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U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB/A
(Amendment No. 1)
(Mark One)
[X ] QUARTERLY REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from .............. to ...............................
Commission file number 0-22573
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TAMBORIL CIGAR COMPANY
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(Exact name of small business issuer as
specified in its charter)
Delaware 65-0774638
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
2600 S.W. 3rd Avenue
Miami, FL 33129
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(Address of principal executive offices)
(305) 860-9887
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(Issuer's telephone number)
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Not Applicable
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(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No...
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by court. Yes ... No ...
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: 5,903,894 shares of Common
Stock, par value $.0001 per share
Transitional Small Business Disclosure Format (check one);
Yes ... No X
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PART I--FINANCIAL INFORMATION
Item 1. Financial Statements.
The Company's Consolidated Balance Sheet is amended solely to correct
typographical errors in date captions. All other financial information is
hereby incorporated by reference to the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1997, filed with the Commission on
November 14, 1997.
Item 2. Management's Discussion and Analysis or Plan of Operation.
The Company was incorporated and began start-up operations in April of
1996. In the period from the commencement of operations on April 15, 1996
through September 30, 1996, the Company was primarily engaged in locating a
site in the Dominican Republic at which to conduct manufacturing operations,
negotiating with tobacco growers to ensure supplies of quality tobacco,
recruiting employees and product development to establish the blends of
tobaccos and the curing and aging processes to create the Company's cigars.
Sales for the three and nine month periods ended September 30, 1996 totaled
$94,119 and total expenditures were approximately $250,574 and $349,780,
respectively, resulting in net losses of $203,574 for the three months and
$302,780 for the nine months ended September 30, 1996. Since the Company was
barely operational at that time, comparisons between the three month and
nine month periods ended September 30, 1996 and the three-and nine month
periods ended September 30, 1997 are not appropriate and could, in fact, be
misleading.
Due to the foregoing, the following information discusses the results of
operations, liquidity and capital resources and related matters for the
three months and nine months ended September 30, 1997 and compares such
results to those for the year ended December 31, 1996. All information
relates to the consolidated results and financial condition of the Company
and its two principal operating subsidiaries, Tamboril Cigar International,
Inc. ("TCI") and Tabacalera Tamboril, S.A. ("Tabacalera").
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The Company was incorporated in April 1996 to commercialize the efforts of
its founders to establish a business to manufacture and distribute premium
cigars. The Company began operations on April 15, 1996 and commenced sales
in the fourth quarter of 1996. Sales of cigars bearing the Tamboril(TM)
brand name constituted 100% of the Company's sales for the period ended
December 31, 1996. In April of 1997, the Company introduced its Cordova(TM)
line of cigars and in October 1997 introduced Fore!(TM), a golf-motif cigar.
On July 7, 1997 the Company entered into a distribution agreement with
Hubbard Imports, a Florida partnership ("Hubbard") pursuant to which Hubbard
became the exclusive U.S. distributor for the Company's products (the
"Distribution Agreement").
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The Company intends focusing on manufacturing and marketing activities,
leaving virtually all day-to-day sales activities to Hubbard.
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 the Company believes that the demographic
factors underlying the growth in the cigar market since 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, TCI and Tabacalera for the period from
inception at April 15, 1996 through December 31, 1996 and for the three- and
nine-month periods ended September 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
consolidated 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 work with Hubbard 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
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channels. In addition, the Company has introduced Cordova(TM), which is a
more moderate priced line 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 periods
from inception to December 31, 1996 and January 1 through September 30, 1997
support management's views.
In the period from January 1 through July 7, 1997, the Company sold its
products directly to retail tobacconists throughout the United States,
utilizing a sales force of five employees. On July 7, 1997 the Company
entered into the Distribution Agreement with Hubbard, pursuant to which
Hubbard was appointed exclusive distributor for the Company's products in
the United States through December 31, 2000 (the "Distribution Agreement").
Under the Distribution Agreement, Hubbard must maintain certain minimum
annual purchases from the Company to continue to have the exclusive rights
to distribute the Company's cigars in the United States. These minimum
amounts are to be set each January for the ensuing calendar year.
Management of the Company believes that, although operating through a
distributor such as Hubbard will lower the Company's gross profit margins,
it will enable the Company to more rapidly penetrate its target market for
premium cigars. In addition, the Company believes that the Hubbard
relationship will result in lower costs of sales, marketing and promotion,
resulting in significant gains in net profits.
Net sales for the three- and nine-month periods ended September 30,
1997 were $1,864,652 and $4,403,640, respectively. Sales to Hubbard in the
three- and nine-month periods ended September 30, 1997 accounted for
approximately $1,516,023 (81.3%) and $2,669,715 (60.6%) of total sales,
respectively, in those periods. Sales included initial sales of Cordova(TM),
which was introduced in April of 1997. There were no sales of Fore!(TM) in
the period. Sales of Fore!(TM) are expected to begin to have an impact in
the fourth quarter of 1997. The Distribution Agreement is expected to
contribute approximately $5,000,000 in total to sales in calendar 1997, of
which $2,669,715 have occurred as of September 30, 1997.
The Company is currently building a second manufacturing facility to
increase capacity from approximately 300,000 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 partial
year results reflected in the financial statements for the periods from
April 15, 1996 through December 31, 1996 and January 1, 1997 through
September 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.
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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%. Costs of goods sold during the three- and nine-month
periods ended September 30, 1997 were $892,688 and $1,799,068 or 48% and 41%
of sales, respectively. Accordingly, gross profits for the three- and nine-
month periods ended September 30, 1997 were $971,964 (52% of sales) and
$2,604,572 (59% of sales), respectively. Management of the Company believes
these percentage levels of gross profit compare favorably with industry
norms, but that the pricing to Hubbard under the Distribution Agreement and
the introduction of new products aimed at lower-priced market niches will
result in lower gross profits percentages in the future.
Selling, general and administrative expenses from April 15, 1996 through
December 31, 1996 totaled $1,034,386, or 73.16% of sales, representing the
costs of establishing the Company infrastructure. These levels should
decline substantially as a percentage of total revenues as the Company's
operations in manufacturing and sales expand. The Company spent
approximately $120,000 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. Selling, general and
administrative expenses in the three- and nine-month periods ended September
30, 1997 totaled $541,325 (29% of sales) and $2,039,736 (46% of sales),
respectively. The lower percentage over the three months compared with the
nine months is attributable to Hubbard's taking over much of the sales
function since the execution of the Distribution Agreement. Management
believes that this percentage will stabilize over the next few quarters as
Company advertising levels will increase to support expanded sales efforts
by Hubbard.
The Company experienced a loss from operations from April 15, 1996 through
December 31, 1996 of $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.
The Company incurred additional debt of approximately $1,975,000 and related
interest expenses since December 31, 1996 and net interest expense was
$163,516 for the nine months ended September 30, 1997. The Company's entire
debt was recapitalized on September 30, 1997.
Income from operations for the three- and nine-month periods ended
September 30, 1997 was $430,639 and $725,336, respectively. Interest
expense for the three- and nine-month periods was $81,478 and $163,516
respectively, resulting in net income for the periods of $223,161 and
$435,820. Interest expense in future periods will be decreased by
approximately $60,000 per quarter due to the recapitalization of certain
debt of the Company as of September 30, 1997, but will be increased by
approximately $5,000 per quarter by virtue of the Company's 8% Convertible
Debentures issued in connection with a $3,000,000 financing completed on
September 23, 1997. See "LIQUIDITY AND
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CAPITAL RESOURCES." While the Company has been able to generate net profits
in the past three quarters, the Company is still in the early stages of its
development and there can be no assurance that the Company's products will
attain sufficient market acceptance or that expenses will stabilize at
levels that will result in profits in the future.
Liquidity And Capital Resources
The Company had negative cash flows from operating activities of
$1,410,528 for the period from April 15, 1996 to December 31, 1996. Cash
inflows from financing activities during 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. The Company incurred
additional debt of approximately $1,975,000 in the period from December 31,
1996 to support continued construction of its second manufacturing facility
in the Dominican Republic and advanced construction costs for Tamboril at
the Park. On September 30, 1997, a total of $1,984,681.44 in aggregate
principal and interest of the Company's debt was recapitalized by the
issuance of 328,584 shares of Common Stock and 328,584 five-year warrants to
purchase shares of Common Stock at an exercise price of $5.89 per Share.
This recapitalization will materially increase the Company's cash available
for operations. The Company also repaid an additional $1,149,935 in
principal and accrued interest on its outstanding debt on September 30,
1997.
From January 1 through September 30, 1997, the Company had negative cash
flow from operations of $1,526,270, namely due to significant increases in
accounts receivable ($818,000), inventory ($1,340,000) and advances on
tobacco purchases ($436,000), all attributable to the Company's increased
sales, primarily due to the Distribution Agreement. These were offset by
operating income of $430,639 for the three month, and $725,336 for the nine
months, ended September 30, 1997. Net interest expense of $81,478 for the
three months, and $163,516 for the nine months, ended September 30, 1997,
resulted in pretax income of $349,161 for the three months, and $561,820 for
the nine months, ended September 30, 1997.
Net cash inflows from financing activities during the nine months ended
September 30, 1997 was $3,475,852, representing approximately $2,600,000 in
net proceeds of the Private Offering described below in "RECENT SALES OF
UNREGISTERED SECURITIES" and the recapitalization of the Company's debt.
Cash flows used for investing activities during the nine month period ended
September 30, 1997 amounted to $515,857, representing capital expenditures
related to the construction of the Company's second manufacturing facility
in the Dominican Republic. Capital expenditures for the remainder of 1997
are expected to approximate $300,000.
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As of September 30, 1997, cash on hand was $1,679,664. The cash on hand
as of September 30, 1997 is expected to be sufficient to finance the
Company's anticipated capital expenditures, increases in working capital
requirements, and its financing of tobacco growers for the remainder of
1997. The Company has no lines of credit or similar arrangements with banks
or other traditional lending services.
The Company plans to use the remaining proceeds from the sale of Series B
Shares and Convertible Debentures to support expansion of manufacturing and
sales and marketing activities. The Company will most likely seek to
acquire the additional up to $3,000,000 available under the Purchase
Agreement to support expansion including additional inventory and increased
marketing expenditures. 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 the Company will meet the conditions to such
additional sales set forth in the Purchase Agreement or that equity capital
will be otherwise 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 increases 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.
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
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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-QSB 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.
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PART II--OTHER INFORMATION
Item 1. Legal Proceedings
By letter agreement dated January 21, 1997 (the "Agreement"), the Company
appointed Carlin Equities Corp. ("Carlin"), as exclusive placement agent in
connection with a contemplated offering of approximately 1.4 million shares
of the Company's common stock at $7.00 per share (the "Proposed Offering").
Pursuant to the Agreement, the Company was to provide a confidential
offering memorandum in form and substance satisfactory to Carlin. During
the period 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 several drafts of a confidential offering memorandum
and related documents drafted to the specifications of Carlin and its
counsel. Carlin and its counsel repeatedly and, in the opinion of the
Company, unreasonably rejected these documents. In light of these
developments and the fact that Carlin had not introduced the Company to
prospective investors, the Company concluded that Carlin had abandoned the
Proposed Offering. The Company then decided not to go forward with the
Proposed Offering. On April 30, 1997, the Company released an offering
memorandum in connection with a new and substantively different offering
contemplated by the Company, of between approximately 330,000 and 1,170,000
shares of preferred stock at $6.00 per share (the "New Offering"). Carlin
was advised by letter of May 2, 1997 that the Company decided not to go
forward with the Proposed Offering and was instead proceeding on its own to
pursue the New Offering.
By letter of May 13, 1997, Carlin advised the Company that Carlin believes
it is entitled to certain compensation and costs if the Company completes
the New Offering. In early July, 1997, Carlin commenced an action in the
United States District Court, Southern District of New York, styled Carlin
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Equities Corp. v. Tamboril Cigar Company, Docket No. 97 Civ. 4988 (the
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"Carlin Action"), for breach of contract seeking compensation for various
fees and commissions, and in lieu of the issuance of warrants to purchase
the Company's stock, with total damages of an unspecified amount but of at
least $1,680,000. The Company has answered, denying Carlin's assertions,
asserting several affirmative defenses and has asserted counterclaims
totaling in excess of $1,000,000. The case has been set for discovery. The
Company believes that Carlin's claims lack merit since the Agreement
terminated before the Company incurred any obligation to Carlin, Carlin
abandoned the Proposed Offering, and Carlin failed to satisfy conditions
precedent to its rights to receive fees and other compensation. The Company
intends to vigorously defend itself against all claims made in the Carlin
Action.
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Item 2. Changes in Securities and Use of Proceeds
(b) On September 22, 1997 the Company entered into the Purchase
Agreement discussed in paragraph (c), below. Pursuant to the Purchase
Agreement, the Company issued 56,000 Series B Shares. The Series B Shares
have a cumulative dividend equal to eight percent of the stated amount
thereof, which is $50 per Series B Share, per annum. Such dividend is prior
to any dividends to be issued with respect to the Common Stock. In addition,
the holders of the Series B Shares have a liquidation preference entitling
them to receive distributions of the proceeds of any liquidation,
dissolution or winding up of the Company up to the stated amount of, plus
any accumulated but unpaid dividends on, the Series B Shares, prior to the
payment of any amounts to the holders of the Common Stock in respect of such
liquidation, dissolution or winding up.
The Purchase Agreement also contains certain restrictive covenants
prohibiting the Company from taking certain actions or entering into certain
transactions without the prior consent of a majority in interest of the
holders of the Series B Shares so long as any Series B Shares are
outstanding. The types of transactions so prohibited include sales of
assets of the Company or mergers, consolidations or similar transactions.
The effect of such provisions may be to prevent the Company from entering
into extraordinary transactions that could otherwise result in the holders
of Common Stock receiving a premium for their shares. Additionally, the
Purchase Agreement restricts the incurrence or repayment of certain debt and
payments to affiliates of the Company without such prior consent of the
holders of the Series B Shares.
(c) RECENT SALES OF UNREGISTERED SECURITIES.
Tamboril Cigar International, Inc., was originally founded under the name
"Conquistador Cigar Company" in the State of Delaware in 1996.
"Conquistador" changed its name to "Tamboril Cigar Company" in June of 1996
and to "Tamboril Cigar International, Inc. ("TCI")" in January of 1997. TCI
is currently the principal U.S.-based operating subsidiary of the Company.
In connection with the founding of the company now known as TCI, 2,600,000
shares of common stock, par value $.0001 per share ("TCI Common Stock") were
issued to its founders in March and April 1996. These founders were Ian
Markofsky (through Viking Investment Group II, Inc.), Abraham Shafir, David
S. Rector, Anthony Markofsky and Thomas E. Knudson. As TCI was then a
start-up company with no assets or business, the shares issued to the
founders were valued at par, or $.0001 per share. Since the founders'
shares were issued pursuant to certain exemptions from registration
contained in Sections 4(2) and 4(6) of the Securities Act, the shares were
"restricted securities" (as defined by the Securities Act) which were issued
with an appropriate restrictive legend.
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From April 15, 1996 through October 23, 1996, in order to raise its initial
working capital to begin its business, TCI conducted an offering under Rule
504 of Regulation D under the Securities Act. In connection with the Rule
504 offering, TCI sold 2,833,338 shares of TCI Common Stock to domestic and
foreign accredited investors at a price of $.35 per share, for proceeds to
TCI of $990,000. TCI also issued 25,000 restricted shares of TCI Common
Stock to its legal counsel in satisfaction of legal fees due and owing in
the amount of $5,000, which valued such shares at $.20 per share. These
25,000 shares were issued in reliance upon the exemption from registration
pursuant to Rule 701 under the Securities Act.
On October 23, 1996, TCI entered into an Acquisition Agreement and Plan of
Reorganization (the "Agreement") with Idaho Leadville Mines Company, a
company organized and existing under the laws of the State of Washington
("Idaho Leadville"). Under the terms of the Agreement, the shareholders of
TCI exchanged each of their shares of TCI Common Stock for one share of
Idaho Leadville's common stock, so that 5,458,338 shares of Idaho Leadville
stock were issued to the shareholders of TCI on a one-share-for-one-share
basis and TCI became a wholly-owned subsidiary of Idaho Leadville.
Therefore, the founders of TCI received 2,600,000 restricted shares of Idaho
Leadville common stock, the purchasers of TCI Common Stock in TCI's offering
under Rule 504 received 2,833,338 unrestricted shares of Idaho Leadville
common stock, legal counsel to TCI received 25,000 restricted shares of
Idaho Leadville common stock and the prior shareholders of Idaho Leadville
retained the 116,972 shares of Idaho Leadville common stock that they held
prior to the Agreement. In connection with the reorganization effected
under the Agreement, Idaho Leadville changed its name to "Tamboril Cigar
Company" and changed its state of incorporation to Delaware.
On September 22, 1997 the Company entered into the Purchase Agreement with
Infinity Emerging Opportunities Limited, Summit Capital Limited and Glacier
Capital Limited (the "Purchasers") and the Registration Rights Agreement
with the Purchasers, Refco Securities, Inc. (the "Placement Agent") and
Brown Simpson, LLC. Pursuant to the Purchase Agreement, the Company issued
$200,000 aggregate face amount of Convertible Debentures, $2,800,000
aggregate stated amount of Series B Preferred Shares and 105,000 Warrants to
the Purchasers. An aggregate of 120,000 Warrants were issued to the
Placement Agent and Brown Simpson. The issuance of the Convertible
Debentures, the Series B Preferred Shares and the Warrants (the "Private
Offering") were exempt from registration pursuant to the exemptions from
registration available under Sections 4(2) and 4(6) of the Securities Act
and Rule 506 of Regulation D thereunder. The Company received gross
proceeds of $3,000,000 and net proceeds (after fees and expenses) of
approximately $2,600,000.
On September 30, 1997, the Company agreed with various lenders to
recapitalize the unpaid principal and interest of loans from such lenders by
issuing shares of its Common Stock and warrants to purchase Common Stock to
such Lenders in full satisfaction of the
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Company's debts. In connection with such recapitalization the Company has
issued 328,584 shares of Common Stock and 328,584 Warrants exercisable for a
period of five years expiring September 30, 2002 at an exercise price of
$5.89 per share. The value per share was determined by reference to the
average per share market value for the five trading days immediately
preceding September 23, 1997 at $4.71 per share and the Warrants were valued
at $1.33 per warrant pursuant to the Black-Scholes Method. Accordingly, one
share of Common Stock and one Warrant were issued for each $6.04 of
outstanding principal and interest on the debt. The Lenders are all
sophisticated, institutional accredited investors and the shares and
warrants are "restricted securities" as defined in Rule 144 under the
Securities Act. The issuance of these Shares and Warrants were made in
reliance upon the exemptions in Sections 4(2) and 4(6) of the Securities Act
and Regulation D thereunder. The Company has agreed to grant certain
"piggyback" registration rights to register the shares of Common Stock
issued to the Lenders and issuable under their Warrants in the first
registration statement filed by the Company other than the Registration
Statement to be filed in respect of the Convertible Debentures, the Series B
Preferred Shares and the Warrants issued under the September 22, 1997
Purchase Agreement.
Item 4. Submission of Matters to a Vote of Security Holders
The Company amended and restated its Certificate of Incorporation on April
30, 1997 to include the authorization of the Board of Directors to authorize
and issue up to an aggregate of five million (5,000,000) shares of one or
more classes or series of preferred stock with the designations, rights,
privileges, conditions, restrictions, powers, preferences and other terms of
any such series or class to be determined by the Board of Directors pursuant
to a duly adopted resolution of the Board. This amendment was authorized by
the shareholders of the Company pursuant to a written consent of
shareholders holding an aggregate number of shares of Common Stock
constituting a majority of the then issued and outstanding Common Stock
pursuant to Section 228 of the Delaware General Corporation Law. Pursuant
to that authorization, the Board of Directors authorized up to 1,500,000
shares of Series A Preferred Stock. Pursuant to further resolution of the
Board, the Series A Preferred Stock was canceled prior to the issuance of
any Series A Shares and the Series B Preferred Shares were authorized.
Item 5. Other Information.
(a) On October 1, 1997, the Company entered into a Cigar Production
Agreement with Hubbard pursuant to which the Company will manufacture the
Hamilton House Selection(TM) brand of cigars for Hubbard through the year
2000, with multiple options for Hubbard to renew thereafter. The Hamilton
House Selection(TM) brand was created by George Hamilton and is distributed
by Hubbard throughout the world. Under the Production Agreement, Tamboril
will produce and deliver a minimum of 800,000
13
<PAGE>
Hamilton House Selection(TM) cigars by the end of 1997, and over 320,000
cigars have already been shipped under the Production Agreement.
Item 6. Exhibits and Reports on Form 8-K
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
2.1 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 Convertible Debenture and Convertible Preferred
Stock Purchase Agreement dated as of September 22,
1997 among Tamboril Cigar Company, Infinity
Emerging Opportunities Limited, Summit Capital
Limited and Glacier Capital Limited, together with
all Schedules and Exhibits thereto (the "Purchase
Agreement").**
4.2 Form of 8% Convertible Debenture**
4.3 Certificate of Designation of the Company's Series
B Preferred Stock**
4.4 Form of Warrant Certificate**
4.5 Registration Rights Agreement dated as of
September 22, 1997 among the Company, the
Purchasers and the Placement Agents**
5 Opinion of Kaplan Gottbetter & Levenson, LLP dated
September 23, 1997**
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
<C> <S>
10.1 Distribution Agreement between the Company and
Hubbard Imports*
10.2 Cigar Production Agreement between the Company and
Hubbard Imports
21 Subsidiaries of the Company*
23.1 Consent of Goldstein Golub Kessler & Co., PC,
independent certified public accounts*
23.2 Consent of Kaplan Gottbetter & Levenson, LLP,
counsel to registrant*
99 Press release dated October 1, 1997**
</TABLE>
* Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB filed with the Commission on May 15, 1997, as amended.
** Incorporated by reference to the Company's Current Report on Form 8-K
filed with the Commission on October 1, 1997.
(b) On September 30, 1997 the Company filed a Current Report on Form 8-K
with respect to the execution of the Purchase Agreement and related
documentation and the issuance of the Convertible Debentures, the Series B
Shares and the Warrants thereunder.
15
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
TAMBORIL CIGAR COMPANY
December 11, 1997 /s/ Anthony Markofsky
---------------------------------
Anthony Markofsky
President and Chief Executive
Officer
December 11, 1997 /s/ Pedro J. Mirones
---------------------------------
Pedro J. Mirones
Vice President, Chief Financial
Officer and Principal Accounting
Officer
16
<PAGE>
TAMBORIL CIGAR COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------- -------------
<S> <C> <C>
ASSETS
Current Assets:
Cash $1,679,664 $ 245,939
Accounts receivable 1,094,132 275,696
Inventory 2,153,680 813,938
Advances to tobacco growers 617,451 181,588
Prepaid expenses and other current assets 43,334 31,419
- -----------------------------------------------------------------------------------------
Total Current Assets 5,588,261 1,548,580
- -----------------------------------------------------------------------------------------
Property and equipment 828,570 359,798
Deferred debt issue costs 395,157 -
Other assets 181,225 103,550
- -----------------------------------------------------------------------------------------
Total Assets $6,993,213 $2,011,928
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 422,087 122,308
Accrued expenses and other current liabilities 435,442 65,658
Due to related party - 133,779
- -----------------------------------------------------------------------------------------
Total Current Liabilities 857,529 321,745
- -----------------------------------------------------------------------------------------
Notes Payable - 250,000
Notes Payable Stockholders - 725,000
Debentures 200,000
- -----------------------------------------------------------------------------------------
Total Liabilities 1,057,529 1,296,745
- -----------------------------------------------------------------------------------------
Stockholders' Equity:
Series B Convertible preferred stock-$0.0001 par value;
$50.00 stated value; authorized 116,000 shares, issued
56,000 shares 6 -
Common stock--$.0001 par value; authorized 20,000,000
shares, issued 5,903,894 in 1997 and 5,575,310 in 1996 590 557
Additional paid-in capital 5,720,895 936,253
Retained earnings (Deficit) 214,193 (221,627)
- -----------------------------------------------------------------------------------------
Stockholders' Equity 5,935,684 715,183
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $6,993,213 $2,011,928
=========================================================================================
</TABLE>
The accompanying notes to the financial statements are an integral part of these
statements.
17
<PAGE>
EXHIBIT 10.2
CIGAR PRODUCTION AGREEMENT
--------------------------
THIS AGREEMENT, made this ____ day of ______, 1997 by and between TAMBORIL
CIGAR COMPANY, a Delaware corporation with its principal offices at 2600 S.W.
Third Avenue, Miami, FL 33129 ("Tamboril"); and HUBBARD IMPORTS, a Florida
general partnership with its principal offices at 1600 N.W. 163rd Street, Miami,
FL 33169-3562 ("Hubbard").
W I T N E S S E T H :
WHEREAS, Tamboril is in the business of manufacturing, producing, and
selling premium hand-rolled cigars;
WHEREAS, Hubbard is in the business of distributing cigars throughout the
United States;
WHEREAS, the parties entered into a Cigar Distribution Agreement between
Tamboril Cigar Company and Hubbard Imports, dated July 1, 1997 which is
incorporated herein by reference (the "Distribution Agreement");
WHEREAS, Hubbard desires to create, produce, manufacture and sell a line of
premium hand-rolled cigars under the HAMILTON brand name; and
WHEREAS, Hubbard desires to engage Tamboril, and Tamboril desires to be
engaged, to manufacture cigars sold under the HAMILTON brand name by Hubbard.
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
conditions contained herein, and for such other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
1. AGREEMENT TO MANUFACTURE CIGARS: Subject to the terms and conditions
-------------------------------
contained in this Agreement, Hubbard hereby engages Tamboril, and Tamboril
accepts said engagement, to be Hubbard's non-exclusive manufacturer of cigars to
be sold under the HAMILTON brand name by Hubbard. The HAMILTON cigars shall
consist of a blend of tobaccos comprising the binder and filler and a wrapper as
has already been established and agreed upon by the parties and is evidenced by
the approximately 100,000 cigars already shipped to Hubbard by Tamboril, subject
to modification from time to time by mutual agreement between the parties (the
"Hamilton Blend"). Tamboril agrees that it will not use or sell the Hamilton
Blend under any other brand or line of cigars, unless for Hubbard
<PAGE>
and Hubbard's specific request. In this regard, in the event Tamboril has in its
inventory any cigars using the Hubbard Blend after the expiration or termination
of this Agreement, Tamboril agrees to destroy said inventory.
2. QUANTITY OF CIGARS TO BE MANUFACTURED BY TAMBORIL AND PURCHASED BY
------------------------------------------------------------------
HUBBARD:
- -------
(a) Tamboril agrees to manufacture at least Eight Hundred Thousand
(800,000) cigars pursuant to the Delivery Schedule which is annexed hereto as
Schedule A and made a part hereof, which shall provide for delivery by Tamboril
and purchase by Hubbard of all said cigars on or before December 31, 1997
(the "Minimum") giving credit for the approximately 100,000 HAMILTON cigars
already shipped to Hubbard; provided however, that Tamboril shall use its best
efforts (without any guarantee) to produce One Million (1,000,000) cigars for
sale pursuant to this Agreement.
(b) Subject to the terms and conditions of this Agreement, Hubbard hereby
agrees and guarantees that pursuant to the terms of this Agreement it will
purchase at least Eight Hundred Thousand (800,000) on or before December 31,
1997 pursuant to the Delivery Schedule which is annexed hereto as Schedule A and
made a part hereof (subject to Paragraph 13(c) with regard to said dates only)
in accordance with the Delivery Schedule annexed as Schedule A. In the event
Hubbard fails to purchase the Minimum amount of cigars by December 31, 1997, or
any Subsequent Minimum (as defined below) and date agreed upon pursuant to the
terms of Paragraph 2(c), Hubbard shall , within ten (10) days following the
applicable date, either (i) purchase and pay for that quantity of cigars equal
to the difference between actual purchases through the relevant date and the
Subsequent Minimum, or (ii) pay to Tamboril the Profit that Tamboril would have
earned on the purchase by Hubbard of the Minimum or Subsequent Minimum. For
purposes of the preceding sentence, Profit shall be defined as thirty percent
(30%) of the average invoice price for HUBBARD cigars purchased hereunder during
the preceding six (6) month period, or entire period said period is less than
six (6) months. The Distribution Agreement is hereby incorporated into this
Agreement by reference.
(c) On or before January 1 of each year during the term of this Agreement,
and any renewals or extensions hereof, the parties shall consult with each other
and mutually agree upon a gross production for that calendar year (the
"Subsequent Minimums"). The dates (and not the quantities) are subject to the
provisions of Paragraph 13(c) below. The parties shall agree upon said quantity
by January 30 of each year. In the event the parties are unable to reach an
agreement within said period, either party shall have the right to terminate
this Agreement on thirty (30) days written notice to the
2
<PAGE>
other.
(d) In order to effectuate the manufacture and sale of cigars under the
terms of this Agreement, Hubbard shall deliver purchase orders to Tamboril for
the quantities, reasonable shipping dates, and specifications desired. The
parties shall agree, in advance of any purchase orders, upon a delivery schedule
for each order of cigars. In the event Tamboril fails to deliver cigars
according to the agreed upon delivery schedule and does not cure the late
shipment within seven (7) days of notice by Hubbard, Hubbard shall have the
right to reject any delinquently shipped orders and those rejected orders shall
be credited towards Hubbard's Minimum or Subsequent Minimum hereunder. In the
event Tamboril causes five (5) or more uncured defaults as defined in this
paragraph 2(d) to occur in any six (6) month period, Hubbard shall have the
right to terminate this Agreement on thirty (30) days written notice to
Tamboril.
3. PURCHASE PRICES FOR CIGARS AND PAYMENT:
--------------------------------------
(a) The purchase prices for the cigars Hubbard purchases under the terms
of this Agreement are set forth in Schedule B annexed hereto and made part
hereof. All cigars shall be purchased F.O.B. Miami, Florida. These prices
shall remain current for the first twelve (12) month period of the term of this
Agreement, provided, however, that Tamboril reserves the exclusive right to
change these prices, and any subsequently agreed upon prices, without notice in
the event their costs of raw materials, labor, or manufacturing costs increase
or decrease more than ten percent (10%) (a "Material Change") (in the event of a
decrease, Tamboril shall have the obligation to decrease the purchase price).
Within ten (10) business days of a Material Change, Tamboril shall provide
written notice of same with the details of said change to Hubbard and the
purchase price to Hubbard shall be modified accordingly. In the event Hubbard
has already received a purchase order from one or more of its customers during
such ten (10) day period, and Hubbard is not already in possession of inventory
of Hubbard cigars to fill said order, the prices for those particular cigars
shall be unaffected by the Material Change. Upon request from Hubbard, Tamboril
agrees to provide reasonable documentation to permit Hubbard to verify the
increase in said costs to Tamboril.
(b) Tamboril will invoice Hubbard for all purchases of cigars made
hereunder. Invoices for any particular order will not be issued until cigars for
that order have been shipped by Tamboril. Payment for said invoices shall be due
thirty (30) days from the later of (i) the receipt of the cigars shipped
pursuant to a particular purchase order; or (ii) the receipt of the invoice.
3
<PAGE>
4. PRODUCTION SCHEDULE: Upon complete execution of this Agreement,
-------------------
Tamboril shall, to the extent not already done, provide Hubbard with Tamboril's
current sales information, quantities and types for at least the twelve (12)
month period preceding the date of this Agreement. In addition, Tamboril shall
provide Hubbard with a manufacturing schedule Tamboril reasonably expects to
conform with for Tamboril's manufacturing over the period through December 31,
1997 so that Hubbard may plan for its distribution schedule. Tamboril makes no
warranties or representations with regard to its sales information (except that
it accurately reflects sales for the period covered) or its manufacturing
schedule (except that it reasonably expects to follow that schedule).
5. QUALITY STANDARDS: All cigars produced for Hubbard under this
-----------------
Agreement shall be produced, labeled and packaged in conformity with all laws
and regulations applicable for use in the United States of America.
6. DEFECTIVE PRODUCTS: All products hereunder shall be sold to Hubbard
------------------
F.O.B. Miami, Florida. Any products which are returned by customers of Hubbard
due to defects or damage arising from the manufacture or delivery of the cigars
up to the F.O.B. point in Miami shall be returnable to Tamboril in exchange for
a refund of the purchase price as set forth above to be taken as a credit on
Tamboril's next invoice to Hubbard. In the event there are no further invoices
to Tamboril as a result of the termination or expiration of this Agreement
Tamboril shall remit payment to Hubbard of the amount due to be refunded within
ten business days of such termination or expiration. Any returns for defects or
damage arising from the storage, handling, delivery or other act/omission after
the F.O.B. point in Miami shall be borne exclusively by Hubbard.
Notwithstanding anything herein to the contrary, no refunds/credits will be due
Hubbard on any products more than sixty (60) days following delivery of said
products to the F.O.B. point.
7. PACKAGING: All cigars manufactured for Hubbard hereunder shall be
---------
packaged in standard cigar packaging/boxes according to specifications provided
to and agreed upon by the parties in advance of any production.
8. This paragraph intentionally deleted.
9. WARRANTIES AND REPRESENTATIONS:
------------------------------
(a) BY HUBBARD: Hubbard represents and warrants that:
----------
(i) it is a partnership authorized to conduct its business and own
its assets as contemplated in
4
<PAGE>
this Agreement and the Distribution Agreement;
(ii) it is either the owner or has full right, license and
authority to use the HAMILTON name, likeness (i.e. George
Hamilton), photograph, image and trademarks/service marks,
including but not limited to those marks set forth in Schedule C
hereto and those which are added thereto from time to time, in
connection with the manufacture, production, sale, distribution,
marketing, promotion and advertising of cigars and cigar related
accessories, as is contemplated in this Agreement; and
(iii) it shall market, sell, promote and advertise the sale of the
HAMILTON cigars in accordance with all applicable federal, state
and local laws, rules and regulations.
(b) BY TAMBORIL: Tamboril represents and warrants that:
-----------
(i) it is a corporation duly organized and validly existing, and
that it is authorized and empowered to conduct its business and own
its assets as contemplated in this Agreement and the Distribution
Agreement;
(ii) it will not seek to register in any country whatsoever, or
oppose Hubbard's registration or use of the HAMILTON
trademarks/service marks; and
(iii) the cigars produced for Hubbard hereunder shall be free from
material defect (subject to paragraph 6 above) and shall be
manufactured in compliance with all laws and regulations applicable
within the United States (up through the F.O.B. point).
(iv) it shall not sell or distribute cigars bearing the Hamilton
name to any other third person, firm or entity under any type of
arrangement other than to Hubbard hereunder.
5
<PAGE>
10. INDEMNIFICATION: Each party hereby indemnifies and holds harmless the
---------------
other, its officers, directors, employees, agents and attorneys, from and
against any and all loss, liability, damage and expense (including reasonable
attorney's fees) arising from the breach of any its warranties or
representations contained above.
11. INSURANCE: Tamboril shall procure and maintain for the term of this
---------
Agreement product liability insurance in the minimum amounts of
$1,000,000/$3,000,000 providing coverage for death or personal injury as a
result of the defective production of the cigars sold hereunder. Said policy
shall name Hubbard as an additional insured, for a broad form vendors
endorsement, and shall provide that the policy cannot be canceled or modified
without providing thirty (30) days written notice to Hubbard. Upon request,
Tamboril shall provide Hubbard with a copy of the declaration page of said
policy.
12. TERM: Subject to the terms and conditions set forth in this Agreement,
----
the term of this Agreement shall commence on June 30, 1997 and shall endure
until December 31, 2000. In addition, but subject to meeting all terms and
conditions hereof, including but not limited to meeting minimum performance and
purchase requirements as set forth in paragraph 2 hereof, Hubbard shall have
three (3) additional three (3) year options to renew this Agreement. The
options to renew shall only be exercisable if: (a) Hubbard shall have meet the
minimum purchase requirements as set forth in paragraph 2 hereof and for all
subsequent years during the term hereof; (b) Hubbard shall give Tamboril not
less than ninety days written notice of its intention to exercise its option;
and (c) any option after the first option shall be contingent upon the
satisfaction of subsections (a) and (b) above, and the previous option having
been exercised.
13. TERMINATION. This Agreement may be terminated in the following
-----------
circumstances:
(a) if either party files, 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 for the benefit of
creditors, or a receiver or similar person should be appointed ("bankrupt
event") then the other party may terminate this Agreement by notice in
writing, in the event such bankrupt event is not terminated within twenty
(20) days; or
(b) in the event that force majeure as defined in Section 14 hereof, shall
prevent one party from fulfilling its obligations for
6
<PAGE>
a period in excess of 180 days, the other party hereto may terminate this
Agreement immediately by notice in writing.
(c) in the event that Hubbard fails to meet its minimum purchase
requirements as set forth in paragraph 2 hereof, Tamboril shall the right,
but not the obligation, to terminate this Agreement upon fifteen (15) days
prior written notice to Hubbard. Notwithstanding the preceding to the
contrary, Hubbard shall have the right, but not the obligation, to cure the
failure to meet the Minimum or Subsequent Minimums by up to 10% (solely
for the purposes of this paragraph and the dates set forth in Paragraph
2(b)) by purchasing the amount of the shortfall in January of the following
calendar year and having said purchases applied toward the Minimum or
Subsequent Minimum, as applicable, of the preceding year, but not towards
the Subsequent Minimum for the then current year.
(d) in the event Hubbard is unable to obtain and continue in force at
usual and customary rates then in effect for similar business, insurance
insuring against products liability resulting from the cigars sold by
Hubbard hereunder, Hubbard shall have the right, by giving Tamboril fifteen
days' written notice to cancel this Agreement, effective that the date the
products liability insurance and/or general liability insurance is no
longer able to be obtained at said rate.
(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 a valid cause for the termination of this Agreement prior to
the expiration of its term, including but not limited to, the payments of
Tamboril's invoices hereunder.
14. TAXES, DUTIES, ETC.: Hubbard shall bear and pay any and all customs,
-------------------
duties, excise taxes or other charges or taxes for the importation of the
products manufactured hereunder.
15. 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 either party's control, including, but not limited to,
disputes with workmen,
7
<PAGE>
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, blockages, 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
brand 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 and eighty (180) days, the aggrieved party may terminate this
Agreement on notice to the other party.
16. REPRESENTATION: It is expressly agreed and understood that neither
--------------
party hereto is the agent or legal representative of the other and neither party
has the authority, express or implied to bind the other or pledge its credit.
This Agreement does not create a partnership or joint venture between the two
parties.
17. NOTICES: All notices, whenever required in this Agreement, will be in
-------
writing and sent by certified mail, return receipt requested, or by overnight
courier service where verification of delivery is available and simultaneously
by facsimile to the following addresses, or such other address as either party
may furnish the other in writing:
If to Hubbard:
Hubbard Imports
c/o Wayne Chaplin
16295 N.W. 16 Court
Miami, FL 33169
Fax No.
--------------
8
<PAGE>
With a copy to:
Robert Breier, Esq.
Breier and Seif, P.A.
1320 South Dixie Highway, Suite 830
Coral Gables, FL 33146.
Fax No. 305-667-3071
If to Tamboril:
Tamboril Cigar Company
Attn: Anthony Markofsky
2600 S.W. Third Avenue
Miami, FL 33129
Fax No. 305-860-0752
With a copy to:
Steven M. Kaplan, Esq.
Kaplan Gottbetter & Levenson, LLP
630 Third Avenue
New York, NY 10017
Fax No. 212-983-9210
Notices will be deemed to have been given one business day following the mailing
and facsimile transmission of said notice.
18. CONTROLLING LAW: This Agreement shall be construed in accordance with
---------------
the laws of the State of Florida, United States of America and jurisdiction over
the parties and subject matter over any controversy arising hereunder shall be
in the Courts of the State of Florida, County of Dade or the Federal courts
therein. Both parties hereby irrevocably consent to said jurisdiction and
venue.
19. ASSIGNMENT:
----------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns, but
neither this Agreement, nor any of the rights, interests or obligations
hereunder shall be assigned by either party without the prior written consent of
the other party, and any attempts to do so without the consent of the other
party shall be void and of no effect; provided however that Hubbard shall have
the right to assign or transfer this Agreement to an entity at least as credit-
worthy as Hubbard (as determined by Tamboril), and which includes as a majority
owner one or more of the current partners of Hubbard as of the
9
<PAGE>
date of this Agreement. Notwithstanding anything to the contrary, Tamboril shall
have the right to assign its rights to receive payments hereunder; provided
however that advance written notice be given to Hubbard and that any of Hubbards
rights to a set off of any amounts due hereunder shall be unaffected thereby.
20. ENTIRE AGREEMENT:
----------------
This writing and the Distribution Agreement constitute the entire agreement
and understanding between the parties with respect to the subject matter herein.
Any and all other agreements concerning the subject matter herein are hereby
canceled and superseded by this Agreement. No other oral or written agreements
or representations exist or are being relied upon by either party. Any
modifications or additions hereto must be made in writing and signed by both
parties.
21. MISCELLANEOUS:
-------------
(a) The paragraph headings used herein are for reference purposes only and
do not effect the meaning or interpretation of this Agreement. If any
provisions of this Agreement are for any reason declared to be invalid or
illegal, the remaining provisions shall not be affected thereby.
(b) The failure of either party to enforce any or all of its rights
hereunder as they accrue shall not be deemed a waiver of those rights, all of
which are expressly reserved.
(c) This Agreement may be executed in more than one counterpart, all of
which shall be deemed to be originals.
(d) If a petition in bankruptcy is filed by or against either party, or
either party becomes insolvent, or makes an assignment for the benefit of
creditors, or any other arrangement pursuant to any bankruptcy law, or if either
party discontinues its business or if a receiver is appointed for either party's
business, to the fullest extent permitted by law at the time of the occurrence,
this Agreement shall automatically terminate without any notice whatsoever being
necessary.
REMAINDER OF THIS PAGE BLANK; SIGNATURE PAGE FOLLOWS
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
eleven (11) pages as of the date first written above.
TAMBORIL CIGAR COMPANY HUBBARD IMPORTS
By: By:
--------------------------- ---------------------------
Title: Title:
------------------------ ------------------------
11
<PAGE>
SCHEDULE A
TAMBORIL CIGAR COMPANY
DELIVERY SCHEDULE
# OF CIGARS DATE TO BE PURCHASED/SHIPPED BY
- ----------- -------------------------------
12
<PAGE>
SCHEDULE B
PRICING FOR HAMILTON BRAND
<TABLE>
<CAPTION>
BRAND DESCRIPTION SIZE SINGLE PACK BASE PURCHASE PRICE PURCHASE PRICE
BASE PRICE PRICE INCLUDING INCLUDING 898
PER CIGAR IMPORT DUTIES BOX *
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
*As requested by George Hamilton
13
<PAGE>
SCHEDULE C
To be prepared and incorporated into this agreement by reference at a future
date by the parties.
14
