shall, to the
extent insurance proceeds are available, cause such damage to be repaired and
the Base Rent and Additional Rent due in respect of the size of the Leased
Premises meanwhile shall be abated proportionately, provided Tenant or its
agents, employees or invitees did not cause such casualty. In the alternative,
Landlord shall have the right, to be exercised by notice in writing delivered to
Tenant within sixty (60) days from said occurrence to elect not to reconstruct
the destroyed Leased Premises and to terminate this Lease or, in the case of
Tenant, to cancel this Lease and in such event, this Lease and the tenancy
hereby created shall cease as of the date of the said occurrence, the Base Rent
Additional Rent to be adjusted as of such date. If Landlord should elect to
repair, such repairs shall be completed within one hundred and twenty (120) days
after the date of payment of the insurance proceeds in respect of such loss,
subject to delays beyond Landlord's reasonable control such as labor disputes,
acts of God, and supply shortages, and action or inaction by the Association.
In no event shall Landlord be obligated to expend for such repairs or
restoration an amount in excess of the insurance proceeds recovered and Landlord
shall not be required to commence repairs or restoration unless and until such
time as Landlord recovers the insurance proceeds. Landlord shall not be liable
for delays occasioned by adjustment of losses with insurance carriers or by any
other cause so long as Landlord shall proceed in good faith and with due
diligence.
Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its agents and employees, for loss or damage to
Tenant's contents, furniture, furnishings' fixtures and any other property
removable by Tenant under the provisions of this Lease to the extent that the
same are covered by Tenant's insurance,
Please Initial
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
9
<PAGE>
notwithstanding that such loss or damage may result from the negligence or fault
of Landlord, its agents or employees. Tenant shall insure against all such
losses as hereinabove provided.
Tenant acknowledges that the structural and certain other portions of
the Leased Premises are insured by the Association and that Landlord and the
Leased Premises are subject to the provisions of the Condominium Documents and
the requirements of the Association respecting casualty insurance, repairs, and
reconstruction. Landlord shall cooperate with Tenant in good faith to deal with
the Association respecting casualty to the Leased Premises but Landlord shall
not be obligated to bring any lawsuits against the Association nor shall
Landlord be liable for any action or inaction by the Association respecting
insurance, casualty, or repair of the Leased Premises or any other portion of
the Condominium.
Section 7.2 Condemnation. If the whole of the Leased Premises shall be
------------
acquired or condemned by eminent domain for any public or quasi-public use or
purpose (a sale in lieu of condemnation to be deemed a taking for the purposes
of this paragraph), then the Term of this Lease shall cease and terminate as of
the date of possession being required by the condemning authority and all Base
Rent and Additional Rent shall be paid through that date.
If any part of the Leased Premises shall be acquired or condemned by
eminent domain for any public or quasi-public use or purpose, and in the event
that such partial taking or condemnation shall cause the Leased Premises to be
reduced by thirty percent (30%) or more and Landlord does not provide comparable
substitute space in the Condominium or shall cause the Leased Premises to be
unsuitable for office use, then the Term of this Lease shall cease and terminate
as of the date of possession being required by the condemning authority.
In the event of a partial taking or condemnation, which is not
extensive enough to render the Lease terminable as provided above, then Landlord
shall promptly restore the Leased Premises to a condition comparable to the time
of such condemnation, less the portion lost in the taking, and this Lease shall
continue in full force and effect and the Base Rent and Tenant's Proportionate
Share hereunder shall be equitably adjusted.
If the whole or a substantial portion of the common parking areas in
the Building shall be acquired or condemned by eminent domain for any public or
quasi-public use or purpose which directly diminishes Tenant's right to parking
under this Lease, then at Tenant's election the Term of this Lease shall cease
and terminate as of the date of possession being required by the condemning
authority unless Landlord shall take immediate steps to provide other parking
facilities for Tenant's parking requirements under this Lease at Landlord's own
expense. In the event that Landlord shall provide such other parking facilities,
then this Lease shall continue in full force and effect.
Please Initial:
---------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
10
<PAGE>
Although all damages in the event of any condemnation are to belong to
Landlord, whether such damages are awarded as compensation for diminution in the
value of the leasehold or the fee, Tenant shall have the right to claim and
recover from the condemning authority, but not from Landlord, such compensation
as may be separately awarded or recoverable by Tenant in Tenant's own right on
account of any and all damage to Tenant for or on account of any cost or loss to
which Tenant might be put in removing Tenant's merchandise, furniture, fixtures,
leasehold improvements and equipment to the extent any such awards do not
diminish the awards otherwise payable to Landlord.
ARTICLE 8
DEFAULTS AND REMEDIES
Section 8.1 Events of Default. The occurrence of any of the following shall
-----------------
constitute an Event of Default hereunder:
(a) The filing of a petition by or against Tenant, any parent of
Tenant, or any guarantor of this Lease for adjudication as a bankrupt or
insolvent, for its reorganization or for the appointment of a receiver or
trustee of Tenant's property if not vacated within thirty (30) days from the
date of filing;
(b) An assignment by Tenant, any parent of Tenant, or any guarantor
of this Lease for the benefit of creditors; or the taking of possession of the
property of Tenant by any governmental officer or agency pursuant to statutory
authority for the dissolution or liquidation of Tenant;
(c) Failure of Tenant to pay any installment of Base Rent or
Additional Rent ("Rent"), due hereunder, or any other sum herein required to be
----
paid by Tenant, on or before the tenth (10th) day after same becomes due;
(d) Tenant's failure to perform any other covenant or condition of
this Lease within ten (10) days after written notice and demand or within thirty
(30) days after such notice and demand, if the failure is of such a character as
to require more than ten (10) days to cure, shall constitute an Event of
Default;
(e) Seizure of Tenant's property or any property of a guarantor of
this Lease under any levy, execution, attachment, or other process of court
where the same shall not be promptly vacated or stayed on appeal or otherwise or
if Tenant's interest in the Leased Premises is sold by judicial sale and the
sale is not promptly vacated or stayed on appeal or otherwise;
Please Initial
--------------
Landlord:[SIGNATURE ILLEGIBLE]
---------------------
Tenant:[SIGNATURE ILLEGIBLE]
---------------------
11
<PAGE>
(f) Tenant vacates or abandons all or substantially all of the
Leased Premises;
(g) The occurrence of any Event of Default by Tenant prior to
the Commencement Date of the Term of this Lease.
(h) Any financial statements or other similar information
supplied by Tenant, any parent of Tenant, or a guarantor of this Lease are
materially false or misleading.
Section 8.2 Landlord's Remedies and Obligations in Event of Tenant's
--------------------------------------------------------
Default. Landlord and Tenant, each having been advised by respective counsel
- -------
as to their respective rights and obligations under the existing statutory and
decisional law of the State of Florida, and each being desirous of obtaining
rights and obligations that might otherwise be unavailable under the existing
law, have bargained for, and do hereby mutually agree, that if any Event of
Default occurs, then, in addition to any other rights or remedies Landlord may
have under any law, Landlord shall have the right, at Landlord's option, without
further notice or demand of any kind to do any or all the following:
(a) Landlord may terminate this Lease and the Term created
hereby, in which event Landlord may forthwith repossess the Leased Premises and
bring an action in damages to recover all Rent due and payable plus any other
sum of money and damages owed by Tenant to Landlord which may accrue through
judgement.
(b) Landlord may elect not to terminate this Lease or the Term
created hereby and not repossess the Leased Premises, and accelerate and declare
that all Rent reserved for the remainder of the Term plus any other sums of
money and damages owed by Tenant to Landlord shall be immediately due and
payable. Landlord may immediately enforce all claims for accelerated rent
(reduced to present dollar values using an assumed interest rate of eight
percent (8%)) and all other sums of money and damages in any court of competent
jurisdiction and may execute, forthwith, on any judgement entered in favor of
Landlord and against Tenant. Additionally, in the event Landlord later elects to
terminate Tenant's right to possession or in the event Tenant abandons or
otherwise relinquishes possession, Landlord shall have the right to immediately
reenter and relet the Leased Premises for the benefit of the Tenant, as provided
in Paragraph 8.2(c) below.
(c) Landlord may terminate Tenant's right of possession,
without terminating the Lease, by any and all actions for possession available
under Florida law, by taking peaceful possession or otherwise, and repossess the
Leased Premises, in which event Landlord may accelerate and declare that all
Rent reserved for the remainder of the Term plus any other sum of money and
damages owed by Tenant to Landlord shall be immediately due
Please Initial
--------------
Landlord:[SIGNATURE ILLEGIBLE]
---------------------
Tenant:[SIGNATURE ILLEGIBLE]
---------------------
12
<PAGE>
and payable. Landlord may immediately enforce all claims for accelerated rent
(reduced to present dollar values using an assumed interest rate of eight
percent (8%)) and all other sums of money and damages in any court of competent
jurisdiction and may execute, forthwith, any judgment entered in favor of
Landlord and against Tenant. Landlord may relet the Leased Premises for the
benefit of Tenant, for such rent and upon such terms as shall be satisfactory to
Landlord. If Landlord relets the Leased Premises for the Tenant's account, he
shall provide Tenant with an accounting at the end of the Lease Term to offset
from the accelerated Rents any amount actually received in reletting. For
purposes of providing Tenant with a remedy of accounting, Tenant agrees that his
right to an offset is preserved by the Court retaining jurisdiction in any
judgment for accelerated rent entered in favor of Landlord, which provides
Tenant with the right of an accounting at the end of the Lease Term. (The
obligation to pursue and enforce an accounting, and the burden of proof of any
offsets shall be borne by the Tenant.) For the purpose of such reletting,
Landlord is authorized to decorate, to make any repairs to the Leased Premises
and/or to subdivide or restructure the Leased Premises as Landlord sees fit
("Tenancy Repairs and Modifications"). Further, Landlord is authorized to enter
---------------------------------
into new leases in which the lease term or other terms and conditions are
different from this Lease ("Lease Modifications"). Concerning any Tenancy
-------------------
Repairs and Modifications and any Lease Modifications, Tenant agrees that such
Tenancy Repairs and Modifications and Lease Modifications are being performed
for the purpose of reletting and mitigating Tenant's damages, and, as such are
done for the benefit of the Tenant and are valid costs of reletting.
Alternatively, Landlord may elect not to accelerate Rents under this Provision
but instead, recover, at the end of the Term or as such sums become due, all
Rents and other sums due and payable. If the Leased Premises are relet and a
sufficient sum shall not be realized from such reletting after paying all of the
costs and expenses of such reletting including, without limitation, costs of
decoration, repairs, changes, alternations and additions, including, but not
limited to, advertising and brokerage commissions, and of the collection of the
rent accruing therefrom to satisfy the Rent provided for in this Lease, Tenant
shall satisfy and pay any such deficiency in an accounting at the end of the
Term or such other period as Landlord may elect. If Landlord shall fail to relet
the Leased Premises during the remainder of the base term, the parties agree
that Tenant shall pay to Landlord as damages a sum equal to the amount of the
total stipulated Rent reserved in this Lease for the balance of the Term.
Notwithstanding, Landlord shall have no duty to account to Tenant for any
surplus rent received through reletting. Further, notwithstanding any of the
above, Tenant agrees that Landlord may file suit to recover any sums which
because due under the terms of this paragraph from time to time and that no suit
or recovery of any portion due Landlord hereunder shall be any defense to any
subsequent action brought for any amount not theretofore reduced to judgment in
favor of Landlord. Notwithstanding anything contained herein, no re-entry or the
taking of possession of the Leased Premises shall be construed as an election on
Landlord's part to terminate this Lease unless a written notice of such
intention to terminate this Lease is given to Tenant. Notwithstanding any such
re-entry or taking of possession, Landlord may, at any time
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE
----------------------
Tenant: [SIGNATURE ILLEGIBLE
------------------------
13
<PAGE>
thereafter, elect to terminate this Lease, in which case the provisions of this
Article 8 governing termination shall apply.
(d) In the event of a default of any rental payment or any other
payment due under this Lease, Landlord may in Landlord's notice to Tenant of
such default require Tenant's payment to cure the default be in cash, cashier's
check, and/or certified check. Landlord and Tenant agree that should Landlord so
elect to require payment by cash, cashier's check or certified check in
Landlord's notice to Tenant, a tender of money to cure the default which is not
in the form requested by Landlord shall be deemed a failure to cure the default.
Nothing contained in this Article shall in any way diminish or be construed as
waiving any of Landlord's other remedies as provided elsewhere in this Lease, or
by law or in equity.
Section 8.3 Landlord's Lien. Landlord shall have a first lien and security
---------------
interest, paramount to all others, on every right and interest, of Tenant in
and to this Lease, and upon any improvements which may hereafter be placed on
the Leased Premises, and on any furnishings and equipment, including fixtures or
personal property of every kind thereon, which lien and security interest is
granted for the purpose of securing and performance of each and every of the
covenants, conditions and obligations of this Lease to be performed and observed
by Tenant. Landlord shall have at all times a valid lien for all Rent and other
sums of money becoming due hereunder from Tenant, upon all goods, wares,
inventory, equipment, fixtures, furniture and other personal property and
effects of Tenant situated on the Leased Premises, and such property shall not
be removed therefrom without the consent of Landlord until all arrearages in
Rent shall first have been paid and discharged. Upon the occurrence of an Event
of Default by Tenant, Landlord may, in addition to any other remedies provided
herein or by law, enter upon the Leased Premises and take possession of any and
all goods, wares, equipment, fixtures, furniture and other personal property and
effects of Tenant situated on the Leased Premises without liability for trespass
or conversion, and sell the same at public or private sale, with or without
having such property at the sale, at which Landlord or his assigns may purchase,
and apply the proceeds thereof, less any and all expenses connected with the
taking of possession and sale of the property, as a credit against any sums due
by Tenant and Tenant agrees to pay any deficiency forthwith. Tenant agrees
that the said lien and security interest may be enforced by distress,
foreclosure or otherwise, at the election of Landlord, that Landlord shall have
all of the remedies of a secured party under the Uniform Commercial Code, and
that Tenant shall execute such financing statements a shall be necessary to
perfect such interest. The statutory lien for rent, if any, is not hereby waived
and the express contractual lien herein granted is in addition thereto and
supplementary thereto.
Section 8.4 WAIVER OF JURY TRIAL. It is mutually agreed by and between
--------------------
Landlord and Tenant that the respective parties hereto shall and they hereby do
voluntarily waive trial by jury in any action, proceeding or counterclaim
brought by either of the parties
Please Initial:
---------------
Landlord: [SIGNATURE ILLEGIBLE]
-----------------------
Tenant: [SIGNATURE ILLEGIBLE
-------------------------
14
<PAGE>
hereto against the other on any matters whatsoever arising out of or in any way
connected with this Lease, the relationship of Landlord and Tenant, Tenant's use
or occupancy of the Leased Premises and/or any claim of injury or damage, and
any emergency or other statutory remedy.
Please Initial to Acknowledge Terms of Section 8.4:
--------------------------------------------------
Landlord:[SIGNATURE ILLEGIBLE]
---------------------
Tenant:[SIGNATURE ILLEGIBLE]
---------------------
Section 8.5 Rights Cumulative. The rights and remedies given to Landlord
-----------------
in this Lease are distinct, separate and cumulative remedies, and no one of
them, whether or not exercised by Landlord, shall be deemed to be in exclusion
of any of the others.
Section 8.6 Attorneys' Fees. Tenant further agrees that in the event its
---------------
default in the performance of any of the terms, conditions, or covenants of
this Lease requires Landlord, in the exercise of its sole discretion, to use the
services of an attorney to attempt to or successfully remedy such default, or in
the event of litigation between Landlord and Tenant respecting any other matters
whatsoever arising out of or in any way connected with this Lease, the Leased
Premises, or the relationship of Landlord and Tenant, including but not limited
to actions for declaratory relief, that Tenant will reimburse Landlord for any
and all reasonable expenses incurred in the use of such attorney and in any
action which said attorney may take, whether suit be instituted or not. Such
expenses shall include, but not be limited to legal fees, paraprofessionals'
fees, court costs, costs of filing and serving summons and/or complaint, etc.,
and expenses not otherwise taxable as costs.
Section 8.7 Notice of Default: Service of Three Day Notice. Tenant hereby
----------------------------------------------
agrees to designate ____________________________________________________________
as its agent to accept service of the statutory three (3) day notice. In
addition, Tenant hereby agrees that service of said notice upon any employee of
Tenant within Leased Premises or by posting a copy of the same on the Leased
Premises shall constitute effective and binding service of the same,
notwithstanding and statutory requirements to the contrary.
Section 8.8 Expenses of Enforcement. In the event any payment due
-----------------------
Landlord under this Lease shall not be paid in the due date, said payment shall
bear interest at the rate of eighteen percent (18%) per annum from the due date
until paid, unless otherwise specifically provided herein, but the payment of
such interest shall not excuse or cure any default by Tenant under this Lease.
In the event that it shall be necessary for Landlord to give more than one (1)
written notice to Tenant during the Term of this Lease of any violation of this
Lease, Landlord shall be entitled to make an administrative charge to Tenant of
Fifty and No/100 Dollars ($50.00) for each such additional notice. Tenant
recognizes and agrees that the charges
Please Initial:
--------------
Landlord:[SIGNATURE ILLEGIBLE]
---------------------
Tenant:[SIGNATURE ILLEGIBLE]
---------------------
15
<PAGE>
which Landlord is entitled to make upon the conditions stated in this Section
represent, at the time this Lease is made, a fair and reasonable estimate and
liquidation of the cost of Landlord in the administration of the Lease resulting
from the events described which costs are not contemplated or included in any
Rent or other charges provided to be paid by Tenant to Landlord in this Lease.
Any charges becoming due under this Section of this Lease shall be added and
become due with the ensuing monthly payment of Base Rent and shall be
collectible as a part thereof.
Section 8.9 Surrender and Holding Over. If Tenant or anyone claiming
--------------------------
under Tenant shall remain in possession of the Leased Premises or any part
thereof after the expiration of the Term without an agreement in writing between
Landlord and Tenant with respect thereto, the person remaining in possession
shall be deemed a tenant at sufferance, and, during such holding over, all Base
Rent and Additional Rent payable under this Lease shall be payable at a rate
twice the rate in effect immediately prior to the expiration of the Term. In no
event, however, shall such holding over be deemed or construed to constitute an
extension or renewal of this Lease. Upon the expiration and termination of this
Lease, either by lapse of time or otherwise, Tenant shall surrender to Landlord
the Leased Premises in "broom clean" condition, and in good repair, reasonable
wear and tear expected.
ARTICLE 9
ALTERATIONS
Tenant shall not make any non-structural alternations
improvements, repairs, installations or removals or additions to the Leased
Premises which do not affect utility services or plumbing or electrical lines
("Alterations") during the term of this Lease or any extension or renewal
-----------
thereof, without first obtaining the written consent of Landlord, and it shall
not cut or drill into, or secure any fixture, apparatus or equipment of any kind
to any part of the Leased Premises without first obtaining the written consent
of Landlord. All Alterations made by Tenant as aforesaid shall remain upon the
Leased Premises at the expiration or earlier termination of this Lease and shall
become the property of Landlord, unless Landlord shall, prior to the expiration
or termination of this Lease, have given written notice to Tenant to remove the
same, in which event Tenant shall remove such Alterations and restore the
Leased Premises to the same good order and condition in which it was at the
commencement of this Lease. Should Tenant fail to do so, Landlord may do
so, collecting at Landlord's option, the cost and expense thereof from Tenant as
Additional Rent. Tenant shall have no right to make any alterations,
improvements, repairs, installations or removals or additions to the Leased
Premises which are not otherwise permitted pursuant to the terms hereof.
Tenant shall procure all necessary permits before making any
Alterations. Tenant agrees that all Alterations done by it at its request, or
anyone claiming under it, shall
Please Initial:
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Landlord:[SIGNATURE ILLEGIBLE]
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Tenant:[SIGNATURE ILLEGIBLE]
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be done in a good and workmanlike manner of first class institutional office
building quality, that the same shall be done in conformity with all laws,
ordinances and regulations of all public authorities, that the structure of the
Leased Premises shall not be endangered or impaired and that Tenant shall repair
all damages caused by or resulting from any such Alternations.
ARTICLE 10
TRADE FIXTURES
All trade fixtures installed by Tenant in the Leased Premises shall
be new or completely reconditioned and may remain the property of Tenant and
shall be removable at the expiration or earlier termination of this Lease,
provided Tenant shall not at such time be in default under any covenant or
agreement contained in this Lease; provided further, that in the event of such
removal, Tenant shall promptly restore the Leased Premises to their original
order and condition. Any such trade fixtures not removed at or prior to such
termination shall be and become the property of Landlord. All improvements and
fixtures installed by Tenant, (other than trade fixtures) including, but not
limited to heating equipment, lighting fixtures, air-conditioning equipment,
ceiling, wall treatment, floor covering, plumbing and electrical systems and
fixtures, whether or not installed by Tenant, shall not be removable by Tenant
and shall become the property of Landlord without any compensation therefor to
Tenant, upon the termination of this Lease.
ARTICLE 11
QUIET ENJOYMENT
Upon payment by Tenant of the Base Rent and Additional Rent herein
provided, and upon the observance and the performance of all of the covenants,
terms and conditions on the Tenant's part to be observed and performed, Tenant
shall peaceably and quietly hold and enjoy the Leased Premises for the Term
hereby demised without hindrance or interruption by Landlord or any other person
or persons lawfully or equitably claiming by, through or under Landlord,
subject, nevertheless to the terms and conditions of this Lease; provided,
however, that Landlord shall not be responsible for any action or inaction of
the Association or of any other owner or tenant of any other unit of the
Condominium.
ARTICLE 12
MAINTENANCE
Except for maintenance and repairs performed by the Association, all
maintenance and repairs respecting the Leased Premises shall be performed by
Tenant at Tenant's expense. Tenant shall, at all times, keep the Leased Premises
(including maintenance of its entrances and all glass except to the extent same
is maintained by the Association) and
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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all interior partitions, doors, fixtures and equipment in good order, condition
and repair, except for those portions maintained by the Association. Tenant
further agrees to replace promptly at its own expense with glass of a like kind
and quality and plate glass or window glass of the Leased Premises which may
become cracked or broken by reason of Tenant's negligence; not to place or
maintain articles in the vestibule or entry of the Leased Premises, in the
hallway adjacent thereto or elsewhere on the exterior thereof; not to permit
accumulations of garbage, trash, rubbish and other refuse, and to keep such
refuse in proper containers (or in trash room maintained by Tenant) in the
interior of the Leased Premises until removed; not to use or permit the use of
any apparatus for sound reproduction or transmission or of any musical
instrument in such manner that the sound so reproduced, transmitted or produced
shall be audible beyond the interior of the Leased Premises; to keep all
mechanical apparatus free of vibration and noise which may be transmitted beyond
the confines of the Leased Premises; not to cause or permit objectionable odors
to emanate or be dispelled from the Leased Premises; to comply with all laws and
ordinances and all valid rules and regulations of any Federal, State, Municipal
or public authority or the Association having jurisdiction over the Leased
Premises and Landlord, and all recommendations of any public or private agency
having authority over insurance rates with respect to the use or occupancy of
the Leased Premises by Tenant; and to conduct its business in the Leased
Premises in all respects in a dignified manner and in accordance with high
standards of office operation. In the event Landlord or the Association is
required to make repairs to structural portions of the Leased Premises by reason
of Tenant's negligent acts or omissions to act, Landlord may charge the actual
cost of such repairs to Tenant and such cost shall thereafter become due as
Additional Rent.
ARTICLE 13
SIGNS
Tenant hereby agrees that it will not place or suffer to be placed or
maintained on any exterior door, wall or window of the Leased Premises any
signs, awning, or canopy, or advertising matter or other thing of any kind, and
will not place or maintain any decoration, lettering or advertising matter on
the glass of any window or door of the Leased Premises which is not in
conformity with the Rules and Regulations of the Building as set forth by the
Association without first obtaining Landlord's, and if required by the
Condominium Documents, the Association's, written approval and consent, Landlord
agrees and hereby consents to Tenant placing Tenant's name on the entrance to
the Leased Premises, subject to the Condominium Documents. Tenant further agrees
to maintain such sign, decoration, lettering, advertising matter or other thing
as may be approved or provided by Landlord in good condition and repair at all
times. Tenant further acknowledges that Landlord and the Association may
regulate the lettering, size, placement, color and design of Tenant's sign.
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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ARTICLE 14
PARKING
(a) At no additional expense, Tenant shall be entitled to fourteen
(14) parking space(s) at the Condominium, as follows:
=====================================================
Parking Space N degrees Location
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24 Basement (covered)
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28 Basement (covered)
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55 Basement (covered)
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56 Basement (covered)
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57 Basement (covered)
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80 Basement (covered)
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81 Basement (covered)
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102 Basement (covered)
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198 Ground level
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199 Ground level
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202 Ground level
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203 Ground level
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151 Ground level
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152 Ground level
=====================================================
(b) Neither Tenant nor its employees shall park in any space which is
not designated as Tenant's assigned spaces. Tenant shall furnish Landlord and
the Association with a list of its employees' vehicle license numbers within
fifteen (15) days after such change occurs. Tenant agrees to assume
responsibility for compliance by its employees with the parking provisions
contained herein. Tenant shall be liable to the Association for any violation of
the Condominium Documents or the Association's requirements respecting parking,
and shall hold Landlord harmless and indemnify Landlord against any loss,
liability, expense, or claims, including reasonable attorneys' fees incurred in
the defense of same, respecting any violation,
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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well-founded or un-founded, of a violation of the Condominium Documents or the
Association's requirements respecting parking.
(c) Landlord shall not be liable for any damage whatsoever to, or any
theft of, automobiles or other vehicles or the contents thereof, while in or
about the Condominium parking area.
ARTICLE 15
MISCELLANEOUS PROVISIONS
Section 15.1 No Recording of Lease. The parties hereto agree that neither
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this Lease nor any notice thereof or reference thereto shall be recorded in any
public records, except that Landlord only may request a memorandum of the
pertinent portions hereof be recorded in the public records of Dade County,
Florida. Such memorandum shall in all events contain the provisions of this
Lease giving notice that Landlord's interest in the Leased Premises shall not be
subject to any construction liens as a result of any contracts entered into
between Tenant and any third party, or arising out of or related to any
improvements made to the Leased Premises or materials or services applied
thereto which may be ordered by Tenant. In the event of such a request by
Landlord, Tenant shall join in the execution of such memorandum for the purpose
recordation.
Section 15.2 Notices. Wherever in this Lease it shall be required or
-------
permitted that notice or demand be given or served by either party to this Lease
to or on the other, such notice or demand shall not be deemed to have been duly
given or served unless in writing, and either personally delivered or delivered
by overnight mail or forwarded by Certified Mail, Return Receipt Requested,
postage prepaid, addressed as follows:
TO THE LANDLORD AT: Apremont, Inc.
2600 S.W. Third Avenue, PH-A
Miami, Florida 33129
Attn.: Mr. Andres Altaba, President
WITH A COPY TO: SHAPO, FREEDMAN & FLETCHER, P.A.
200 South Biscayne Boulevard
4750 First Union Financial Center
Miami, Florida 33131
Attn: David A. Freedman, Esq.
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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TO THE TENANT AT: Conquistador Cigar Company
2600 S.W. Third Avenue, Suite 100
Miami, Florida 33129
Attn: Abraham Safir, President
WITH A COPY TO: Kaplan & Gottbetter
630 Third Avenue
New York, NY 10017
Attn:Adam Gottbetter, Esq.
Such addresses may be changed from time to time by either party by serving
notices as above provided. Mailed notice shall be deemed effective three (3)
days after such mailing.
Section 15.3 Access to Leased Premises. Landlord or Landlord's agents and
-------------------------
the agents of the Association shall have the right to enter the Leased Premises
at all times to examine the same, and to show them to prospective purchasers,
mortgagees, or lessees, and to make such Alterations as Landlord or the
Association may deem necessary or desirable, and the Base Rent and Additional
Rent reserved herein shall not abate while said Alterations are being made by
reason of loss or interruption of business of Tenant or otherwise. However,
nothing herein contained shall be deemed or construed to impose upon Landlord
or the Association any obligation, responsibility or liability whatsoever, for
the care, maintenance, or repair of the Condominium or any part thereof, expects
as otherwise herein specifically provided. In the event of an emergency, if
Tenant shall not be personally present to open and permit any entry into said
Leased Premises, Landlord or Landlord's agents or the Association's agents may
forcibly enter the same, without rendering Landlord or Landlord's agents or the
Association or its agents liable therefore, and without in any manner affecting
the obligations and covenants of this Lease.
Section 15.4 Assignment and Subletting.
-------------------------
(a) Tenant shall not assign, mortgage, pledge or encumber this Lease,
in whole or in part, not sublet the whole or any part of the Leased Premises,
nor permit the use of the whole or any part of the Leased Premises, by any
licensee or other persons or entities, without first obtaining the written
consent of Landlord in each instance, which consent shall not be unreasonably
withheld. This prohibition shall be construed to include a prohibition against
any assignments or subletting by operation of law. In the event of any such
assignment, subletting or licensing made with the written consent of Landlord,
as aforesaid, Tenant will nevertheless remain liable for the performance of all
of the terms, conditions and covenants of this Lease. Any permitted assignment,
subletting or license shall be by and agreement in form
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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and content acceptable to Landlord. Landlord consents to any sublease in which
United Health Management Co. or a parent, subsidiary, or sister company to
United Health Management Co. is the subtenant.
(b) If Landlord consents to any assignment, sublease or occupancy
pursuant to this Section, except for any assignment or sublease to an entity in
which Ian Markofsky, or a corporation in which Ian Markofsky is a shareholder,
is a shareholder, Tenant shall pay Landlord, as Additional Rent:
(i) in the case of each and every assignment, an amount equal
to ALL monies, property, and other consideration of every kind whatsoever
paid or payable to Tenant by the assignee for such assignment and for all
property of Tenant transferred to the assignee as part of the transaction
(including, but not limited to, fixtures, other leasehold improvements,
furniture, equipment and furnishings); and
(ii) in the case of each and every sublease or occupancy
arrangement, ALL Base Rent, Additional Rent, and/or other monies, property,
and consideration of every kind whatsoever paid or payable to Tenant by the
subtenant under the sublease or occupant under occupancy arrangement, LESS
all Rent under this Lease accruing during the term of the sublease or
occupancy arrangement in respect of the subleased or occupied space (as
reasonably determined by Landlord, taking into account the useable area of
the Leased Premises demised under the sublease or occupancy arrangement).
(c) No such assignment, subletting or occupancy arrangement shall be
deemed a waiver of this covenant, or the acceptance of the assignee, subtenant
or occupant as Tenant, as a release of Tenant from the further performance by
Tenant of the covenants on the part of Tenant herein contained.
(d) If Tenant is a corporation, general partnership or limited
partnership and if at any time during the Lease Term, without the written
consent of Landlord, the person(s) or entity(ies) who own a majority interest of
Tenant, either directly or indirectly, at the time of the execution of this
Lease cease to own a majority interest (except as a result of transfers by
bequest or inheritance), Tenant shall so notify Landlord and Landlord may
terminate this Lease by notice to Tenant given within Ninety (90) days
thereafter. Any consent by Landlord to an assignment or subletting of this Lease
or occupancy arrangement shall not constitute a waiver of the necessity of such
consent to any subsequent assignment, subletting or occupancy arrangement.
Please Initial
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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<PAGE>
Section 15.5 Subordination.
-------------
(a) This Lease and all rights of Tenant hereunder are and shall be
subject and subordinate to the lien of any and all mortgages entered into by
Landlord which may now or hereafter encumber the Leased Premises, and to all
renewals, modifications, amendments, consolidations, replacements and extensions
thereof and to any and all ground lease(s) or master lease(s) of the Condominium
or any lien resulting from any method of financing or refinancing, now or
hereafter in force against the Condominium or Leased Premises and to all
advances made or hereafter to be made upon the security thereof; provided,
however, that with respect to any mortgage entered into Landlord after the date
of this Lease, the subordination provided in this Section 15.5 shall be
conditioned upon the mortgagee agreeing to not to disturb the Tenant's occupancy
of the Leased Premises and to allow Tenant quiet enjoyment thereof for so long
as Tenant complies with each and every covenant and obligation to be observed by
Tenant under this Lease. This subordination shall be self-operative and no
further instrument of subordination shall be required for its operation. Tenant
agrees, however, upon demand, to execute promptly such instruments, without
expense to Landlord, as Landlord or a mortgagee may reasonably request to
further evidence the subordination of this Lease to any existing or future
mortgage or other security agreement, ground lease or master lease.
(b) In the event any proceedings are brought for the foreclosure of,
or in the event of exercise of the power of sale under any mortgage made by
Landlord covering the Leased Premises, or in the event a deed is given in lieu
of foreclosure of any such mortgage, or upon the assignment of this Lease by
Landlord, Tenant shall attorn to the purchaser or grantee in lieu of
foreclosure, upon any such foreclosure or sale, and recognized such purchaser or
grantee in lieu of foreclosure, as Landlord under this Lease. Such Landlord,
mortgagee or purchaser at said foreclosure sale, shall not be:
(i) Liable for any act or omission of any prior Landlord;
(ii) Subject to any offsets or defenses which Tenant may
have against any prior Landlord; or
(iii) Bound by any Base Rent or Additional Rent which Tenant
may have paid to any prior Landlord for more than the current month.
(c) Tenant shall execute promptly any such instruments or
certificates required to carry out the intent of this Section as shall be
requested by Landlord. Tenant hereby irrevocably appoints Landlord as attorney
in fact for Tenant with full power and authority to execute and deliver in the
name of Tenant, any such instruments or certificates required pursuant to this
Section. If within ten (10) days after the date of a written request by Landlord
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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to execute such instrument, Tenant shall not have executed same, Landlord may,
at its option, cancel this Lease without incurring any liability on account
therefor.
Section 15.6 Construction Liens. Tenant shall not do any act, nor is
------------------
Tenant authorized to make any contract which may create or be the foundation for
any lien or other encumbrance upon any interest of Landlord or any other unit
owner in any portion of the Leased Premises or the Condominium. If, because of
any act or omission (or alleged act or omission) of Tenant, any construction,
mechanic's, or other lien, charge or order for the payment of money or other
encumbrance shall be filed against Landlord, and/or any other unit owners and/or
any mortgagee, and/or any portion of the Leased Premises or the Condominium
(whether or not such lien, charge, order or encumbrance is valid or enforceable
as such), Tenant shall, at its own cost and expense, cause the same to be
discharged of record or bonded within thirty (30) days after notice to Tenant of
the filing thereof; and Tenant shall indemnify and save harmless Landlord, all
other units owners, and all mortgagees against and from all costs, liabilities,
suits, penalties, claims and demands, including attorney's fees and appellate
attorneys' fees resulting therefrom. In the event Tenant fails to comply with
the foregoing provisions of this Section, Landlord shall have the option of
discharging or bonding any such lien, charge, order, or encumbrance by payment
or otherwise, and Tenant agrees to reimburse Landlord for all costs, expenses
and other sums of money in connection therewith (as Additional Rent) with
interest at the rate of eighteen percent (18%) per annum promptly upon demand.
Section 15.7 Entire Agreement. This Lease and the exhibits and addenda,
----------------
if any, attached hereto and forming a part hereof, set forth all the covenants,
promises, agreements, conditions and understandings between Landlord and Tenant
concerning the Leased Premises, and there are no covenants, promises,
agreements, conditions or understandings, either oral or written, between them
other than as set forth herein. Except as herein otherwise provided, no
subsequent alteration, amendment, change or addition to this Lease shall be
binding upon Landlord or Tenant unless reduced to writing and, signed by each.
Section 15.8 No Partnership. Landlord shall not, in any way or for any
--------------
purpose, be deemed to become a partner of Tenant, in the conduct of its business
or otherwise, or joint venturer or a member of a joint enterprise, with Tenant.
Section 15.9 Captions and Section Numbers. The captions, section numbers,
----------------------------
article numbers and table of contents appearing in this Lease are inserted only
as a matter of convenience and in no way define, limit, construe or describe the
scope or intent of such Sections or Articles of this Lease, nor in any way
affect this Lease.
Section 15.10 Partial Invalidity. If any term, covenant or condition of
------------------
this Lease, or the application thereof to any person or circumstance shall to
any extent be invalid or
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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<PAGE>
unenforceable, the remainder of this Lease, or the application of such term,
covenant or condition to persons or circumstances other than those to which it
is held invalid or unenforceble, shall not be affected thereby and each other
term, covenant and condition of this Lease shall be valid and be enforced, to
the fullest extent permitted by law.
Section 15.11 Governing Law. This Lease has been made and executed in the
-------------
State of Florida and shall be construed and enforced in accordance with the laws
of the State of Florida.
Section 15.12 Waiver. The waiver by Landlord of any breach of any term,
------
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance of
Rent hereunder by Landlord shall not be deemed to be a waiver of any particular
breach by Tenant of any term, covenant or condition of this Lease, regardless of
Landlord's knowledge of such preceding breach at the time of the acceptance of
such Rent. No covenant, term or condition of this Lease shall be deemed to have
been waived by Landlord, unless such waiver be in writing by the Landlord.
Section 15.13 Accord and Satisfaction. No payment by Tenant or receipt by
-----------------------
Landlord of a lesser amount other than the Rent herein stipulated shall be
deemed to be other than on account of the stipulated Rent nor shall any
endorsement or statement on any check or any letter accompanying any check or
payment as Rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of Base Rent or Additional Rent or pursue any other remedy provided in
this Lease.
Section 15.14 Successors and Assigns. All rights, obligations and
----------------------
liabilities herein, given to, or imposed upon the respective parties hereto
shall extend to and bind the several and respective heirs, executors,
administrators, successors, sublessees and assigns of said parties; provided,
however, that the liability of Landlord hereunder and any successor in interest
and title to the Leased Premises shall be limited to his or its interest in the
Condominium and Building, and no other assets of Landlord other than his or its
interest in the Condominium, and no other assets of Landlord other than his or
its interest in the Condominium shall be affected by reason of any liability
which Landlord or its successor in interest may have under this Lease. Any and
all such liability imposed on Landlord shall terminate upon Landlord's transfer,
sale, assignment or hypothecation of his or its interest in the Condominium. If
there shall be more than one Tenant, they shall all be bound jointly and
severally by the terms, covenants and agreements herein and the word "Tenant"
------
shall be deemed and taken to mean each and every person or party mentioned as a
Tenant herein, be the same one or more; and if there shall be more than one
Tenant, any notice required or permitted by the terms of this Lease, may be
given by or to any one thereof and shall have the same force and effect as if
given by or to all thereof. No rights, however, shall inure to the benefit of
any assignee of
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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Tenant unless the assignment to such assignee has been approved by Landlord in
writing as aforesaid.
Section 15.15 Brokerage Indemnity. Landlord and Tenant each hereby
-------------------
represent and warrant to the other that they have dealt with no broker, finder
or similar agent, in connection with this Lease, except for Greater Miami
-------------
Investments, Inc., whose commission will be paid by Landlord. In the event that
- ------------------
any broker or agent claims a brokerage fee in connection with this transaction
other than Greater Miami Investments, Inc., the party responsible therefore,
agrees to pay said fee and to indemnify and hold harmless the other party from
and against any and all liability and expense in connection with commissions,
compensation or otherwise for the bringing about of this transaction or the
consummation thereof, including reasonable attorneys' and paraprofessionals'
fees (in an effort to defend the brokerage claim), for the non-responsible party
should it be joined in litigation.
Section 15.16 Condition of Leased Premises. Taking possession of the
----------------------------
Leased Premises by Tenant shall be conclusive evidence as against Tenant that
the Leased Premises were in good and satisfactory condition when possession was
so taken. Tenant agrees to accept the Leased Premises in their current condition
and to make certain improvements thereto, subject to Landlord's approval as
provided in Section 15.20(a), at Tenant's sole cost and expense.
Section 15.17 Taxes. Tenant shall be responsible for and shall pay before
-----
delinquency all municipal, county or state taxes assessed during the Term of
this Lease against any occupancy interest or personal property of any kind,
owned by or placed in, upon or about the Leased Premises by Tenant. Tenant shall
also pay to Landlord any sales, use or excise tax, or any similar tax assessed
or levied with respect to the Rent received by Landlord and with respect to any
amounts receivable by Landlord under this Lease or otherwise as may be now or
hereafter authorized by the laws of any governmental authority having
jurisdiction in the matter, whether federal, state, county or municipal.
Landlord shall pay all real estate taxes respecting the Leased Premises.
Section 15.18 Prior Occupancy. If Tenant, with Landlord's consent, shall
---------------
occupy the Leased Premises prior to the beginning of the Lease Term specified in
Section 1.3 hereof, all provisions of this Lease shall be in full force and
effect commencing upon such occupancy, and Rent for such period shall be paid by
Tenant at the rate herein specified.
Section 15.19 Time and Consent. It is understood and agreed hereto that
----------------
time is of the essence regarding all the terms, provisions, covenants and
conditions of this Lease. Unless otherwise provided herein to the contrary,
whenever the consent of either party shall be required hereunder such consent
shall not be unreasonably withheld or delayed.
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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<PAGE>
Section 15.20 Leasehold Improvements.
----------------------
(a) Tenant shall submit the plans and specifications for its
leasehold improvements (the "Leasehold Improvements") to landlord for its
----------------------
approval prior to commencement of Tenant's construction thereof. Landlord's
consent shall not be unreasonably withheld, delayed or conditioned. If Landlord
does not raise objections thereto within ten (10) business days after delivery
of such plans and specifications to Landlord, they shall be deemed approved.
(b) Tenant shall be permitted to select a contractor of its choice to
perform the Leasehold Improvements, subject to Landlord's approval, which
approval shall not be unreasonably withheld or delayed, with the cost of such
services to be borne and paid for by Tenant. It is to be understood and agreed
that Landlord shall receive no fee for profit, overhead or general conditions in
respect of the other contractor's work or for review of plans and specifications
prepared for Leasehold Improvements. Tenant shall be responsible for any damage
caused to the Condominium by such contractor and any subcontractors, laborers,
materialmen or others in the Condominium at the request of Tenant.
Section 15.21 Security. Tenant has deposited with landlord the sum of Ten
--------
Thousand an No/100 Dollars ($10,000.00) as security for the faithful performance
and observance by Tenant of the terms, provisions and conditions of this Lease.
It is agreed that in the event Tenant defaults in respect of any of the terms,
provisions and conditions of this Lease, including, but not limited to, the
payment of Rent, Landlord may use, apply or retain the whole or any part of the
security so deposited to the extent required for the payment of any such Rent or
any other sum as to which Tenant is in default or for any sum which Landlord may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this Lease, including but not
limited to, any damages of deficiency in the reletting of the Leased Premises,
whether such damages or deficiency accrued before or after summary proceedings
or other reentry by Landlord. In the event that Tenant shall fully and
faithfully comply with all of the terms, provisions, covenants and conditions of
this Lease, the security shall be returned to Tenant after the date fixed as the
end of this Lease and after delivery of entire possession of the Leased Premises
to Landlord. In the event of a sale of the Leased Premises, Landlord shall have
the right to transfer the security to the vendee and Landlord shall thereupon be
released by Tenant from all liability for the return of such security, and
Tenant agrees to look to the new Landlord solely for the return of said
security; and it is agreed that the provisions hereof shall apply to every
transfer or assignment made of the security to a new Landlord. Tenant further
covenants that it will not assign or encumber or attempt to assign or encumber
the monies deposited herein as security and that neither Landlord nor its
successors or assigns shall be bound by any such assignment, encumbrance,
attempted assignment or attempted encumbrance.
Please Initial:
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Landlord: [SIGNATURE ILLEGIBLE]
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Tenant: [SIGNATURE ILLEGIBLE]
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<PAGE>
In the event Landlord uses, applies, or retains the whole or any part
of the security deposited with Landlord in accordance with this Section 15.21,
Tenant shall, on demand, pay to Landlord the sum so used, applied or retained
which shall be added to the security deposit so that the same shall be
replenished to its former amount.
Section 15.22 Hazardous Waste.
---------------
(a) Tenant shall not use, handle, store, display or generate in the
Leased Premises any materials which are toxic, ignitable, corrosive or reactive
or any other hazardous materials without compliance with any and all applicable
federal, state or local laws and regulations.
(b) Tenant shall indemnify, demand and hold harmless Landlord against
and from any and all liability, damages, judgments, costs, fees and expenses,
including without limitation thereto, reasonable attorneys' and
paraprofessionals' fees at all levels, which may be incurred by Landlord in
complying with, or curing a violation by Tenant of this Section.
Section 15.23 Radon Gas Disclosure. Radon is a naturally occurring
--------------------
radioactive gas that, when it has accumulated in a building in sufficient
quantities, may present health risks to persons who are exposed to it over
time. Levels of radon that exceed federal and state guidelines have been found
in buildings in Florida. Additional information regarding radon and radon
testing may be obtained from your county public health unit.
Section 15.24 Option to Renew Lease. Landlord grants to Tenant the option
---------------------
(the "Option") to renew this Lease on the same terms and conditions as
------
contained in this Lease (except for this Section 15.24 and except as otherwise
provided in this Section 15.24), for a single term (the "Option Term") of five
-----------
years from the expiration date of this Lease, provided that Tenant is not in
default of any of the provisions of this Lease a the time Tenant exercises the
Option and does not default under the Lease prior to the commencement of the
Option Term (and at either time no event has occurred, which but for the passage
of time would constitute a default). Tenant shall have the right to exercise the
Option at any time during the initial term of this Lease up to one hundred
eighty (180) days preceding the expiration date of the original term of this
Lease, after which the Option will be deemed to have expired and to have been
waived if the Option has not been exercised by that date.
(a) Method of Exercising Option. Tenant shall exercise the Option by
---------------------------
giving written notice ("Option Notice") to Landlord within the time period
-------------
provided in Section 15.24. The Option Notice shall be given pursuant to the
procedures for notices provided the Lease.
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
28
<PAGE>
(b) Base Rent. The Base Rent for the Option Term shall be determined
---------
as provided in Section 2.1 of this Lease, including the provision thereof for
annual increase of Base Rent provided in Section 2.1 (d), subject to the cap
provided in Section 2.1 (d)(iv), and the provision for payment of increases in
Condominium assessments provided in Section 2.1 (e), both of which shall apply
for each lease year of the Option Term.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed this
Lease as of the date and year first above written.
WITNESSES: LANDLORD:
APREMONT, INC., a Florida corporation
[SIGNATURE ILLEGIBLE]
- ------------------------------
Print name:___________________
/s/Sara Ohlmann By: /s/ Andres Altaba,
- ------------------------------ ------------------------------------
Print name: Sara Ohlmann Andres Altaba, as President
------------------
TENANT:
CONQUISTADOR CIGAR COMPANY,
a Delaware corporation
[SIGNATURE ILLEGIBLE]
- ------------------------------
Print name:___________________
/s/ Sara Ohlmann [SIGNATURE ILLEGIBLE]
- ------------------------------ ----------------------------------------
Print name: Sara Ohlmann Abraham Shafir, as President
------------------
Please Initial:
--------------
Landlord:[SIGNATURE ILLEGIBLE]
---------------------
Tenant:[SIGNATURE ILLEGIBLE]
---------------------
29
<PAGE>
EXHIBIT A
---------
GUARANTY
THIS GUARANTY ("Guaranty") is made as of March 29, 1996, and between the persons
--------
who have executed this Guaranty as "Guarantor(s)" (collectively, "Guarantor"),
---------
and APREMONT, INC., a Florida corporation, having offices at 2600 S.W. Third
Avenue, PH-A, Miami, Florida 33129, ("Landlord").
--------
WHEREAS, CONQUISTADOR CIGAR COMPANY, a Delaware corporation, ("Tenant"),
------
having an office at 2600 S.W. Third Avenue, Suite 100, Miami, Florida 33129, is
desirous of becoming the tenant of the space designated as Units 100, 200, and
250 of VIZCAYA VIEW PLAZA, a condominium, according to the Declaration thereof
as recorded on June 15, 1982, in Official Records Book 11469 at page 2196 of the
Public Records of Dade County, Florida, and situate at 2600 S.W. Third Avenue,
Miami, Florida 33129 (the "Leased Premises"), pursuant to a lease (the "Lease")
--------------- -----
between Landlord and Tenant dated as of March 29, 1996, and
WHEREAS, Guarantor is a shareholder of Tenant; and
WHEREAS, Landlord has refused to enter into the Lease unless Guarantor
executes and delivers this Guaranty to Landlord;
NOW, THEREFORE, to induce Landlord to enter into the Lease, and in
consideration of the sum of One Dollar and other good and valuable
consideration, the receipt of which is hereby acknowledged, Guarantor hereby
represents, covenants, warrants, and agrees as follows:
1. Guarantor absolutely and unconditionally guarantees to Landlord and
any mortgagee having an interest in Landlord's interest in the Lease, and to
each separately, punctual, full, and faithful performance and observance by
Tenant of all of the terms, provisions, and conditions of the Lease to be
performed and observed by Tenant. Notwithstanding anything to the contrary
provided in this Guaranty, this Guaranty shall only apply to and Guarantor only
guaranties hereunder the performance and observance by Tenant of all of the
terms, provisions, and conditions of the Lease to be performed and observed by
Tenant under the Lease during the first twelve months of the term of the Lease.
Guarantor shall have no liability for any liability of Tenant coming due after
the first twelve months of the term of the Lease, including but not limited to
Base Rent and Additional Rent for any period after the first twelve months of
the term of the Lease.
Please Initial:
--------------
Landlord:[SIGNATURE ILLEGIBLE]
---------------------
Tenant:[SIGNATURE ILLEGIBLE]
---------------------
<PAGE>
2. Guarantor waives notice of any breach or default by Tenant under the
Lease and --- and all other notices and demands. Under no circumstances shall
Landlord be required to institute or pursue any action or proceeding at law or
in equity against Tenant or anyone else prior to demanding or obtaining
performance from Guarantor under this Guaranty.
3. All rights and remedies afforded to Landlord by reason of this
Guaranty are separate and cumulative rights and remedies and it is agreed that
no one of such rights or remedies, whether exercised by Landlord or not, shall
be deemed to be an exclusion of any of the other rights or remedies available to
Landlord and shall not limit or prejudice any other legal or equitable right or
remedy which Landlord may have.
4. Any act of Landlord, or the successors or assigns of Landlord,
consisting of a waiver of any of the covenants to be performed by Tenant, the
giving of any consent to any manner or thing relating to the Lease, or the
granting of any indulgences or extensions of time to Tenant may be done without
notice to Guarantor and without releasing the obligations of Guarantor
hereunder.
5. The obligations of Guarantor hereunder shall not be released or
diminished by Landlord's failure to enforce the Lease or any waiver under,
extension to, or other modification of the Lease or assignment thereof or
subletting thereunder.
6. The liability of Guarantor hereunder shall in no way be affected by
(a) the release or discharge of Tenant in any creditors', receivership,
bankruptcy, or other proceedings, whether voluntary or involuntary; (b) the
impairment, limitation, or modification of the liability of Tenant or the estate
of Tenant in bankruptcy, or of any remedy for the enforcement of Tenant's
liability under the Lease, resulting from the operation of any present or future
proceedings with respect to bankruptcy or creditors' rights; (c) the rejection
or disaffirmance of the Lease in any such proceedings; (d) the assignment,
attempted assignment, or transfer of the Lease or any subletting of the Leased
Premises by Tenant, whether consented to by Landlord or not; (e) any disability
or other defense of Tenant; (f) the cessation from any cause whatsoever of the
liability of Tenant; (g) any default, failure or delay, willful or otherwise, in
performance of the terms of the Lease to be performed by Tenant; (h) the failure
or delay of Landlord to assert any claim or demand or to enforce, assert or
exercise any right, power or remedy against Tenant or any other person with
respect to the Lease; or (i) any modification, amendment or other change to the
terms and provisions of the Lease.
7. No invalidity, irregularity or unenforceability of all or any part of
the terms of the Lease shall affect, impair or be a defense to this Guaranty,
and the promise to pay contained in this Guaranty is a primary obligation of
Guarantor.
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
2
<PAGE>
8. In the case of any proceedings to collect any payment hereunder or any
other litigation between Guarantor and Landlord respecting this Guaranty, the
Lease, Tenant's occupancy of the of the Leased Premises, or any other matters
whatsoever arising out of or in any way connected with the Lease or this
Guaranty, Guarantor shall pay all costs and expenses of Landlord whatsoever, of
every kind for collection, sale or delivery, including without limitation
thereto reasonable attorneys' fees at all levels, and such sums, at Landlord's
election, may be an offset against the proceeds of sale or collection and
thereafter the Landlord may apply any residue to pay any liabilities of
Guarantor, who shall continue to be liable for any deficiency.
9. Guarantor covenants and represents that:
(a) There is no action or proceeding pending or, to the knowledge of
Guarantor, threatened against Guarantor before any court or administrative
agency and no event has occurred which might result in any material adverse
change in the business condition of Guarantor or in the property of Guarantor
from the condition of Guarantor as set forth in the most recent financial
statement of Guarantor furnished to Landlord. Guarantor shall deliver to
Landlord within ninety (90) days after the end of each calendar year, an audited
statement of its net worth prepared in accordance with generally accepted
accounting principles (unless Guarantor is a natural person) applied in a manner
satisfactory to Landlord.
(b) Guarantor has filed all Federal and State Income Tax returns
which are required to be filed, and has paid all taxes as shown on said returns
to the extent that such taxes have become due.
(c) Guarantor is not individually or jointly a party to any contract
or guaranty which materially and adversely affects its business, property,
assets or financial condition (exclusive of guarantees and other similar
contingent obligations incurred in the ordinary course of business and generally
disclosed on the most recent financial statement of such Guarantor furnished to
Landlord). Neither the execution, honor or delivery of this Guaranty nor the
fulfillment of or compliance with the terms and provisions hereof will conflict
with, or result in a breach of the terms, conditions or provisions of, or
constitute a default under or result in the creation of any lien, charge or
encumbrance upon any property or assets of Guarantor under any other guaranty or
instrument to which Guarantor is now a party or by which Guarantor may be bound.
10. If any of the following events occur and be continuing:
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
3
<PAGE>
(a) If any representation or warranty by Guarantor herein or any
representation or warranty in any writing furnished in connection with or
pursuant to this Guaranty shall be false in any respect on the date as of which
made; or
(b) If Guarantor defaults after demand in the performance or
observance of any guarantee, covenant, term or condition contained in this
Guaranty; or
(c) If Guarantor makes an assignment for the benefit of creditors; or
(d) If Guarantor petitions or applies to any tribunal for the
appointment of a trustee or receiver of the business, estate or assets or of any
substantial portion of the business, estate or assets of Guarantor, or commence
any proceedings, relating to Guarantor under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or
(e) If any such petition or application is filed or any such
proceedings are commenced against Guarantor and Guarantor by any act indicates
its approval thereof, consent thereto, or acquiescence therein, or any order is
entered appointing any such trustee or receiver, or declaring Guarantor bankrupt
or insolvent, or approving the petition in any such proceedings;
THEN, an event of default under this Guaranty shall have occurred and
Landlord, at its option, may declare all sums guaranteed hereunder forthwith due
and payable, under the terms of and with the effect provided in this Guaranty,
regardless of whether (a) a default by Tenant shall have occurred under the
Lease or (b) Landlord shall have exercised any of its rights or remedies under
the Lease.
11. This Guaranty may not be changed, modified, discharged or terminated
orally or in any manner other than by a written instrument signed by Guarantor
and Landlord.
12. Notice of acceptance of this Guaranty, presentment, demand for
payment, protest, notice of default or non-payment, notice of dishonor and all
other notices and demands are hereby waived by Guarantor.
13. This Guaranty and the rights and obligations of the Landlord and of
Guarantor hereunder shall be governed and construed in accordance with the laws
of the State of Florida; and this Guaranty is binding upon Guarantor, its
successors and assigns, and shall inure to the benefit of the Landlord, its
successors and assigns. Guarantor hereby irrevocably submits to the jurisdiction
of any Florida State or Federal Court located in Dade County over any action or
proceeding arising out of any dispute between Guarantor and the Landlord, and
Guarantor
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
4
<PAGE>
other irrevocably consents to the service of any processing any such action or
proceeding ??? the mailing of a copy of such process to Guarantor at the address
set forth herein.
14. Guarantor hereby agrees and acknowledges that this Guaranty is an
instrument for the payment of money, and hereby consents that Landlord, at its
sole option, in the event of a default by Guarantor in the payment of any of the
moneys due hereunder, shall have the right to bring an action under the summary
proceeding statutes of the State of Florida.
15. If there shall be more than one Guarantor, each of the Guarantors
agrees to be bound jointly and severally by the terms, covenants, and agreements
herein and the word "Guarantor" shall be deemed and taken to mean each and every
---------
person or party mentioned as a Guarantor herein, be the same one or more. If
there shall be more than one Guarantor, any notice required hereunder may be
given by or to any one thereof and shall have the same force and effect as if
given by or to all thereof. A separate action may be brought to enforce the
provisions hereof against any one or more of the Guarantors whether or not
Tenant, or any of the other Guarantors, is a party in any such action. Tenant
and/or each of the Guarantors may be sued together, or any one of them may be
sued separately without first or contemporaneously suing the other.
16. Execution and acceptance of this Guaranty by Landlord are waived.
IN WITNESS WHEREOF, Guarantor has hereunto set his hand and seal this
day and year first above written.
Witnesses: Guarantor(s)
VIKING INVESTMENT GROUP II, INC., a
Delaware corporation
[SIGNATURE ILLEGIBLE] By: /s/ Ian Markofsky {seal}
- ---------------------------- ------------------------------
Ian Markofsky, President
Address: 630 Third Avenue
------------------------
NY, NY 10017
---------------------------------
[SIGNATURE ILLEGIBLE] _________________________________
- ----------------------------
Please Initial:
--------------
Landlord: [SIGNATURE ILLEGIBLE]
---------------------
Tenant: [SIGNATURE ILLEGIBLE]
---------------------
5
<PAGE>
EXHIBIT 10.2
DISTRIBUTION AGREEMENT
----------------------
THIS AGREEMENT is made effective the 1st day of July, 1997, by and between
TAMBORIL CIGAR COMPANY, a corporation duly organized and existing under the laws
of the State of Delaware, with its principal office located at 2600 S.W. Third
Avenue, Miami, Florida 33129, (hereafter referred to as the "Company"), and
HUBBARD IMPORTS, a Florida General Partnership, whose address is 16295 N.W. 16
Court, Miami, Florida 33169 (hereafter referred to as the ""Distributor"").
WITNESSETH:
-----------
WHEREAS, the Company desires to have all of its Brands (as defined further
below), including but not limited to Tamboril, Cordova, and Fore, distributed in
the United States by Distributor; and
WHEREAS, the Distributor desires to be an exclusive distributor of the
Company's cigars in the Territory as defined in Section 1(b) below.
NOW, THEREFORE, in consideration of the promises and the mutual covenants
herein and for other good and valuable consideration hereinafter set forth, the
receipt and sufficiency of which is hereby acknowledged by each of the parties,
it is understood and agreed as follows:
1. Definitions. The following terms shall have the meanings specified
------------
below for the purposes of this Agreement:
(a) "Products" shall mean all of the Company's cigars, including but
not limited to those commonly known as "Tamboril," "Cordova", and "Fore".
Schedule A
-Page 1 of 18-
<PAGE>
lists the current brands and will reflect that all future Company Products
(either created or acquired) will automatically be added as they become
available provided Distributor notifies Company within thirty (30) days
after receiving written notice from Company that a new product becomes
available, that Distributor will distribute the new product. Those brands
produced by the Company at any one time (except for those not distributed
by Distributor pursuant to the preceding sentence) shall be referred to for
purposes of this Agreement as the "Brands". Notwithstanding the preceding
to the contrary, it is acknowledged that the Fore brand will not be
available for distribution until August 1, 1997.
(b) "Territory" shall mean the United States of America, and shall also
include military, duty free, airline, and cruise accounts with a United
States based company (e.g., American Airlines, Cunard Cruise Lines, etc.).
(c) "Prices" shall mean the prices in effect for sale of the Brands by
the Company to the Distributor as set forth in Schedule B attached hereto
unless such prices are changed in compliance with Section 5 hereof.
(d) "Trademarks" shall mean the trademarks associated with the Brands,
as set forth in Schedule C attached hereto.
2. Distributorship. The Company hereby grants to the Distributor the
---------------
exclusive right for the term hereof, and privilege, to sell and distribute the
Brands in the Territory, subject to the terms and conditions set forth herein.
3. Duties of the Distributor.
-------------------------
-Page 2 of 18-
<PAGE>
(a) The Distributor undertakes and agrees to diligently, and in a
commercially reasonable manner, sell and promote the sale of the Company's
Brands in the Territory as its exclusive distributor.
(b) The Distributor shall devote its best efforts to promote and sell the
Company's Brands in the Territory and shall provide to the Company, on a monthly
basis, written sales reports, setting forth the quantity of each brand sold
specifying quantities for each of Distributor's subdistributors.
(c) Subject to the other related terms contained herein, the Distributor
agrees and guarantees to purchase at a minimum, ___ cigars on or before December
31, 1997 (the "1997 Minimum Purchase Requirement). All purchases of cigars prior
to the effective date of this Agreement shall count towards the 1997 Minimum
Purchase Requirement. Notwithstanding the preceding to the contrary, the
purchase of any Fore Brand cigars or other brands not in existence as of the
date of this Agreement will not count towards the 1997 Minimum Purchase
Requirement.
4. Duties of the Company.
---------------------
(a) The Company shall process the Distributor's orders for Brands with
reasonable promptness, pursuant to the delivery schedule mutually agreed to in
advance by the parties. The Schedule for 1997 deliveries is attached as Schedule
D. In years subsequent to 1997, the delivery schedule for the applicable year
will be established, by mutual agreement, at the same time the minimum purchase
requirement for such year is determined pursuant to Section 9 below.
-Page 3 of 18-
<PAGE>
(b) Company and Distributor will enter into a mutually acceptable written
schedule each year that will provide, in advance, a schedule that will allow
Distributor adequate opportunity to plan for its distribution. Company
understands that delivery pursuant to the agreed upon schedule, as to the
minimum purchase requirement, is a material requirement of Company pursuant to
this Agreement.
(c) The Company shall provide to Distributor a limited quantity, at no
cost, of whatever sales and point-of-sale materials that are in existence at the
time of execution of this Agreement as well as any future sales and
point-of-sale materials that become available during the term of the Agreement.
The Company and Distributor will mutually agree on the 1997 advertising and
promotion budget in connection with the Brands. The Company agrees to advertise
and promote the Brands, for all future years under this Agreement at no less a
support level than for 1997.
(d) The Company will provide all of the Brands to Distributor through its
factories in the Dominican Republic. Distributor shall receive priority as to
all Brands produced by the Company.
(e) The Company will promptly provide Distributor with current sales
information, quantity and type sold for 1997. This information will be
categorized by Brands and current accounts. The information will reflect all
previous activity for all Brands, showing sales and returns by account.
5. Pricing Freight Insurance.
-------------------------
-Page 4 of 18-
<PAGE>
(a) The prices for the sale of the Brands to the Distributor during the
first 12 months of this Agreement are set forth on Schedule B attached hereto.
These prices shall remain in effect at least until June 30, 1998; provided
however, in the event of a material Change in the manufacturing cost of the
Brands, the Company may raise (or will reduce its prices if costs drop) its
prices to reflect cost increases or decreases. The term "Material Change" shall
mean an increase or decrease of direct cost in excess of 10 percent of current
direct costs.
(b) Within ten (10) business days of a Material Change, Company shall
provide written notice of same with the details of this change to Distributor
and the price to the Distributor shall be modified accordingly. In the event
Distributor has already received a purchase order from one or more of its
customers during such ten (10) day period, and Distributor is not already in
possession of inventory to fill said order, the prices for those particular
cigars shall be unaffected by the Material Change.
(c) All cigars sold to Distributor will be delivered F.O.B. Miami.
6. Returned Cigars.
---------------
(a) Distributor shall have sixty (60) days to inspect all Brands received
from Company and shall notify Company in writing within said period of any
defects, allowing Company to understand the nature of such defects. In the event
that Cigars are returned as a result of defects in the manufacture or delivery
of the Brands to the F.O.B. point in Miami discovered during the sixty (60) day
period, Company shall refund the purchase price for said Brands in the form of a
credit against any amount owed by
-Page 5 of 18-
<PAGE>
Distributor to Company.
(b) In the event there are no open invoices against which to claim
credit, Company shall promptly refund to Distributor the amount due from
such defective Products, whether or not a claim under this section occurs
during or after the termination of this Agreement.
(c) No refunds shall be due for any defects occurring from the
storage, handling, act, or omission to act, by Distributor, its agents, or
its customers.
7. Payments. Payment for all orders during the term of this Agreement
--------
shall be net thirty(30) days from the date of delivery of cigars to Distributor
in Miami. A one time payment of ________________ d ($_____) Dollars shall be
made by Distributor to Company as of the date this Agreement is executed. The
Distributor shall receive equal _______________ ($_____) Dollars monthly credits
against invoices due from Distributor in October, November, and December 1997.
If for any reason (e.g., force majeure) there is any amount of the remaining
unused credit, Distributors shall be entitled to take that remaining unused
credit during the month of December 1997.
8. Trademarks.
----------
(a) The Distributor acknowledges that the Trademarks and all
ancillary rights thereto in any and all trademark classifications
(collectively the "Trademarks") of the Products and Brands, as listed in
Schedule C hereto, are the sole property of the Company, and the
Distributor agrees not to take any action inconsistent with such ownership
or license including but not limited to opposition or cancellation
proceedings.
-Page 6 of 18-
<PAGE>
The Distributor does not acquire hereby, and shall not endeavor to acquire,
any rights, licenses or interest in the Trademarks or any marks
substantially similar anywhere in the world, including, but not limited to,
acquisition through registration, application for registration or use. Any
and all use of the Trademarks by Distributor shall inure to the benefit of
the Company.
(b) Distributor further agrees to promptly notify the Company of
any unauthorized use of the Trademarks in the Territory which comes to its
attention.
(c) The term Trademarks shall include not only trademarks, service
marks and trade names that are currently the property of the Company, but
also those acquired in the future.
(d) The Company agrees to promptly notify Distributor of any claim
of the unauthorized use of the Trademarks in the Territory, which comes to
the attention of the Company.
(e) The Company shall defend all Trademarks, at its cost and will
hold Distributor harmless and indemnify Distributor for any loss or costs
(including attorney's fees) in connection therewith.
(f) The Company warrants that it has the right to use all of its
Trademarks, and will indemnify and hold harmless Distributor in the event
that any third party challenges the use or ownership of any Trademark.
9. Standard of Production: Company's Production; Purchase Commitment.
-----------------------------------------------------------------
(a) Company agrees to produce all Brands for Distributor according
to the
-Page 7 of 18-
<PAGE>
Company's established standards for the production of Brands (based on the
Company's production to date), and warrants the production will be at least as
high a quality, and consistency, as the samples that have previously been
provided.
(b) Distributor agrees and guarantees to purchase at least ________ cigars
pursuant to the delivery schedule attached hereto as Schedule D on or before
December 31, 1997. The Company agrees and guarantees to deliver cigars in
accordance with the delivery schedule on Schedule D. Subject to supplying
sufficient cigars to meet the 1997 Minimum Purchase Requirement (and subsequent
year's minimum purchase requirement), the Company shall be permitted to sell and
distribute up to 12 percent of its cigar production from the Tamboril, Dominican
Republic factory(ies) in addition to 100 percent of cigars produced at another
factory(ies) outside of the Territory, without any obligation to Distributor
under this Agreement.
(c) Any cigars purchased by Distributor from the Company prior to the
execution of this Agreement shall count towards Distributor meeting the 1997
Minimum Purchase Requirement. Further, in the event Distributor fails to meet
the 1997 Minimum Purchase Requirement, cigars purchased in January 1998 shall
count towards any shortfall in meeting the 1997 Minimum Purchase Requirement,
provided that the shortfall was 10 percent or less of the 1997 Minimum Purchase
Requirement. In such event, any cigars purchased in a calendar year which are
being counted towards the previous year's minimum purchased requirement, shall
not be counted towards the then current year's minimum purchased requirement.
-Page 8 of 18-
<PAGE>
(d) After 1997, the parties shall mutually agree upon minimum purchase
requirement for subsequent years. Commencing in January, 1998, and in January of
succeeding years during the term of this Agreement (including any option
periods), the parties shall negotiate, in good faith, any required minimum
purchase requirement.
10. Customs and Excise Taxes, Permits, Compliance.
---------------------------------------------
(a) The Distributor hereby agrees to pay any and all Customs and Excise
Taxes and any other taxes for import or sale of Brands into and within the
Territory.
(b) The Distributor warrants that it possesses all permits and licenses
necessary for the conduct of its business in connection with the Brands and that
it will maintain such permits and licenses during the term of this Agreement.
(c) The parties at all times shall exercise their best efforts to
monitor, and promptly, completely and accurately inform the other party about
all rules and regulations and all changes of existing rules and regulations
applicable to the packaging and to all advertisement material of, and relating
to, the Brands and their distribution and sale in the Territory.
(d) The Company warrants that it will comply with all federal, state and
local laws, as well as the laws of any country where the Brands are
manufactured, regarding the manufacture and sale to Distributor of the Brands.
11. Force Majeure.
-------------
(a) Any delay or failure of performance of any part of this Agreement
shall be excused if and to the extent caused, directly or indirectly, by an
occurrence beyond
-Page 9 of 18-
<PAGE>
either party's control, including, but not limited to, disputes with
workmen, fires, strikes, epidemics, floods, accidents, earthquakes,
hurricanes, delays in transportation, shortage of freight cars, trucks or
vessels, shortages of fuel or other materials, war, riot, civil commotion,
radiological contamination, blockades, embargoes, acts, demands or
requirements of any governmental body of the United States of America or
Dominican Republic, or of any other country from which shipments of the
Brands shall be sent or received, or any state or municipality thereof,
restraining order of any courts, acts of God or other events of force
majeure. Written notice of an occurrence of force majeure shall be
given by the affected party to the other party within twenty (20) days
after such event occurs.
(b) Should force majeure, legislation or governmental action,
subsequently frustrate either party in complying with this Agreement for a
period of one hundred eighty (180) consecutive days after the notice
contemplated by subsection (a) above, the aggrieved party may terminate
this Agreement in accordance with Section 13 below; provided however, that
Distributor must exercise the right to terminate hereunder within ten (10)
business days following the expiration of said one hundred eighty (180) day
period, or, Distributor's right to terminate shall lapse regarding that
particular incident of force majeure, without further notice.
12. Term. The term of this Agreement, but subject to the termination
----
provisions set forth herein, shall commence on the date first set forth above
and shall continue for an initial term expiring on December 31, 2000. In
addition, but subject to meeting minimum performance
-Page 10 of 18-
<PAGE>
standards as set forth in this section, Distributor shall have three (3)
additional three (3) year options to renew. The options to renew shall only be
exercisable if:
(a) The Distributor shall have met the minimum purchase requirement
for the preceding year.
(b) The Distributor shall give the Company no less than ninety (90)
days written notice of its intention to exercise its option.
(c) The exercise of any option after the first option renewal shall
be contingent upon the satisfaction of Subsections (a) and (b) above, the
provisions in the paragraph below, and the previous option having been
exercised.
Notwithstanding the preceding to the contrary, any exercise of any
option is contingent on the Distributor and the Company agreeing on the
minimum purchase requirement for the first year of the applicable option
term within ten (10) days of the exercise. The parties shall act in good
faith to determine the minimum purchase requirement for the first year of
any option, taking into consideration the previous years' minimum purchase
requirement.
13. Termination. This Agreement may be terminated in the following
------------
circumstances:
(a) If either party files or has filed against it, or consents to the
filing of any petition in bankruptcy or for other relief under any
bankruptcy law or law for the relief of debtors, or be adjudicated
insolvent, or be dissolved or liquidated, or make any assignment with its
creditors, or a receiver or similar person should be appointed (each of the
preceding reflects as a "Bankruptcy Event"), then the other party may
terminate
-Page 11 of 18-
<PAGE>
this Agreement by notice in writing, in the event such Bankruptcy Event is
not terminated with twenty (20) days; or
(b) Pursuant to the force majeure provisions of Section 11 (b) above.
(c) Subject to the 10 percent shortfall cure provision set forth in
Paragraph 9(c) above, in the event that Distributor fails to achieve the
purchase commitments set forth in Schedule D (or in subsequently agreed
upon commitments), Company shall have the right, but not the obligation, to
terminate this Agreement upon thirty (30) days prior written notice to
Distributor. In the event that Company terminates this Agreement for
Distributor's failure to achieve the purchase requirements set forth in
Schedule D (including the 1997 Minimum Purchase Requirement as set forth in
Section 9 above), Distributor, at its option, shall be required to within
ten (10) days purchase (and pay for) the difference between actual
purchases through the date of termination and the amounts committed to in
Schedule D, (the "Purchase Deficiency"), or pay to the Company the profit
that the Company would have earned on the Purchase Deficiency. For purposes
of the preceding sentence, "profit" shall be computed based on 30 percent
of the average invoice price for the Brands purchased over the preceding
six (6) months.
(d) In the event of a material change in the cost of insurance
insuring against Distributor liability resulting from the sale and/or
distribution of the Brands, Distributor shall have the right, by giving the
Company fifteen (15) days written notice, to cancel this Agreement
effective the date that such material change in the cost of insurance
occurs. In such event, Distributor shall supply to Company written evidence
of such material
-Page 12 of 18-
<PAGE>
change. Any purchase orders delivered to Company prior to termination
pursuant to this paragraph shall be filled by Company, shipped to
Distributor, and Distributor shall pay the invoices for said cigars in
addition to any invoices outstanding at the time of said termination,
within 30 days of their date of delivery.
(e) The parties agree that the non-performance or breach of any of
the essential obligations of either party under this Agreement or any
action or omission by either party that adversely and substantially affects
the other party shall be valid cause for the termination of this Agreement
prior to the expiration of its term.
(f) Pursuant to the provisions of Section 21 (a) below.
(g) Pursuant to the provisions of Section 21 (d) below.
In any event of a termination, Distributor shall be permitted to sell
its remaining inventory.
14. Waiver. The failure or omission by either party to insist upon or
-------
enforce any of the terms of this Agreement shall not operate to bar any legal
rights of said party unless such waiver shall be in writing and signed by the
waiving party.
15. Notices. All notices and other communications required or permitted to
--------
be given pursuant to this Agreement shall be in writing and shall be sent by
telecopier or facsimile and confirmed by a subsequent letter sent by overnight
courier service to the addresses shown below, or such other address as either
party may furnish the other in writing from time to time, any such notices and
changes of address to be effective on the business day next following the
delivery of the confirming notice by overnight courier.
-Page 13 of 18-
<PAGE>
If to the Company:
Mr. Anthony Markofsky
TAMBORIL CIGAR COMPANY
2600 S.W. Third Avenue
Miami, Florida 33129
With an additional copy to:
STEVEN M.KAPLAN, ESQ.
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, New York 10017
If to the Distributor:
HUBBARD IMPORTS
c/o Lee F.Hager
16295 N.W.16 Court
Miami, Florida 33169
With an additional copy to:
ROBERT G.BREIER, ESQ.
Breier and Seif, P.A.
1320 South Dixie Highway - Suite 830
Coral Gables, Florida 33146
16. Assignment. The Distributor shall have the right to assignment or
-----------
transfer this Agreement to an entity as credit worthy as Distributor, and which
includes as a majority owner one or more of the current owners of Distributor as
of the date of this Agreement.
17. Severability. If any provision of this Agreement is determined to be
-------------
invalid or unenforceable, the remaining provisions shall not be affected, and
this Agreement shall be
-Page 14 of 18-
<PAGE>
administered as though the invalid or unenforceable provision were not written
in this Agreement. Any such invalid or unenforceable provision shall be
replaced, by mutual agreement of the parties, by a legally valid and enforceable
provision that resembles most closely the invalid or unenforceable provision and
that complies best with the parties' original intentions.
18. Headings. The headings in this Agreement are for purposes of
--------
convenience only and shall not limit or otherwise affect any of the terms of
provisions hereof.
19. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument.
20. Complete Agreement Amendments and Supplements. This Agreement,
---------------------------------------------
together with the various Schedules attached to and referred to herein as the
same may be amended or supplemented from time-to-time, contains the complete
agreement and understandings of the parties with respect to the subject matter
of this Agreement, and they supersede all prior discussions, agreements,
understanding of any and every nature, whether written or oral, between the
parties with respect to the subject matter of this Agreement, and may be amended
or supplemented only by a subsequent writing signed by parties.
21. Standards of Manufacture: Insurance: and Indemnification.
--------------------------------------------------------
(a) Company represents and warrants that the Brands delivered to
Distributor or its designee(s) pursuant to this Agreement shall be
produced, labeled and packaged in conformity with all laws, regulations and
standards applicable to use within the United States of America.
-Page 15 of 18-
<PAGE>
(b) During the term of this Agreement, Company shall maintain in full
force and effect general liability insurance with product-completed
operations liability coverage in connection with the purchase and resale of
Brands by Distributor, Distributor's designees and customers, in an amount
of not less than One Million ($1,000,000) Dollars for a single occurrence,
or Three Million ($3,000,000) Dollars in total. Such insurance will list
Distributor as an additional named insured and shall also contain a broad
form vendor's endorsement, further providing that Distributor shall be
notified in writing of any cancellation, expiration or non renewal not less
than thirty (30) days in advance by the insurer. Company shall cause the
insurer, on an annual basis, to send Distributor certificates confirming
such coverage. This provision is contingent upon the Company being able to
acquire Brands liability insurance at economically feasible rates. In the
event the Company does not maintain Brands liability coverage, and
Distributor is unable to secure Brands liability coverage covering the
Brands as set forth in Section 13 above, Distributor shall have the option
to terminate the Agreement. Notwithstanding anything set forth in this
subsection to the contrary, even in the event that the Company is unable to
obtain and continue to maintain Brands liability insurance (and Distributor
does not exercise its right to terminate herein), it will indemnify and
hold harmless the Distributor for any claims that result from the sale to
Distributor or use of the Company's Brands.
(c) Company shall defend, indemnify, and hold harmless, Distributor
and its insurance carrier, from and against any and all losses, costs,
claims, damages, liabilities,
-Page 16 of 18-
<PAGE>
and expenses, including reasonable attorneys' fees and other costs and
expenses incurred, sustained by, or served against them, at the trial level
and with respect to all appeals, which they may suffer as a result of
product liability, trademark infringement, or any other claims which arise
from the distribution of Brands by Distributor in accordance with the terms
of this Agreement. Notwithstanding the above, this indemnification and hold
harmless provision shall not be applicable if the loss, cost, claim,
damage, liability or expense is caused solely by the act or failure to act
on the part of the Distributor, in which case Distributor will defend,
indemnify, and hold harmless, Company, and its insurance carrier, from and
against any and all losses, costs, claims, damages, liabilities or
expenses, including reasonable attorney's fees and other costs and expenses
incurred, sustained by, or served against them, at the trial level and with
respect to all appeals, which they may suffer as a result of product
liability, trademark infringement, or any other claims which arise from the
distribution of Brands by Distributor in accordance with the terms of this
Agreement.
The provisions of this Section shall survive the termination of this Agreement.
22. Governing Law. This Agreement shall be governed, construed and
-------------
interpreted under and pursuant to the laws of the State of Florida.
IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year
-Page 17 of 18-
<PAGE>
first above written.
TAMBORIL CIGAR COMPANY HUBBARD IMPORTS, a Florida Partnership
By: /s/ Anthony Markofsky By: /s/ Wayne E. Chapin
____________________________ ___________________________________
Title: PRESIDENT Title: PRESIDENT
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-Page 18 of 18-
