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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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's sales force currently consists of five sales personnel
who call directly on premium retail tobacco shops. The Company believes that
this personal service is necessary to ensure that the Company is responsive to
the needs of its retailers, especially in the first few years of these
relationships. As brand awareness and demand for the Company's products grow,
it will seek to aggressively increase the number of retailers to whom it sells.
The Company also plans to pursue opportunities for appropriate private label and
licensing arrangements.
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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.
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.
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
The Company has 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. While loss of this one
customer would be significant, the Company believes that many other potential
customers exist for its cigars.
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/
brand name constituted 100% of the Company's sales for the period ended December
31, 1996.
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. 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 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.
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 partial year results reflected in the
financial statements for the period from April 15, 1996 through December 31,
1996. 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 amounted to $573,687 or 40.58% of
sales, leaving gross profits of $840,128, or 59.42%. 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, will
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.
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Selling, general and administrative expenses totaled $1,034,386, or
73.16% of sales, representing the costs of establishing the Company
infrastructure. These levels should decline substantially 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.
The Company's loss from operations 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. The Company has incurred additional debt of approximately
$1,700,000 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 loss of $221,627, the Company believes
it can attain profitability on a quarterly basis within calendar 1997 though
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
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 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 has incurred additional debt of approximately $1,700,000
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 triple 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
- ----------------------------------------------------------------------------------------
" Viking Investment Group II, Inc. 1,500,000 shares 26.90%
630 Third Ave.
New York, NY 10017 Direct
- ----------------------------------------------------------------------------------------
</TABLE>
The Company has not contacted stock brokerage firms holding shares of
the Company's Common Stock in "street name" to determine whether there are
additional substantial shareholders of the Company.
(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:
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
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
- -----------------------------------------------------------------------------------------
" Grant M. Harasyn -0- N/A
Senior Vice President and
Secretary
c/o Tamboril Cigar Company
2600 S.W. 3rd Ave.
Miami., FL 33129
- -----------------------------------------------------------------------------------------
" 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.
GRANT M. HARASYN, 37, SENIOR VICE PRESIDENT AND SECRETARY.
Mr. Harasyn joined the Company in his current position in December,
1996. From 1994 until February of 1996, Mr. Harasyn was Vice President and
General Manager of ConAgra Refrigerated Foods, a large manufacturer of processed
food products. From 1980 to 1994, Mr. Harasyn held various sales management
positions with Kraft- General Foods, rising to Director of Business Development.
Mr. Harasyn has also served since 1995 as President of H&K Corporation of
Northwest Arkansas, a holding company with interests in the cigar and luxury
goods industries including two retail cigar tobacconists, a private cigar club
and a wine making and home brewing store. Mr. Harasyn and his wife own 90% of
the equity interests in H&K.
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
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. 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 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. Grant M. Harasyn, Senior Vice President of the
Issuer, joined the Issuer in December 1996. His annual compensation level for
the year to end December 31, 1997 is expected to be $170,000, comprised of
$90,000 in salary and $80,000 in automobile allowances, health insurance
premiums and a housing allowance. Mr. Harasyn received $3,750 in salary in the
year ended December 31, 1996.
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) Approximately $21,000 (or 1.5%) of the Company's $1,413,815 of
sales in the period from April 1 to December 31, 1996 were made to Stogie's Fine
Cigars. Stogie's, which operates two retail cigar stores, is 90% owned by Grant
M. Harasyn, who in December 1996 became the Company's Vice President of Sales
and Marketing.
(c) The Company has obtained loans totaling $725,000 from certain
shareholders of the Company to help finance its operations to date. These loans
were entered into at various times in 1996, have a maturity of two years, 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>
(d) 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.
(e) 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.
(f) 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. 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 Quarter 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
- ---------------------------------------------------------------------
</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 RESTRICTED 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 December 31, 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 shares were issued in reliance
upon the exemption from registration under Rule 506 under Regulation D 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 and 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.
(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 [Leases for Miami and/or DR]*
21 List of Subsidiaries of the Registrant
</TABLE>
- ---------------
* To be filed by amendment.
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: May 15, 1997 By /s/ Anthony Markofsky
-------------------------------------------
Anthony Markofsky
President and Chief Executive Officer
Date: May 15, 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
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 (Note 1) $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)
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 (275,696)
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
====================================================================
F-9
</TABLE>
<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 $55,000 for which the
Company recorded a full valuation allowance due to uncertainty
of future realization of such losses.
</TABLE>
F-10
<PAGE>
EXHIBIT 2
ACQUISITION AGREEMENT AND
PLAN OF REORGANIZATION
THIS ACQUISITION AGREEMENT AND PLAN OF REORGANIZATION, (hereinafter
referred to as the "Agreement") is made and entered into this 23rd day of
October, 1996 by and between IDAHO LEADVILLE MINES COMPANY, a Washington
corporation (hereinafter referred to as "Idaho") and TAMBORIL CIGAR COMPANY, a
Delaware corporation (hereinafter referred to as "Tamboril").
RECITALS
WHEREAS, Idaho desires to acquire all of the issued and outstanding
shares of Tamboril voting capital stock in exchange for 5,281,671 shares of
authorized but previously unissued Idaho voting common stock, par value One
Hundredth of a Cent ($.0001) per share (post-split as per Section 1.4 below),
and pursuant to the terms and conditions set forth herein and as a tax free
exchange pursuant to Section 351 of the Internal Revenue Code ("IRC");
WHEREAS, the shareholders of Tamboril desire to exchange all of their
shares of Tamboril capital stock for shares of Idaho common stock in the
respective amounts set forth herein and as a tax free exchange pursuant to
Section 351 of the IRC;
WHEREAS, the parties hereto desire to reorganize pursuant to Section
368(a)(1)(B) of the IRC, the management and operations of Idaho, to change the
corporation name to "TAMBORIL CIGAR COMPANY" and to change the principal place
of business of the corporation.
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties and covenants herein contained, the parties hereby
agree as follows:
ARTICLE I
SECTION 1.1 Acquisition and Plan of Reorganization. The parties
--------------------------------------
agree that Idaho shall acquire all of the issued and outstanding shares of
Tamboril capital stock, in exchange for Five Million Two Hundred Eighty-One
Thousand Six Hundred Seventy-One (5,281,671) shares of authorized but previously
unissued Idaho common stock par value $.0001 per share (post-split as per
Section 1.4 below). It is also agreed to by the parties hereto that by
acquiring all of the shares of Tamboril capital stock, Idaho will acquire all
rights, title and interest to all assets and property presently owned by
Tamboril. Said assets and property may be subject to certain interest, liens
and/or encumbrances. The parties hereto hereby further agree that (i) at the
<PAGE>
Closing, hereinafter defined, Tamboril shall become a wholly-owned subsidiary of
Idaho subject to the conditions and provisions of Section 1.5 hereof; (ii) as
promptly as practicable after the effectiveness of the Closing, Idaho's
corporate name shall be changed to "TAMBORIL CIGAR COMPANY"; (iii) as promptly
as practicable after the Closing, the necessary steps shall be taken in order to
reflect the relocation of Idaho's principal place of business to Miami Florida;
and (iv) the management and operations of Idaho will be reorganized to become
engaged in the current business endeavors of Tamboril.
SECTION 1.2 Issuance of Shares.
------------------
(a) Upon the Closing of this Agreement, Idaho shall cause to be issued
and delivered to the shareholders of Tamboril or their designees, stock
certificates representing an aggregate of 5,281,671 shares (the "Idaho Shares")
of Idaho voting common stock (post-split as per Section 1.4 below).
(b) The Idaho Shares to be issued hereunder shall be authorized but
previously unissued shares of Idaho common stock, and shall be issued to those
persons and in the respective amounts set forth in Exhibit 1.2 annexed hereto
and by this reference made a part hereof.
(c) Of the Idaho Shares to be issued hereunder, 2,600,000 shares are
deemed "restricted securities" as defined by Rule 144 of the Securities Act of
1933, as amended (the "Securities Act"), and the recipients shall represent that
they are acquiring the Idaho Shares for investment purposes only and without the
intent to make a further distribution of the Idaho Shares. 2,606,671 of the
Idaho Shares to be issued hereunder will be issued pursuant to Rule 504 and
25,000 shares will be issued pursuant to Rule 701 of the Securities Act. An
additional 50,000 shares (post-split) of Idaho restricted stock will be issued
to the shareholders of Idaho that owned Shares prior to the Closing of this
Agreement. All Idaho Shares to be issued under the terms of this Agreement
shall be issued pursuant to an exemption from the registration requirements of
the Securities Act, under Section 4(2) of the Securities Act and the rules and
regulations promulgated thereunder. Certificates representing the restricted
Idaho Shares to be issued hereunder shall bear the following, or similar legend:
The shares represented by this certificate have not be registered
under the Securities Act of 1933, as amended, and may not be offered
for sale, sold or otherwise transferred except in compliance with the
registration provisions of such Act or pursuant to an exemption from
such registration provisions, the availability of which is to be
established to the satisfaction of the Company.
SECTION 1.3 Closing. The closing of this Agreement and the transactions
-------
contemplated hereby (the "Closing") shall take place on the 23rd day of October,
1996 (the
2
<PAGE>
"Closing Date"), at a time and place to be mutually agreed upon by the parties
hereto, and shall be subject to the provisions of Article X of this Agreement.
At the Closing:
(a) Tamboril shall deliver to Idaho all stock certificates representing
100% of the issued and outstanding shares of Tamboril capital stock, so as to
make Idaho the sole holder thereof, free and clear of all claims and
encumbrances;
(b) Idaho shall deliver to those persons list in Exhibit 1.2 stock
certificates representing an aggregate of 5,281,671 shares of Idaho common stock
of which certificates representing 2,600,000 shares shall bear a standard
restrictive legend in the form customarily used with restricted securities and
as set forth in Section 1.2(c) above;
(c) Idaho shall deliver an Officer's Certificate as described in Sections
9.1 and 9.2 hereof, dated the Closing Date, that all representations,
warranties, covenants and conditions set forth herein by Idaho are true and
correct as of, or have been fully performed and complied with by, the Closing
Date; and
(d) Tamboril shall deliver an Officer's Certificate as described in Section
8.1 and 8.2 hereof, dated the Closing Date, that all representations,
warranties, covenants and conditions set forth herein by Tamboril are true and
correct as of, or have been, or will be fully performed and complied with within
three (3) business days after the Closing Date;
SECTION 1.4 Idaho Special Meeting of Shareholders. In anticipation of
-------------------------------------
this Agreement and prior to the Closing, Idaho shall have taken all necessary
and requisite action to call for a Special Meeting of Shareholders to be held on
or before October 23, 1996, in order to transact the following business;
(a) To ratify this Agreement and all transactions contemplated hereby;
(b) To amend the Articles of Incorporation to change the corporate name to
"TAMBORIL CIGAR COMPANY";
(c) To ratify the proposal whereby the current issued and outstanding
shares of Idaho common stock will be reverse split on a one (1) share for twenty
(20) shares basis and the par value of the common stock changed from $.001 per
share to $.0001 per share;
(d) To ratify the proposal to cancel 85% of the common stock held by
shareholders of the Idaho before the Closing who vote in favor of the proposal
to acquire Tamboril described above;
(e) To accept the resignation of the current directors of the Idaho and to
nominate and elect a new Board of Directors consisting of the following four
nominees: Abraham Shafir, Thomas Knudson, Anthony Markofsky, and David Rector;
3
<PAGE>
(f) To amend the Articles of Incorporation to change the authorized
capitalization of the Idaho to 20,000,000 shares of common stock, par value
$.0001 per share;
(g) To amend the Articles of Incorporation to change the State of
incorporation of the Idaho from Washington to Delaware; however, if such action
will in any way adversely affect Idaho's status as a public company, as
determined by legal counsel, then such amendment shall not be made;
(h) To ratify the proposal to sell the mining claims held by the Idaho to
another entity to be formed by W. Mac Roberts and controlled by Mr. Roberts in
exchange for stock in that new entity and $50,000,00.
(i) To ratify the proposal to raise the money required to effectuate the
acquisition described above through a private placement of the Idaho's common
stock, par value $.0001 per share ("Common Stock").
(j) To adopt restated Articles of Incorporation to reflect those amendments
set forth above to change the fiscal year of Idaho to end on December 31 instead
of October 31 and to make all other necessary and appropriate changes related
thereto.
SECTION 1.5 Consummation of Transaction. If at the Closing, no condition
---------------------------
exists which would permit any of the parties to terminate this Agreement, or a
condition then exists and the party entitled to terminate because of that
condition elects not to do so, then the transactions herein contemplated shall
be consummated upon such date, and then and thereupon, Idaho shall file any
additional necessary documents that may be required by the State of Washington.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
IDAHO LEADVILLE MINES COMPANY
Idaho hereby represents, warrants and agrees that:
SECTION 2.1 Organization of Idaho. Idaho is a corporation duly organized,
----------------------
validly existing and in good standing under the laws of the State of Washington,
is duly qualified and in good standing as a foreign corporation in every
jurisdiction in which such qualification is necessary, and has the corporate
power and authority to own its properties and assets and to transact the
business in which it is engaged. There are no corporations or other entities
with respect to which (i) Idaho owns any of the outstanding stock or other
interests, or (ii) Idaho may be deemed to be in control because of factors or
relationships other than the quantity of stock or other interests owned. Idaho
has all requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. This
4
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Agreement is the legal, valid and binding obligation of Idaho, enforceable
against Idaho in accordance with its respective terms except to the extent that
such enforcement may be limited by applicable bankruptcy, insolvency and other
similar laws affecting creditors' rights generally.
SECTION 2.2 Capitalization of Idaho. The authorized capital stock of
-----------------------
Idaho consists of 10,000,000 share of common stock, par value $.001 per share,
of which 3,024,329 shares (pre-split) are presently issued and outstanding.
Immediately following the proposed one share for twenty shares reverse stock
split, there will be outstanding, prior to taking into consideration any
rounding of fractional shares, approximately 151,216 shares of common stock, par
value $.0001 per share, immediately prior to the issuance of the Idaho Shares as
contemplated herein. All shares of Idaho common stock currently issued and
outstanding have been duly authorized and validly issued and are fully paid and
non-assessable, and have been issued in compliance with any and all applicable
federal and state laws or pursuant to appropriate exemptions therefrom. There
are no options, warrants, rights, calls, commitments or agreements of any
character obligating Idaho to issue any shares of its capital stock or any
security representing the right to purchase or otherwise receive any such stock.
Shares of Idaho common stock to be issued pursuant to this Agreement, when so
issued, will be duly authorized, validly issued, fully paid and non-assessable.
SECTION 2.3 Character Documents. Certified copies of the Idaho Articles
-------------------
of Incorporation and By-Laws, as amended to date, are annexed hereto as Exhibit
2.3 and by this reference made a part hereof.
SECTION 2.4 Corporate Documents. The Idaho shareholders' list and
-------------------
corporate minute books are complete and accurate as of the date hereof and the
corporate minute books contain the recorded minutes of all corporate meeting of
shareholders and directors.
SECTION 2.5 Financial Statements. Idaho's financial statements for the
--------------------
fiscal years ended October 31, 1995, 1994 and 1993, and for the eleven month
period ending October 21, 1996, copies of which are annexed hereto as Exhibit
2.5 and by this reference made a part hereof, are true and complete in all
material respects, having been prepared in accordance with generally accepted
accounting principles applied on a consistent basis for the period covered by
such statements, and fairly present, in accordance with generally accepted
accounting principles, the financing condition of Idaho, and results of its
operations for the periods covered thereby. Except as otherwise disclosed to
Tamboril in writing and as set forth herein, there has been no material adverse
change in the business operations, assets, properties, prospects or condition
(financial or otherwise) of Idaho taken as a whole from that reflected in the
financial statements referred to in this Section 2.5.
SECTION 2.6 Absence of Certain Changes or Events. Since the date of the
------------------------------------
latest Idaho financial statement attached hereto as Exhibit 2.5 and except as
disclosed otherwise herein, Idaho has not (i) issued or sold any promissory
note, stock, bond, option or other corporate security of which it was an issuer
or other obligor, (ii) discharged or satisfied any lien or
5
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encumbrance or paid any obligation or liability, absolute or contingent, direct
or indirect, (iii) incurred or suffered to be incurred any liability or
obligation whatsoever, (iv) cause or permitted any lien, encumbrance or security
interest to be created or arise on or in any of its properties or assets, (v)
declared or made any dividend, payment or distribution to stockholders or
purchased or redeemed or agreed to purchase or redeem any shares of its capital
stock, (vi) reclassified its shares of capital stock, or (vii) entered into any
agreement or transaction except in connection with the execution and performance
of this Agreement.
SECTION 2.7 Assets and Liabilities. Idaho has good and marketable title
----------------------
to all of its assets and property, free and clear of any and all liens, claims
and encumbrances. As of the date hereof, Idaho does not have any debts,
liabilities or obligations of any nature, whether accrued, absolute, contingent,
or otherwise, whether due or to become due, that are not fully reflected in the
Idaho financial statements.
SECTION 2.8 Tax Returns and Payments. All of Idaho's tax returns
------------------------
(federal, state, city, county or foreign) which are required by law to be filed
on or before the date of this Agreement, have been duly filed or extended with
the appropriate governmental authority. Idaho has paid all taxes to be due on
said returns, any assessments made against Idaho and all other taxes, fees and
similar charges imposed on Idaho by any governmental authority (other than
those, the amount or validity of which is being contested in good faith by
appropriate proceedings). No tax liens have been filed and no claims are being
assessed with respect to any such taxes, fees or other similar charges.
SECTION 2.9 Contracts. Idaho is not a party to or bound by any contract
---------
or commitment, including guaranty whether written or oral, except as otherwise
disclosed in Exhibit 2.9.
SECTION 2.10 Required Authorizations. There have been or will be timely
-----------------------
filed, given, obtained or taken, all applications, notices, consents, approvals,
orders, registrations, qualifications waivers or other actions of any kind
required by virtue of execution and delivery of this Agreement by Idaho or the
consummation by it of the transactions contemplated hereby. Prior to the
Closing, the shareholders of Idaho shall have approved this Agreement and the
transactions contemplated hereunder and appropriate corporate filings shall have
been made with the State of Washington.
SECTION 2.11 Compliance with Law and Government Regulations. Idaho is in
----------------------------------------------
compliance with and is not in violation of, applicable federal, state, local or
foreign statutes, laws and regulations (including without limitation, any
applicable building, zoning or other law, ordinance or regulation) affecting its
properties or the operation of its business. Idaho is not subject to any order,
decree, judgment or other sanction of any court, administrative agency or other
tribunal.
6
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SECTION 2.12 Litigation. There is no litigation, arbitration,
----------
proceeding or investigation pending or threatened to which Idaho is a party or
which may result in any material change in the business of condition, financial
or otherwise, of Idaho or in any of its properties or assets, or which might
result in any liability on the part of Idaho, or which questions the validity of
this Agreement or of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement, and to the best knowledge of
Idaho, there is no basis for any such litigation, arbitration, proceeding or
investigation.
SECTION 2.13 Trade Names and Rights. Idaho does not use any trade mark,
----------------------
service mark, trade name, or copyright in its business, nor does it own any
trade marks, trade mark registrations or application, trade name, service marks,
copyrights, copyright registrations or application. No person owns any trade
mark, trade mark registration or application, service mark, trade name,
copyright or copyright registration or application, the use of which is
necessary or contemplated in connection with the operation of Idaho's business.
SECTION 2.14 Governmental Consent. No consent, approval, authorization or
--------------------
order of, or registration, qualification, designation, declaration or filing
with, any governmental authority on the party of Idaho is required in connection
with the execution and delivery of this Agreement or the carrying out of any
transactions contemplated hereby with the exception of the necessary corporate
filings with the State of Washington relating to the amendment of the Articles
of Incorporation and the proposed exchange of shares.
SECTION 2.15 Authority. Idaho and its shareholders will, prior to the
---------
Closing, approve this Agreement and the transactions contemplated hereby and
will duly authorize the execution and delivery hereof. Idaho has full power,
authority and legal right to enter into this Agreement and to consummate the
transactions contemplated hereby, and all corporate action necessary to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby has been duly and validly taken. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and compliance by Idaho with the provisions hereof will not
(a) conflict with or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Idaho
under, any of the terms, conditions or provisions of the Articles of
Incorporation or By-Laws of Idaho, or any note, bond, mortgage, indenture,
license, lease, agreement or any instrument or obligation to which Idaho is a
party or by which it is bound; or (b) violate any order, writ injunction,
decree, statute, rule or regulation applicable to Idaho or any of its properties
or assets.
SECTION 2.16 Full Disclosure. None of the representations and warranties
---------------
made by Idaho herein, or in any exhibit, certificate or memorandum furnished or
to be furnished by Idaho, on its behalf pursuant hereto, contains or will
contain any untrue statement of material fact, or omits any material fact, the
omission of which would be misleading.
7
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ARTICLE III
COVENANTS OF IDAHO LEADVILLE MINES COMPANY
SECTION 3.1 Conduct Prior to the Closing. Between the date hereof and the
----------------------------
Closing:
(a) Idaho will not enter into any material agreement, contract or
commitment, whether written or oral, or engage in any transaction, without the
prior written consent of Tamboril;
(b) Idaho will not declare any dividends or distributions with respect to
its capital stock or amend its Articles of Incorporation or By-Laws, without the
prior written consent of Tamboril;
(c) Idaho will not authorize, issue, sell, purchase or redeem any shares
of its capital stock or any options or other rights to acquire it capital stock,
without the prior written consent of Tamboril;
(d) Idaho will comply with all requirements which federal or state law may
impose on it with respect to this Agreement and the transactions contemplated
hereby, and will promptly cooperate with and furnish written information to
Tamboril in connection with any such requirements imposed upon the parties
hereto in connection therewith;
(e) Idaho will not incur any indebtedness for money borrowed, or issue or
sell any debt securities, incur or suffer to be incurred any liability or
obligation of any nature whatsoever, or cause or permit any lien, encumbrance or
security interest to be created or arise on or in any of its properties or
assets, acquire or dispose of fixed assets change employment terms, enter into
any material or long-term contract, guarantee obligations of any third party,
settle or discharge any balance sheet receivable for less than its stated amount
or enter into any other transaction other than in the regular course of
business, except to comply with the terms of this Agreement, without the prior
written consent of Tamboril.
(f) Idaho shall grant to Tamboril and its counsel, accountants and other
representatives, full access during normal business hours during the period to
the Closing to all of its respective properties, books, contracts, commitments
and records and, during such period, furnish promptly to Tamboril and such
representatives all information relating to Idaho as Tamboril may reasonably
request, and shall extend to Tamboril the opportunity to meet with Idaho's
accountants and attorneys to discuss the financial condition of Idaho; and
8
<PAGE>
(g) Except for the transactions contemplated by this Agreement, Idaho will
conduct its business in the normal course, and shall not sell, pledge or assign
any of its assets without the prior written consent of Tamboril.
SECTION 3.2 Affirmative Covenants. Prior to Closing, Idaho will do the
---------------------
following:
(a) Use its best efforts to accomplish all actions necessary to consummate
this Agreement, including satisfaction of all conditions contained in this
Agreement;
(b) Promptly notify Tamboril in writing of any material adverse change in
the financial condition, business, operations or key personnel of Idaho, any
threatened material litigation or investigation, any breach of its
representations or warranties contained herein, and any material contract,
agreement, license or other agreement which, if in effect on the date of this
Agreement, should have been included in this Agreement or in an exhibit annexed
hereto and made a part hereof;
(c) Obtain approval of this Agreement from its shareholders;
(d) Nominate at the Idaho Special Meeting of Shareholders a new Board of
Directors, nominees to be Abraham Shafir, Thomas Knudson, Anthony Markofsky, and
David Rector;
(e) Reserve, and promptly after the Closing, issue and deliver to Tamboril
or its designees the number of shares of Idaho common stock required hereunder;
(f) Take the necessary corporate action to amend its Articles of
Incorporation to change its name to "TAMBORIL CIGAR COMPANY";
(g) Take all other necessary corporate actions to accomplish those items
set forth in Section 1.4 hereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
TAMBORIL CIGAR COMPANY
Tamboril hereby represents, warrants and agrees that:
SECTION 4.1 Organization of Tamboril. Tamboril is a corporation duly
------------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, is duly qualified and in good standing in every jurisdiction in which
such qualifications is necessary. There are no corporations or other entities
with respect to which (i) Tamboril owns any of the outstanding stock or other
interests, or (ii) Tamboril may be deemed to be in control because of factors or
9
<PAGE>
relationships other than the quantity of stock or other interests owned in such
entity except as otherwise disclosed in Exhibit 4.1 annexed hereto and by this
reference made a part hereof. Tamboril has all requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby.
SECTION 4.2 Charter Documents. Complete and correct copies of the
------------------
Articles of Incorporation and By-Laws of Tamboril and all amendments thereto,
have been or will be delivered to Idaho prior to the Closing capitalization of
Tamboril.
SECTION 4.3 Financial Statements, Assets and Liabilities. Tamboril's
--------------------------------------------
financial statements for the period ended September 30, 1996, a copy of which is
annexed hereto as Exhibit 4.3 and by this reference made a part hereof, are true
and complete in all material respects, having been prepared in accordance with
generally accepted accounting principles applied on a consistent basis for the
periods covered by such statements, and fairly present, in accordance with
generally accepted accounting principles, the financing condition of Tamboril,
and results of its operations for the periods covered thereby. Tamboril has good
and marketable title to all of its assets and property to be delivered to Idaho
hereunder ( by way of tendering all of its outstanding shares of common stock of
Idaho), free and clear of any and all liens, claims and encumbrances, except as
may be otherwise set forth herein and in its financial statements.
SECTION 4.4 Tax Returns and Payments. All of Tamboril's tax returns
------------------------
(federal, state, city, county or foreign) which are required by law to be filed
on or before the date of this Agreement, have been duly filed or extended with
the appropriate governmental authority. Tamboril has paid all taxes to be due on
said returns, any assessments made against Tamboril and all other taxes, fees
and similar charges imposed on Tamboril by any governmental authority (other
than those, the amount or validity of which is being contested in good faith by
appropriate proceedings). No tax liens have been filed and no claims are being
assessed with respect to any such taxes, fees or other similar charges.
SECTION 4.5 Required Authorizations. There have been or will be timely
-----------------------
filed, given, obtained or taken, all applications, notices, consents, approvals,
orders, registrations, qualifications waivers or other actions of any kind
required by virtue of execution and delivery of this Agreement by Tamboril or
the consummation by it of the transactions contemplated hereby.
SECTION 4.6 Compliance with Law and Government Regulations. Tamboril is
----------------------------------------------
in compliance with all applicable statutes, regulations, decrees, orders,
restrictions, guidelines and standard affecting its properties and operations,
imposed by the United States of America or any state to which Tamboril is
subject.
SECTION 4.7 Litigation. There is no litigation, arbitration, proceeding
----------
or investigation pending or threatened to which Tamboril is a party or which may
result in any material change in the business of condition, financial or
otherwise, of Tamboril or in any of its properties or assets, or which might
result in any liability on the part of Tamboril, or which
10
<PAGE>
questions the validity of this Agreement or of any action taken or to be taken
pursuant to or in connection with the provisions of this Agreement, and to the
best knowledge of Tamboril, there is no basis for any such litigation,
arbitration, proceeding or investigation.
SECTION 4.8 Patents, Trade Names and Rights. Exhibit 4.8 annexed hereto
-------------------------------
and by this reference is made a part hereof, contains a complete list of all
patents, trademarks, service marks, trade marks, service mark, trademark and
service mark registrations, applications and licenses with respect the forgoing
owned or held by Tamboril. Tamboril has no knowledge of any facts and nothing
has come to its attention that would lead it to believe that it has infringed or
misappropriated or is infringing upon any trademark, copyright, patent or other
similar right of any person. No claim relating thereto is pending or to the
knowledge of Tamboril is threatened.
SECTION 4.9 Governmental Consent. No consent, approval, authorization or
--------------------
order of, or registration, qualification, designation, declaration or filing
with, any governmental authority on the part of Tamboril is required in
connection with the execution and delivery of this Agreement or the carrying out
of any transactions contemplated
SECTION 4.10 Authority. Tamboril and its shareholders representing no less
---------
than one hundred percent (100%) of the issued and outstanding shares of Tamboril
capital stock of record, have approved this Agreement and duly authorized the
execution hereof. Tamboril has full power, authority and legal right to enter
into this Agreement on behalf of Tamboril and its shareholders and to consummate
the transactions contemplated hereby, and all corporate action necessary to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby has been duly and validly taken. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and compliance by Tamboril with the provisions hereof will
not (a) conflict with or result in a breach of any provisions of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of Tamboril
under, any of the terms, conditions or provisions of the Articles of
Incorporation or By-Laws of Tamboril, or any note, bond, mortgage, indenture,
license, agreement or any instrument or obligation to which Tamboril is a party
or by which it is bound; or (b) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to Tamboril or any of its properties or
assets.
SECTION 4.11 Ownership of Shares. Tamboril has received representations
-------------------
from its shareholders that the holders of 100% of the Tamboril capital stock
currently issued and outstanding and which stock is to be transferred to Idaho
under this Agreement, have full power and authority transfer such shares of
Tamboril capital stock to Idaho hereunder, and that such shares are free and
clear of any liens, charges, mortgages, pledges or encumbrances and that such
shares are not subject to any claims as to the ownership thereof, or any rights,
powers or interest therein, by any third party.
11
<PAGE>
SECTION 4.12 Investment Purpose. Tamboril has received representations
------------------
from its shareholders that the recipients of the restricted Idaho Shares
hereunder are acquiring the shares for investment purposes only and acknowledges
that the Idaho Shares issued hereunder are "restricted securities" and may not
be sold, traded or otherwise transferred without registration under the
Securities Act or exemption therefrom.
SECTION 4.13 Full Disclosure. None of the representations and warranties
---------------
made by Tamboril herein, or in any exhibit, certificate or memorandum furnished
or to be furnished by, on its behalf pursuant hereto, contains or will contain
any untrue statement of material fact, or omits any material fact, the omission
of which would be misleading.
ARTICLE V
COVENANTS OF TAMBORIL CIGAR COMPANY
SECTION 5.1 Conduct Prior to the Closing. Between the date hereof and the
----------------------------
Closing:
(a) Except within the regular course of business, Tamboril will not enter
into any material agreement, contract or commitment, whether written or oral, or
engage in any transaction, without the prior written consent of Idaho;
(b) Tamboril will not declare any dividends or distributions with respect
to its capital stock or amend its Articles of Incorporation or By-Laws, without
the prior written consent of Idaho;
(c) Except within the regular course of business, Tamboril will not
incur any indebtedness for money borrowed or issue any debt securities, or incur
or suffer to be incurred any liability or obligation of any nature whatsoever,
or cause or permit any lien, encumbrance or security interest to be created or
arise on or in any of its properties or assets, without the prior written
consent of Idaho;
(d) Tamboril will comply with all requirements which federal or state law
may impose on it with respect to this Agreement and the transactions
contemplated hereby, and will promptly cooperate with and furnish written
information to Tamboril in connection with any such requirements imposed upon
the parties hereto in connection therewith;
(e) Tamboril shall grant to Idaho and its counsel, accountants and other
representatives, full access during normal business hours during the period to
the Closing to all its respective properties, books, contracts, commitments and
records and, during such period, furnish promptly to Idaho and such
representatives all information relating to Tamboril as Idaho
12
<PAGE>
may reasonably request, and shall extend to Idaho the opportunity to meet with
Tamboril's accountants and attorneys to discuss the financial condition of
Tamboril.
SECTION 5.2 Affirmative Covenants. Prior to Closing, Tamboril will do the
---------------------
following:
(a) Obtain the approval of its Board of Directors and shareholders to
proceed with this Agreement;
(b) Use its best efforts to accomplish all actions necessary to consummate
this Agreement, including satisfaction of all conditions contained in this
Agreement; and
(c) Promptly notify Idaho in writing of any material adverse change in the
financial condition, business, operations or key personnel of Tamboril, any
threatened material litigation or investigation, any breach of its
representations or warranties contained herein, and any material contract,
agreement, license or other agreement which, if in effect on the date of this
Agreement, should have been included in this Agreement.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Expenses. Whether or not the transactions contemplated in
--------
this Agreement are consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense or as otherwise agreed to herein.
SECTION 6.2. Brokers and Finders. Each of the parties hereto represents,
-------------------
as to itself, that no agent, broker, investment banker or firm or person is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement.
SECTION 6.3 Necessary Actions. Subject to the terms and conditions herein
-----------------
provided, each of the parties hereto agree to use all reasonable efforts to
take, or cause to be taken, all action, and to do or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In the event at any time after the Closing, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and/or
directors of Idaho or Tamboril, as the case may be, shall take all such
necessary action.
13
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SECTION 6.4 Indemnification.
---------------
(a) Tamboril agrees to defend and hold Idaho harmless against and in
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and reasonable attorney fees, that Idaho shall incur or suffer, which arise out
of, result form or relate to any material breach of, or failure by Tamboril to
perform any of its representations, warranties, covenants and agreements in this
Agreement or in any exhibit or other instrument furnished or to be furnished by
Tamboril under this Agreement.
(b) Idaho agrees to defend and hold Tamboril harmless against and in
respect of any and all claims, demands, losses, costs, expenses, obligations,
liabilities, damages, recoveries and deficiencies, including interest, penalties
and reasonable attorney fees, that Idaho shall incur or suffer, which arise out
of, result form or relate to any material breach of, or failure by Idaho to
perform any of its representations, warranties, covenants and agreements in this
Agreement or in any exhibit or other instrument furnished or to be furnished by
Idaho under this Agreement.
SECTION 6.5 Confidentiality. All parties hereto agree to keep
---------------
confidential this Agreement and all information and documents relating to this
Agreement until such time as the Agreement and the transactions contemplated
hereunder are made public by means of an appropriate press release or by any
other means reasonably assured to make such information publicly available.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
The obligations of the parties under this Agreement are subject to the
fulfillment and satisfaction of each of the following conditions:
SECTION 7.1 Legal Action. No preliminary or permanent injunction or other
------------
order by any federal or state court which prevents the consummation of this
Agreement or any of the transactions contemplated by this Agreement shall have
been issued and remain in effect.
SECTION 7.2 Absence of Termination. The obligations to consummate the
----------------------
transactions contemplated hereby shall not have been canceled pursuant to
Article X hereof.
SECTION 7.3 Required Approvals. Idaho and Tamboril shall have received all
------------------
such approvals, consents, authorizations or modifications as may be required to
permit the performance by Idaho and Tamboril of the respective obligations under
this Agreement, and the consummation of the transactions herein contemplated,
whether from governmental authorities or other persons, and Idaho and Tamboril
shall each have received any and all permits and
14
<PAGE>
approvals from any regulatory authority having jurisdiction required for the
lawful consummation of this Agreement.
SECTION 7.4 "Blue Sky" Compliance. There shall have been obtained any and
---------------------
all permits, approvals and consents of the appropriate state securities
commissions of any jurisdictions, and of any other governmental body or agency,
which counsel for Idaho may reasonably deem necessary or appropriate so that
consummation of the transactions contemplated by this Agreement may be in
compliance with all applicable laws.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF IDAHO
All obligations of Idaho under this Agreement are subject to the
fulfillment and satisfaction by Tamboril prior to or at the time of Closing, of
each of the following conditions, any one or more of which may be waived by
Idaho.
SECTION 8.1 Representations and Warranties True at Closing. All
----------------------------------------------
representations and warranties of Tamboril contained in this Agreement will be
true and correct at and as of the time of the Closing, and Tamboril shall have
delivered to Idaho certificates, dated the date of the Closing, to such effect
and in the form and substance satisfactory to Idaho, and signed, in the case of
Tamboril, by its president and secretary.
SECTION 8.2 Performance. The obligations of Tamboril to be performed on
------------
or before the Closing pursuant to the terms of this Agreement shall be duly
performed within three (3) business days after the Closing, and Tamboril shall
have delivered to Idaho a certificate, dated the date of the Closing, to such
effect and in form and substance satisfactory to Idaho.
SECTION 8.3 Authority. All action required to be taken by, or on the part
---------
of Tamboril and its shareholders to authorize the execution, delivery and
performance of this Agreement by Tamboril and the consummation of the
transactions contemplated hereby, shall have been duly and validly taken.
SECTION 8.4 Absence of Certain Changes or Events. There shall not have
------------------------------------
occurred, since the date hereof, any adverse change in the business, condition
(financial or otherwise), assets or liabilities of Tamboril or any event or
condition of any character adversely affecting Tamboril, and it shall have
delivered to Idaho, certificates, dated the date of the Closing, to such effect
and in form and substance satisfactory to Idaho and signed, in the case of
Tamboril, by its president and secretary.
SECTION 8.5 Acceptance by Tamboril Shareholders. The holders as of the
-----------------------------------
Closing of an aggregate of not less than one hundred percent (100%) of the
issued and outstanding shares
15
<PAGE>
of capital stock of Tamboril have agreed to exchange their shares for the Idaho
Shares specified herein.
ARTICLE IX
CONDITIONS PRECEDENT OF TAMBORIL
All obligations of Tamboril under this Agreement are subject to the
fulfillment and satisfaction by Idaho prior to or at the time of Closing, of
each of the following conditions, any one or more of which may be waived by
Tamboril.
SECTION 9.1 Representations and Warranties True at Closing. All
----------------------------------------------
representations and warranties of Idaho contained in this Agreement will be true
and correct at and as of the time of the Closing, and Idaho shall have delivered
to Tamboril certificates, dated the date of the Closing, to such effect and in
the form and substance satisfactory to Tamboril, and signed, in the case of
Idaho, by its president and secretary.
SECTION 9.2 Performance. The obligations of Idaho to be performed on or
-----------
before the Closing pursuant to the terms of this Agreement shall have been duly
performed at such time, and Idaho shall have delivered to Tamboril a
certificate, dated the date of the Closing, to such effect and in form and
substance satisfactory to Tamboril, and signed in the case of Idaho, by its
president and secretary.
SECTION 9.3 Authority. All action required to be taken by, or on the part
---------
of Idaho and its shareholders to authorize the execution, delivery and
performance of this Agreement by Idaho and the consummation of the transactions
contemplated hereby, shall have been duly and validly taken.
SECTION 9.4 Absence of Certain Changes or Events. There shall not have
------------------------------------
occurred, since the date hereof, any adverse change in the business, condition
(financial or otherwise), assets or liabilities of Idaho or any event or
condition of any character adversely affecting Idaho, and it shall have
delivered to Tamboril, certificates, dated the date of the Closing, to such
effect and in form and substance satisfactory to Tamboril and signed, in the
case of Idaho, by its president and secretary.
SECTION 9.5 Action by Idaho Shareholders. Prior to the Closing of this
----------------------------
Agreement, the shareholders of Idaho shall have approved this Agreement and the
transactions contemplated hereunder, approved the amendments to the Idaho
Articles of Incorporation as set forth in Section 1.4 above, and shall have
elected new directors as specified in Section 1.4(d) above. The current
directors and officers of Idaho shall have submitted their resignations as
directors and officers of Idaho effective on the Closing of this Agreement.
16
<PAGE>
ARTICLE X
TERMINATION
SECTION 10.1 Termination. Notwithstanding anything herein or elsewhere to
-----------
the contrary, this Agreement may be terminated:
(a) By mutual agreement of the parties hereto at any time;
(b) By the Board of Directors of Idaho at any time prior to the Closing,
if:
(i) a condition to performance by Idaho under this Agreement or a
covenant of Tamboril contained herein shall not be fulfilled on or before
the time of the Closing or at such other time and date specified for the
fulfillment for such covenant or condition; or
(ii) a material default or breach of this Agreement shall be made
by Tamboril; or
(iii) if the Closing shall not have taken place on or prior
to October 24, 1996.
(c) By the Board of Directors of Tamboril at any time prior to the Closing,
if:
(i) a condition to Tamboril's performance under this Agreement
or a covenant of Idaho contained herein shall not be fulfilled on or before
the time of the Closing or at such other time and date specified for the
fulfillment for such covenant or condition; or
(ii) a material default or breach of this Agreement shall be made
by Idaho; or
(iii) if the Closing shall not have taken place on or prior
to October 24, 1996.
SECTION 10.2 Effect of Termination. If this Agreement is terminated, this
---------------------
Agreement, except as to Section 11.1 and Section 11.2, shall no longer be of any
force or effect and there shall be no liability on the party of any party or its
respective directors, officers or stockholders; provided however, that in the
case of a termination without cause by a party or a termination pursuant to
Section 10.1 (b)(i) or 10.1(c)(i) hereof because of a prior material default
under or a material breach of this Agreement by another party, the damages which
the aggrieved party or parties may recover from the defaulting party or parties
shall in no event exceed the amount of out-of-pocket costs and expenses incurred
by such aggravated party or parties in
17
<PAGE>
connection with this Agreement, and no party to this Agreement shall be entitled
to any injunctive relief.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Cost and Expenses. All costs and expenses incurred in
-----------------
connection with this Agreement will be paid by the party incurring such
expenses. In the event of any termination of this Agreement pursuant to Section
10.1, subject to the provisions of Section 10.2, Idaho and Tamboril will each
bear their own respective expenses.
SECTION 11.2 Extension of time: Waivers. At any time prior to the Closing
--------------------------
date:
(a) Idaho may (i) extend the time for the performance of any of the
obligations or other acts of Tamboril, (ii) waive any inaccuracies in the
representations and warranties of Tamboril contained herein or in any documents
delivered pursuant hereto by Tamboril and (iii) waive compliance with any of the
agreements or conditions contained herein to be performed by Tamboril. Any
agreement on the party of Idaho to any such extension or waiver shall be valid
only if set forth in an instrument, in writing, signed on behalf of Idaho.
(b) Tamboril may (i) extend the time for the performance of any of the
obligations or other acts of Idaho, (ii) waive any inaccuracies in the
representations and warranties of Idaho contained herein or in any documents
delivered pursuant hereto by Idaho and (iii) waive compliance with any of the
agreements or conditions contained herein to be performed by Idaho. Any
agreement on the party of Tamboril to any such extension or waiver shall be
valid only if set forth in an instrument, in writing, signed on behalf of
Tamboril.
SECTION 11.3 Notices. Any notice to any party hereto pursuant to this
-------
Agreement shall be in writing and given by Certified or Registered Mail or by
facsimile, addressed as follows:
IDAHO LEADVILLE MINES CO.
P.O. Box 8542
Spokane, WA 98203
TAMBORIL CIGAR COMPANY
c/o Kaplan & Gottbetter
630 Third Avenue
New York, NY 10017
18
<PAGE>
Additional notices are to be given as to each party, at such other address
as should be designated in writing complying as to delivery with the terms of
this Section 11.3. All such notices shall be effective when sent, addressed as
aforesaid.
SECTION 11.4 Parties in Interest. This Agreement shall inure to the
-------------------
benefit of and be binding upon the parties hereto and the respective successors
and assigns. Nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person any rights or remedies under or by reason of
this Agreement.
SECTION 11.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original and together shall
constitute one documents. The delivery by facsimile of an executed counterpart
of this Agreement shall be deemed to be an original and shall have the full
force and effect of an original executed copy.
SECTION 11.6 Severability. The parties hereto agree and affirm that none
------------
of the provisions herein is dependent upon the validity of any other provision,
and if any part of this Agreement is deemed to be unenforceable, the remainder
of the Agreement shall remain in full force and effect.
SECTION 11.7 Headings. The "Article" and "Section" headings are provided
--------
herein for convenience of reference only and do not constitute a part of this
Agreement.
SECTION 11.8 Survival of Representations and Warranties. All terms,
------------------------------------------
conditions, representations and warranties set forth in this Agreement or in any
instrument, certificate, opinion, or other writing providing for in it, shall
survive the Closing and the delivery of the Idaho Shares issued hereunder at the
Closing, for a period of one year from the Closing regardless of any
investigation made by or on behalf of any of the parties hereto.
SECTION 11.9 Assignability. This Agreement shall not be assigned by any of
-------------
the parties hereto without the prior written consent of the other parties.
SECTION 11.10 Amendment. This Agreement may be amended with the approval
---------
of the Boards of Directors of Idaho and Tamboril at any time before or after
approval thereof by stockholders of Idaho, if required, and Tamboril; but after
such approval by the Idaho shareholders, no amendment shall be made which
substantially and adversely changes the terms hereof. This Agreement may not be
amended except by an instrument, in writing, signed on behalf of each of the
parties hereto.
19
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in a manner legally binding upon them as of the date first above
written.
IDAHO LEADVILLE MINES COMPANY
By: /s/ W. Mac Roberts Attest: /s/ Jean G. McCarthy
--------------------------- --------------------------
Its: President Secretary
TAMBORIL CIGAR COMPANY
By: /s/ Abraham Shafir Attest: /s/ David S. Rector
--------------------------- --------------------------
Its: President Secretary
20
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TAMBORIL CIGAR COMPANY
---------------------------
The undersigned, Grant M. Harasyn, under penalty of perjury, hereby
certifies that:
1. I am the duly elected Secretary of Tamboril Cigar Company (hereinafter
referred to as the "Corporation);
2. The Certificate of Incorporation of the Corporation was duly filed with
the Secretary of State of the State of Delaware on January 9, 1997 and has not
been amended or revoked since that date; and
3. Following is a correct and complete copy of the Amended and Restated
Certificate of Incorporation of the Corporation, which was duly adopted in
accordance with Section 245 of Chapter 1, Title 8 of the Delaware Code and the
acts amendatory thereof and supplemental thereto (hereinafter referred to as the
"General Corporation Law of the State of Delaware"):
---------------------------
FIRST: The name of the corporation (hereinafter called the "Corporation")
-----
is:
Tamboril Cigar Company
SECOND: The address, including street, number, city, and county, of the
------
registered office of the Corporation in the State of Delaware is 9 East
Loockerman Street, City of Dover 19901, County of Kent; and the name of the
registered agent of the Corporation in the State of Delaware at such address is
National Corporate Research, Ltd.
THIRD: The nature of the business and the purpose to be conducted and
-----
promoted by the Corporation, which shall be in addition to the authority of the
Corporation to conduct any lawful business, to promote any lawful purpose, and
to engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the Corporation shall
------
have authority to issue is 25,000,000 shares of which 20,000,000 shares are
designated as common stock, par value $.0001 per share and 5,000,000 shares of
which are designated as preferred stock, par value $.0001 per share.
<PAGE>
The Board of Directors of the Corporation is hereby authorized to, by any
resolution or resolutions duly adopted in accordance with the provisions of the
General Corporation Law of the State of Delaware and the By-Laws of the
Corporation, authorize the issuance of any or all of the preferred stock in any
number of classes or series within such classes and in the resolution or
resolutions authorizing such issuance, to set all terms of such preferred stock
of any class or series, including, without limitation:
(a) the designation of such class or series, the number of shares to
constitute such class or series, whether the shares shall be of a stated
par value or no par value, and the stated value thereof if different from
the par value thereof;
(b) whether the shares of such class or series shall have voting rights, in
addition to any voting rights provided by law, and, if so, the term of such
voting rights, which may be general or limited;
(c) the dividends, if any, payable on such class or series, whether any
such dividends shall be cumulative, and, if so, from what dates, the
conditions and dates upon which such dividends shall be payable, and the
preference or relation which such dividends shall bear to the dividends
payable on any shares of stock of any other class or any other class or
series of preferred stock;
(d) whether the shares of such class or series shall be subject to
redemption by the Corporation, and, if so, the times, prices and other
conditions of such redemption;
(e) the amount or amounts payable upon shares of such class or series upon,
and the rights of the holders of such class or series in, the voluntary or
involuntary liquidation, dissolution or winding up, or upon any
distribution of the assets, of the Corporation;
(f) whether the shares of such class or series shall be subject to the
operation of a retirement or sinking fund and, if so, the extent to and
manner in which any such retirement or sinking fund shall be applied to the
purchase or redemption of the shares of such class or series for retirement
or other Corporation purposes and the terms and provisions relating to the
operation thereof;
(g) whether the shares of such class or series shall be convertible into,
or exchangeable for, shares of stock of any other class or any other series
of preferred stock or any other securities and, if so, the price or prices
or the rate or rates of conversion or exchange and the method, if any, of
adjusting the same, and any other terms and conditions of conversion or
exchange;
(h) the conditions or restrictions, if any, upon the creation of
indebtedness of the Corporation or upon the issue of any additional stock,
including additional shares of such class or series or of any other class
or series of Preferred Stock or of any other class; and
(i) any other powers, preferences and relative, participating, options and
other special
<PAGE>
rights, and any qualifications, limitations and restrictions, thereof.
The powers, preferences and relative, participating optional and other
special rights of each class or series of preferred stock, and the
qualifications, limitations or restrictions thereof, if any, may differ from
those of any and all other series at any time outstanding. All shares of any
one series of preferred stock shall be identical in all respects with all other
shares of such series, except that shares of any one series issued at different
times may differ as to the dates from which dividends thereof shall be
cumulative.
FIFTH: The Corporation is to have perpetual existence.
-----
SIXTH: Whenever a compromise or arrangement is proposed between this
-----
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of (S)291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
Corporation under the provisions of (S)279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this Corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
Corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this Corporation, as the case may be, and also on this
Corporation.
SEVENTH: For the management of the business and for the conduct of the
-------
affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management for the business and the conduct of the affairs
of the Corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws.
The phrase "whole Board" and the phrase "total number of directors"
shall be deemed to have the same meaning, to wit, the total number of
directors which the Corporation would have if there were no vacancies.
No election of directors need be by written ballot.
<PAGE>
2. After the original or other Bylaws of the Corporation have
been adopted, amended, or repealed, as the case may be, in accordance
with the provisions of (S)109 of the General Corporation Law of the
State of Delaware, and, after the Corporation has received any payment
for any of its stock, the power to adopt, amend, or repeal the Bylaws
of the Corporation may be exercised by the Board of Directors of the
Corporation; provided, however, that any provision for the
classification of directors of the Corporation for staggered terms
pursuant to the provisions of subsection (d) of (S)141 of the General
Corporation Law of the State of Delaware shall be set forth in an
initial Bylaw or in a Bylaw adopted by the stockholders entitled to
vote of the Corporation unless provisions for such classification
shall be set forth in this certificate of incorporation.
3. Whenever the Corporation shall be authorized to issue only one
class of stock, each outstanding share shall entitle the holder
thereof to notice of, and the right to vote at, any meeting of
stockholders. Whenever the Corporation shall be authorized to issue
more than one class of stock, no outstanding share of any class of
stock which is denied voting power under the provisions of the
certificate of incorporation shall entitle the holder thereof to the
right to vote at any meeting of stockholders except as the provisions
of paragraph (2) of subsection (b) of (S)242 of the General
Corporation Law of the State of Delaware shall otherwise require;
provided, that no share of any such class which is otherwise denied
voting power shall entitle the holder thereof to vote upon the
increase or decrease in the number of authorized shares of said class.
EIGHTH: The personal liability of the directors of the Corporation is
------
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of
(S)102 of the General Corporation Law of the State of Delaware, as the same may
be amended
and supplemented.
NINTH: The Corporation shall, to the fullest extent permitted by the
-----
provisions of (S)145 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockbrokers or disinterested directors or
otherwise both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue
<PAGE>
as to a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such a
person.
TENTH: From time to time any of the provisions of this certificate of
-----
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
certificate of incorporation are granted subject to the provisions of this
Article TENTH.
Signed on April 28, 1997
/s/ Grant M. Harasyn
-------------------------------
2694.1
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
TAMBORIL CIGAR COMPANY
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. -- The registered office shall be
established and maintained at 9 East Loockerman, City of Dover 19901, County of
Kent. The name of the registered agent of the corporation in the State of
Delaware at such address is National Corporate Research, Ltd.
SECTION 2. OTHER OFFICES. -- The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS. -- Annual Meetings of stockholders for
the election of directors and for such other business as may be stated in the
notice of the meeting, shall be held at such place, either within or without the
State of Delaware, and during the month of May of each year, at such time and
date as the Board of Directors, by resolution, shall determine and as set forth
in the notice of the meeting.
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS. -- Meetings of stockholders for any
purpose other than the election of directors may be held at such time and place,
within or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING. -- Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be entitled to one vote, in person or by
proxy, for each share of stock entitled to vote held by such stockholder, but no
proxy shall be voted after three years from its date unless such proxy provides
for a longer period. Upon the demand of any stockholder, the vote for directors
<PAGE>
and the vote upon any question before the meeting, shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be elected by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of the State of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM. -- Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting until the requisite amount of stock entitled to vote
shall be present. At any such adjourned meeting at which the requisite amount of
stock entitled to vote shall be represented, any business may be transacted
which might have been transacted at the meeting as originally noticed; but only
those stockholders entitled to vote at the meeting as originally noticed shall
be entitled to vote at any adjournment or adjournments thereof.
SECTION 5. SPECIAL MEETINGS. -- Special meetings of the stockholders
for any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS. -- Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than
that stated in the notice shall be transacted at any meeting without the
unanimous consent of all the stockholders entitled to vote thereat.
SECTION 7. ACTION WITHOUT MEETING. -- Unless otherwise provided by
the Certificate of Incorporation, any action required to be taken at any annual
or special meeting of stockholders, or any action which may be taken at any
annual or special meeting, may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the
2
<PAGE>
taking of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM. -- The number of directors shall be
seven. The directors shall be elected at the annual meeting of the stockholders
and each director shall be elected to serve until his or her successor shall be
elected and shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS. -- Any director, member of a committee or
other officer may resign at any time. Such resignation shall be made in
writing, and shall take effect at the time specified therein, and if no time be
specified, at the time of its receipt by the President or Secretary. The
acceptance of a resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES. -- If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL. -- Except as hereinafter provided, any director
or directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an election of
the entire Board of Directors, or, if there be classes of directors, at an
election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or
more directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
the class or series and not to the vote of the outstanding shares as a whole.
3
<PAGE>
SECTION 5. INCREASE OF NUMBER. -- The number of directors may be
increased by amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.
SECTION 6. POWERS. -- The Board of Directors shall exercise all of
the powers of the corporation except such as are by law, or by the Certificate
of Incorporation of the corporation or by these By-Laws conferred upon or
reserved to the stockholders.
SECTION 7. COMMITTEES. -- The Board of Directors may, by resolution
or resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
By-Laws of the corporation; and, unless the resolution, these By-Laws or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
SECTION 8. MEETINGS. -- The newly elected directors may hold their
first meeting for the purpose of organization and the transaction of business,
if a quorum be present, immediately after the annual meeting of the
stockholders; or the time and place of such meeting may be fixed by consent in
writing of all the directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall
4
<PAGE>
be held at such place or places as may be determined by the directors, or as
shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM. -- A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
adjourned.
SECTION 10. COMPENSATION. -- Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING. -- Any action required or
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting, if prior to such action a
written consent thereto is signed by all members of the board, or of such
committee, as the case may be, and such written consent is filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS. -- The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualify. In addition, the Board of Directors may elect a Chairman, one or
more Vice Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be
directors. The officers shall be elected at the first meeting of the Board of
Directors after each annual meeting. More than two offices may be held by the
same person.
SECTION 2. OTHER OFFICERS AND AGENTS. -- The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices
5
<PAGE>
for such terms and shall exercise such powers and perform such duties as shall
be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN. -- The Chairman of the Board of Directors, if
elected, shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT. -- The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except
as the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts on behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE PRESIDENT. -- Each Vice President, if elected, shall
have such powers and shall perform such duties as shall be assigned to him by
the directors.
SECTION 6. TREASURER. -- The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY. -- The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these By-Laws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors, or stockholders, upon
whose requisition the meeting is called as provided in these By-Laws. He shall
record all the proceedings of the meetings of the corporation and of the
directors in a book to be kept for that purpose, and shall perform such other
duties as may be assigned to him by the directors or
6
<PAGE>
the President. He shall have custody of the seal of the corporation and shall
affix the same to all instruments requiring it, when authorized by the directors
or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS & ASSISTANT SECRETARIES. -- Assistant
Treasurers, and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK. -- Certificates of stock, signed by
the Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any or all of
the signatures may be facsimiles.
SECTION 2. LOST CERTIFICATES. -- A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES. -- The shares of stock of the
corporation shall be transferable only upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and upon
such transfer the old certificates shall be surrendered to the corporation by
the delivery thereof to the person in charge of the stock and transfer books and
ledgers, or to such other person as the directors may designate, by whom they
shall be cancelled, and new certificates shall thereupon be issued. A record
shall be made of each transfer and whenever a transfer shall be made of
collateral security, and not absolutely, it shall be so expressed in the entry
of the transfer.
SECTION 4. STOCKHOLDERS RECORD DATE. -- In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to
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<PAGE>
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for the adjourned meeting.
SECTION 5. DIVIDENDS. -- Subject to the provisions of the Certificate
of Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
SECTION 6. SEAL. -- The corporate seal shall be circular in form and
shall containing the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR. -- The fiscal year of the corporation shall
be determined by resolution of the Board of Directors.
SECTION 8. CHECKS. -- All checks, drafts or other orders for the
payment of money, notes or other evidences of indebtedness issued in the name of
the corporation shall be signed by such officer or officers, agent or agents of
the corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER NOTICE. -- Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail or with an express
delivery courier, postage prepaid, addressed to the person entitled thereto at
his address as it appears on the records of the corporation, and such notice
shall be deemed to have been given on the day of such mailing. Stockholders not
entitled to vote shall not be entitled to receive notice of any meetings except
as otherwise provided by Statue.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation or the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
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<PAGE>
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Laws to be
made, be contained in the notice of such special meeting.
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<PAGE>
EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS
OF THE SERIES A PREFERRED STOCK
OF
TAMBORIL CIGAR COMPANY
**********
TAMBORIL CIGAR COMPANY, a corporation organized under the General
Corporation Law of the State of Delaware (hereinafter referred to as the
"Corporation") ,
DOES HEREBY CERTIFY:
That, pursuant to authority conferred upon the Board of Directors of the
Corporation pursuant to its Amended and Restated Certificate of Incorporation,
and pursuant to the provisions of Section 151 of Title 8 of the Delaware Code of
1953, said Board of Directors by the unanimous written consent of its members,
which consent has been filed with the minutes of the Board, adopted a resolution
providing for the issuance of a series of One Million Five Hundred Thousand
(1,500,000) shares of Series A Preferred Stock, which resolution is as follows:
<PAGE>
EXHIBIT A TO UNANIMOUS WRITTEN CONSENT
OF THE BOARD OF DIRECTORS OF
TAMBORIL CIGAR COMPANY
TAMBORIL CIGAR COMPANY
DESIGNATION OF SERIES A PREFERRED STOCK
1. Designation and Number of Shares. The series of Preferred Stock designated
--------------------------------
and known as "Series A Preferred Stock" shall consist of 1,500,000 shares.
2. Rank. Shares of the Series A Preferred Stock, par value $.0001 per share,
----
shall, with respect to dividend rights and rights on liquidation, winding up and
dissolution rank senior and prior to the Common Stock, par value $.0001 per
share (the "Common Stock"), of the Corporation.
3. No Voting Rights. Except as may be otherwise provided in this Certificate
-----------------
of Designation of the Series A Preferred Stock or by law, the Series A Preferred
Stock shall NOT be entitled to vote.
4. Dividends.
----------
(a) The holders of the Series A Preferred Stock shall be entitled to
receive, out of any funds legally available therefor, dividends at the annual
rate of four percent (4%) per share, based on the purchase price per share at
which the shares are originally issued by the corporation (the "Issue Price"),
in equal quarterly payments in arrears on March 31, June 30, September 30, and
December 31 in each year (each such date is referred to as a "Dividend Payment
Date") commencing on the first Dividend Payment Date following the date of
issuance of the Series A Preferred Stock (the "Issue Date") and no more,
payable in preference and priority to any payment of any cash dividend on Common
Stock. Such dividends shall be paid to the holders of record at the close of
business on each March 21, June 20, September 20 and December 21 (each, a
"Record Date"). If any Dividend Payment Date or Record Date is not a business
day, the Dividend Payment Date or Record Date, as the case may be, shall be the
next succeeding business day.
(b) Dividends in respect of the Series A Preferred Stock shall be payable
in cash or in shares of Series A Preferred Stock, or any combination of cash and
shares of Series A Preferred Stock, in each case as determined by the Board of
Directors of the Corporation. The number of shares to be so issued to each
shareholder of Series A Preferred Stock in respect of any quarterly dividend
shall be equal to a QUOTIENT arrived at as follows:
Amount of Dividend Payable ($) - Amount of Dividend Paid in Cash($) = Number of
Shares
to be Issued
- -------------------------------------------------------------------
Issue Price
<PAGE>
The issuance of such additional shares shall constitute full payment of such
dividend. Any shares of Series A Preferred Stock issued in respect of
dividends shall have the same rights and preferences, including rights to
dividends, as provided herein. If the Board of Directors of the Corporation
shall determine not to issue fractional shares of Series A Preferred Stock in
respect of such dividends, the unpaid fractional share or shares shall cumulate
as provided in Paragraph 4(c), below. All shares of the Series A Preferred
Stock issued as a dividend on the outstanding shares of the Series A Preferred
Stock will when so issued be duly authorized, validly issued, fully paid and
nonassessable and free of all liens and charges.
(c) Each of such quarterly dividends (whether payable in cash or stock)
shall be fully cumulative and shall accrue, whether or not earned or declared,
without interest, from the first day of the quarter in which such dividend may
be payable as herein provided, except that with respect to the first quarterly
dividend, such dividend shall accrue from the Issue Date.
(d) Each fractional share of the Series A Preferred Stock outstanding
shall be entitled to a ratably proportionate amount of all dividends accruing
with respect to each outstanding share of the Series A Preferred Stock pursuant
to Section 3(a) hereof, and all such dividends with respect to such outstanding
fractional shares shall be fully cumulative and shall accrue, whether or not
earned or declared, without interest, and shall be payable in the same manner
and at such times as provided for in Section 3(a) hereof with respect to
dividends of each outstanding full share of the Series A Preferred Stock.
(e) No dividends shall be declared or paid or set apart for payment on the
Common Stock, or on the preferred stock of any series ranking, as to dividends,
junior to the Series A Preferred Stock (all such classes of securities being
referred to herein as "Junior Securities"), for any period unless full
cumulative dividends have been or contemporaneously are declared and paid (or
declared and a sum sufficient for the payment thereof set apart for such
payment) on the Series A Preferred Stock for all dividend payment periods
terminating on or prior to the date of payment of such full cumulative
dividends. Unless full cumulative dividends on the Series A Preferred Stock
have been paid, no other distribution shall be made upon the Common Stock of the
Corporation or upon any other Junior Securities.
(f) If, prior to any conversion of any share of the Series A Preferred
Stock into shares of Common Stock as provided in Section 6 hereof, the
Corporation shall have cumulative accrued and unpaid dividends from any and/or
all of the Dividend Payment Dates prior to the date of such conversion, the
Corporation shall, at its option, (i) pay to such holder the full amount of any
such dividends in cash, (ii) allow such unpaid and cumulated dividends to be
converted into Common Stock in accordance with, and pursuant to the terms
specified in, Section 6 hereof, or (iii) pay such cumulated dividends in any
combination of cash and conversion into Common Stock as shall be determined by
the Board of Directors.
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<PAGE>
5. Liquidation, Dissolution and Winding-up.
----------------------------------------
(a) Upon any liquidation, dissolution or winding-up of the Corporation,
whether voluntary or involuntary, the holders of the shares of the Series A
Preferred Stock shall be paid a per share amount equal to the Issue Price, plus
an amount in cash equal to all accrued dividends not yet paid thereon up to and
including the date full payment shall be tendered to the holders of the Series A
Preferred Stock with respect to such liquidation, dissolution or winding up
(such amounts being referred to herein as the "Series A Liquidation
Preference"). Except as set forth in the preceding sentence, the holders of
outstanding shares of Series A Preferred Stock shall not be entitled to any
distribution upon the liquidation, dissolution or winding up of the affairs of
the Corporation.
(b) Payment of the Series A Liquidation Preference as set forth in Section
5(a) above shall be made before any payment to the holders of any Junior
Securities. If, upon any liquidation, dissolution or winding up of the
Corporation, the assets to be distributed to the holders of the Series A
Preferred Stock (or the cash proceeds upon liquidation of such assets) shall be
insufficient to permit payment to such shareholders of the full Series A
Liquidation Preference, then all of the assets of the Corporation available for
distribution to holders of the Series A Preferred Stock (or the cash proceeds of
the liquidation of such assets) shall be distributed to such holders of the
Series A Preferred Stock pro rata, so that each holder receives that portion of
the assets available for distribution as is equal to the PRODUCT OF (i) the
total amount of such available assets (or the cash proceeds thereof) ,
MULTIPLIED BY (ii) a fraction the numerator of which is (x) the number of shares
of the Series A Preferred Stock held by such holder, and the denominator of
which is (y) the total number of shares of the Series A Preferred Stock then
outstanding. After the payment of all Series A Liquidation Preference, the
holders of the Series A Preferred Stock shall not be entitled to any further
participation in any distribution of the assets of the Corporation.
(c) Written notice of such liquidation, dissolution or winding up, stating
a payment date and the place where said payments shall be made, shall be given
by mail, postage prepaid, recognized delivery service or facsimile, not less
that 20 days prior to the payment date stated therein, to the holders of record
of the Series A Preferred Stock as of the date set by the Board of Directors as
the Record Date for such distribution, such notice to be addressed to each such
holder at its address as shown on the stock transfer records of the Corporation.
(d) Whenever the distribution provided for in this Section 5 shall be
payable in property other than cash, the value of such distribution shall be the
fair market value of such property as determined in good faith by the Board of
Directors of the Corporation.
(e) The Series A Liquidation Preference with respect to each fractional
share of Series A Preferred Stock, outstanding or accrued but unpaid, shall be
equal to the PRODUCT of (i) the Series A Liquidation Preference attributable to
one full share of Series A Preferred Stock, MULTIPLIED BY (ii) the fraction of
a share represented by such fractional share.
(f) For the purposes of this Section 4, neither the voluntary sale,
conveyance, exchange
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<PAGE>
or transfer (for cash, shares of stock, securities or other consideration) of
all or substantially all of the property or assets of the Corporation nor the
consolidation or merger of the Corporation with one or more other corporations
shall be deemed to be a liquidation, dissolution or winding up, voluntary or
involuntary, unless such voluntary sale, conveyance, exchange or transfer shall
be in connection with a plan of liquidation, dissolution or winding up of the
business of the Corporation.
6. Conversion Rights. The holders of the Series A Preferred Stock shall have
-----------------
the right to convert such shares of Series A Preferred Stock into shares of
Common Stock of the Corporation on the terms, and subject to the conditions, set
forth in this Section 6.
(a) Conversion Ratio; Conversion Price. Each share of the Series A
----------------------------------
Preferred Stock shall be convertible, at the option of the holder thereof, at
any time and from time to time, from and after the date that is one hundred and
eighty (180) days from the Issue Date in respect of such share of Series A
Preferred Stock is issued, into such number of fully paid and nonassessable
shares of Common Stock as is equal to the quotient of (i) the Issue Price, PLUS
the aggregate amount of any accumulated but unpaid dividends, DIVIDED BY (ii)
the Conversion Price (as defined below) in effect at the time of conversion.
The Conversion Price shall be an amount equal to eighty percent (80%) of the
mean average of the closing sale price of a share of the Corporation's Common
Stock for the thirty trading days immediately preceding the Conversion Date. If
the Corporation's Common Stock shall cease to be publicly traded, the Conversion
Price shall be equal to eighty percent (80%) of the fair market value of a share
of the Common Stock, as determined by the Board of Directors.
(b) Fractional Shares. No fractional shares of Common Stock shall be issued
-----------------
upon conversion of the Series A Preferred Stock. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall,
at its option, (i) pay cash equal to such fraction multiplied by the then
effective Conversion Price or (ii) round up the number of shares of Common Stock
to be issued upon conversion to the next highest number of whole shares.
(c) Procedures for Conversion.
--------------------------
(i) In order for a holder of the Series A Preferred Stock to convert
shares of the Series A Preferred Stock into shares of Common Stock, such holder
shall surrender the certificate or certificates evidencing such shares of the
Series A Preferred Stock at the office of the transfer agent for the Series A
Preferred Stock (or at the principal office of the Corporation if the
Corporation serves as its own transfer agent), together with written notice that
such holder elects to convert all or any number of the shares of the Series A
Preferred Stock represented by such certificate or certificates. Such notice
shall state such holder's name or the names of the nominees in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
Certificates surrendered for conversion shall be endorsed or accompanied by a
written instrument or instruments of transfer, in form satisfactory to the
Corporation, duly executed by the registered holder or his or its attorney duly
authorized in writing, together with payment for any applicable transfer taxes.
The date of receipt of such certificates and notice by the transfer agent (or by
the Corporation if the Corporation serves as its own transfer agent) shall be
the conversion date
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<PAGE>
("Conversion Date"). The Corporation shall, as soon as practicable after the
Conversion Date, issue and deliver to such holder of the Series A Preferred
Stock, or to his or its nominees, a certificate or certificates for the number
of shares of Common Stock to which such holder shall be entitled, a nd, if the
Corporation shall have so elected, cash in lieu of any fraction of a share. As
the shares of Series A Preferred Stock shall be "restricted securities" as
defined under Rule 144 promulgated by the Securities and Exchange Commission
under the Securities Act of 1933, as amended, the Corporation may request such
certifications and documentation, including without limitation opinions of
counsel to the holder or the Corporation, that the Corporation deems necessary
to ensure that the issuance of shares of Common Stock to such persons and in
such amounts as is requested by the holder pursuant to such conversion is in
compliance with all applicable securities laws and regulations.
(ii) The Corporation shall, at all times when the Series A Preferred
Stock shall be outstanding, reserve and keep available out of its authorized but
unissued stock, for the purpose of effecting the conversion of the Series A
Preferred Stock, such number of its duly authorized shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding Series A Preferred Stock. Before taking any action which would
cause an adjustment reducing the Conversion Price below the then par value of
the shares of Common Stock issuable upon conversion of the Series A Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and non-assessable shares of Common Stock at such
Conversion Price.
(iii) All shares of Series A Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to receive such shares, including the
rights, if any, to receive dividends or notices and to vote, shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to shares of Common Stock in exchange therefor and payment of any
dividends accrued and unpaid thereon up to and including the Conversion Date.
Any shares of the Series A Preferred Stock so converted shall be retired and
canceled and shall not be reissued, and the Corporation may from time to time
take such appropriate action as may be necessary to reduce the authorized Series
A Preferred Stock accordingly.
(d) Adjustments for Reclassification, Exchange or Substitution. If the
-----------------------------------------------------------
Common Stock issuable upon the conversion of the Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a reorganization, merger, consolidation or sale of assets provided for
below), then and in each such event the holder of each share of Preferred Stock
shall have the right thereafter to convert such share into the kind and amount
of shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change, by holders of the number of
shares of Common Stock into which such shares of Preferred Stock might have been
converted immediately prior to such reorganization, reclassification or change
all subject to further adjustment as provided herein.
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<PAGE>
(e) Adjustment for Merger, Reorganization, etc. In case of any
-------------------------------------------
consolidation or merger of the Corporation with or into another corporation or
the sale of all or substantially all of the assets of the Corporation to another
Corporation (other than a consolidation, merger or sale which is treated as a
liquidation pursuant to Subsection 5(a), each share of the Series A Preferred
Stock shall thereafter be convertible into the kind and amount of shares of
stock or other securities or property to which a holder of the number of shares
of Common Stock of the Corporation deliverable upon conversion of such Series A
Preferred Stock would have been entitled upon such consolidation, merger or
sale; and, in such case, appropriate adjustment (as determined in good faith by
the Board of Directors) shall be made in the application of the provisions in
this Section 6 set forth with respect to the rights and interest thereafter of
the holders of the Series A Preferred Stock, to the end that the provisions set
forth in this Section 6 (including provisions with respect to changes in and
other adjustments of the Conversion Price) shall thereafter be applicable, as
nearly as reasonable may be, in relation to any shares of stock or other
property thereafter deliverable upon the conversion of the Series A Preferred
Stock.
(f) Certificate as to Adjustment. Upon the occurrence of each
----------------------------
adjustment or readjustment of the Conversion Price pursuant to this Section 6,
the Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
the Series A Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of the Series A Preferred Stock, furnish or cause to be
furnished to such holder a similar certificate setting forth (i) such
adjustments and readjustments, (ii) the Conversion Price then in effect, and
(iii) the number of shares of Common Stock and the amount, if any, of other
property which then would be received upon the conversion of the Series A
Preferred Stock.
(g) Notice of Record Date. In the event of (i) any reclassification
---------------------
of the Common Stock of the Corporation (other than a subdivision or combination
of its outstanding shares of Common Stock or a stock dividend or stock
distribution thereon), (ii) any consolidation or merger of the Corporation into
or with another Corporation, or of the sale of all or substantially all of the
assets of the Corporation or (iii) the involuntary or voluntary dissolution,
liquidation or winding up of the Corporation then the Corporation shall cause to
be filed at its principal office or at the office of the transfer agent of the
Series A Preferred Stock, and shall cause to be mailed to the holders of the
Series A Preferred Stock at their last addresses as shown on the stock transfer
records of the Corporation or such transfer agent, at least twenty (20) days
before the date the date on which such reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up is expected to become effective,
and the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sales dissolution or winding up, a notice stating the effective date or exchange
date and giving instructions to the shareholder for the actions, if any, to be
taken by such shareholder in connection with the adjustments occasioned thereby.
7
<PAGE>
7. Redemption.
-----------
(a) From and after the date that is three-hundred-and-sixty-five (365) days
from the Issue Date of any share of Series A Preferred Stock, the Corporation
may, at its option, redeem any or all outstanding shares of Series A Preferred
Stock, to the extent funds are legally available for such redemption. Pursuant
to any such redemption, the Corporation shall pay to the holder of each share of
Series A Preferred Stock so redeemed, the redemption price per share set forth
in the table below (the "Redemption Price"), plus all dividends in respect of
such share of Series A Preferred Stock that have accrued but remain unpaid up to
and including the Redemption Date (as defined below). The Redemption Price per
share of the Series A Preferred Stock shall be equal to:
<TABLE>
<CAPTION>
<S> <C>
From the 1st anniversary of the Issue Date
to the 2nd anniversary of the Issue Date The Issue Price
From the 2nd anniversary to the 3rd
anniversary of the Issue Date 105% of the Issue Price
From the 3rd anniversary to the 4th
anniversary of the Issue Date 110% of the Issue Price
From the 4th anniversary to the 5th
anniversary of the Issue Date 115% of the Issue Price
After the 5th anniversary of the Issue Date 120% of the Issue Price
</TABLE>
If the Corporation elects to redeem some, but not all, of the then
outstanding shares of Series A Preferred Stock, it shall redeem a pro rata
portion of the shares held by each holder and shall determine the number of
shares of each holder to redeem by MULTIPLYING (i) the number of shares of
Series A Preferred Stock held of record by such shareholder BY (ii) a fraction,
the numerator of which is the total number of shares of Series A Preferred Stock
to be redeemed, and the denominator of which is the total number of shares of
Series A Preferred Stock then outstanding.
(b) The Board of Directors of the Corporation may, to the extent funds are
legally available therefor, elect to establish a sinking fund for the
redemption, from time to time, of shares of the Series A Preferred Stock, which
sinking fund may be funded at such times and in such amounts as the Board shall,
in their discretion, determine.
(c) In the event the Corporation elects to redeem any shares of Series A
Preferred Stock in accordance with this Section 7, notice of such redemption
shall be given to all holders of record of
8
<PAGE>
the Series A Preferred Stock by mail, postage prepaid, mailed to the address for
such holder on the stock transfer records of the Corporation not less than
thirty (30) nor more than sixty (60) days prior to the Redemption Date. Such
notice shall include (i) the Redemption Date, (ii) the number of shares of
Series A Preferred Stock to be redeemed in total, and if less than all the then
outstanding shares of Series A Preferred Stock are being redeemed, the number of
shares of such holder that are being redeemed, (iii) the Redemption Price
(together with a calculation of the accrued but unpaid dividends up to and
including the Redemption Date), (iv) the place or places where certificates
evidencing the Series A Preferred Stock are to be surrendered, (v) a statement
that after such Redemption Date, no dividends will accrue in respect of the
Series A Preferred Stock and (vi) a statement that the holder may elect, in lieu
of redemption, to convert his or her shares of Series A Preferred Stock into
shares of Common Stock pursuant to Section 6, above, and instructions for
effecting such conversion if the holder should so elect.
(d) Provided the Corporation shall have complied with the provisions of
this Section 7, from and after the Redemption Date, dividends shall cease to
accrue with respect to the shares of Series A Preferred Stock which have been
called for redemption, such shares shall no longer be deemed outstanding, but
shall be classified as authorized but unissued shares of capital stock of the
Corporation and the holders thereof shall have no rights to vote, share in the
proceeds of any liquidation, dissolution or winding up or otherwise, and their
only rights in respect of such shares shall be the right to receive the
Redemption Price (and accrued but unpaid dividends up to and including the
Redemption Date) in respect of such shares.
(e) If the Corporation is redeeming less than all the shares of Series A
Preferred Stock evidenced by a certificate submitted for redemption, the
Corporation shall issue to the holder of such certificate a substitute
certificate evidencing the number of remaining shares that have not been
redeemed.
8. Amendment of Resolution; Reservation of Powers.
----------------------------------------------
The Board of Directors of the Corporation reserves the right to amend this
resolution from time to time to reduce the number of authorized shares of Series
A Preferred Stock (but not below the number of shares then outstanding) and
otherwise as permitted by law, this Certificate of Designation and the
Certificate of Incorporation of the Corporation; provided, however, that the
-------- -------
Corporation shall not amend the terms of any Series A Preferred Stock
outstanding at any time in any way that materially impacts the rights of the
holders of such Series A Preferred Stock, without obtaining the written consent
of the holders of a majority of the then outstanding shares of Series A
Preferred Stock. Nothing in this Certificate of Designation shall be construed
to limit the authority of the Corporation to issue additional securities
authorized by the Certificate of Incorporation of the Corporation.
[END OF EXHIBIT A]
9
<PAGE>
IN WITNESS WHEREOF, said TAMBORIL CIGAR COMPANY has caused this certificate
to be signed by Anthony Markofsky, its Vice President, and attested by Grant M.
Harasyn, its Secretary, this 28th the Day of April, 1997.
TAMBORIL CIGAR COMPANY
/s/ Anthony Markofsky
By:_________________________
Anthony Markofsky
Vice President
ATTEST:
/s/ Grant M. Harasyn
By:_________________________
Grant M. Harasyn
Secretary
10
<PAGE>
EXHIBIT 21
EXHIBIT 21
LIST OF SUBSIDIARIES
The subsidiaries of the Company are as follows:
<TABLE>
<CAPTION>
NAME STATE OR PLACE OF INCORPORATION
<S> <C>
Tamboril Cigar International, Inc. Delaware
Diversified Tobacco Products, Inc. Delaware
Tabacalera Tamboril, S.A. Dominican Republic
</TABLE>
